Low inflation, declining lending rates at home, falling prices in industrial raw materials and capital goods in the international market do offer an excellent opportunity to invest more in Bangladesh. To tap the opportunity, the government, however, needs to work harder for restoring business confidence, removing red tape, and combating systemic corruption.
Dr KAS Murshid, Director General of the Bangladesh Institute of Development Studies (BIDS), said while talking with the Financial Express on the country's economy and development recently.
He had served the BIDS for many years and took early retirement in 2012 to join an assignment with UNDP in Yangon, Myanmar. DR. Murshid, later, worked in the Finance Ministry in Phnom Penh, Cambodia. He was appointed Director General of BIDS in April, 2015.
The economist identified domestic resource mobilisation and stimulation of private investment as two major challenges in the current fiscal year.
Dr Murshid also pointed out that the impact of the Gulshan cafe carnage on the economy would largely depend on the government's response to situation following the incident.
Dr Murshid, whose academic and research works cover food policy, agricultural markets and value chain finance, rural institutions and human development, said since the resource-base essential for ensuring economic growth in Bangladesh remains narrow greater attention is needed to be given to agriculture and rural development.
Following are the excerpts of the interview:
The Financial Express (FE): How do you evaluate the performance of the economy in fiscal year 2015-16? What were the major achievements and failures in terms of economic management?
Dr KAS Murshid: Everyone has spoken very favourably about Bangladesh's mature handling of its macroeconomic environment which has given us the necessary space to vigorously carry out our economic activities. Our growth rate moved past the psychological 7.0 per cent barrier with inflation and interest rates remaining low. Despite recessionary tendencies in the global economy, export earnings registered near double digit growth and inflow of Foreign Direct Investment (FDI) reached $2 billion. But remittance has been already affected due to low oil prices and a slowdown of the Gulf economies. On top of this, the sluggish trend in investment continues to haunt us.
FE: Why do you think investment is sluggish?
Murshid: Investment trend is sluggish mainly due to uncertainty and lack of confidence among businessmen and entrepreneurs despite an improved political climate and greater stability. If stability is sustained, investment will respond and this will take 6-12 months to be reflected in the data. We have a number of positives on our side: low bank interest rates, low prices of industrial raw materials, intermediate and capital goods and low inflation. This is a great opportunity to undertake technology up-gradation and balancing and modernisation of industrial units. This is an excellent opportunity for investors. However, it is important for the government to do much more to restore confidence and remove red tape and the culture of corruption that is setting us back. We cannot afford this anymore.
FE: You mentioned about higher growth, low inflation and macroeconomic stability. How sustainable are these achievements? Is the distribution of growth balanced?
Murshid: We have managed to grow at a modest pace for over a decade and so sustainability is not the problem. The problem is how to push our growth rates up by a notch or two while at the same time reduce poverty and inequality, and promote human development.
Our sources of growth remain narrow so that is indeed a threat - it is time that we find a way to rapidly diversify both industry and agriculture, and promote a more formal services sector. For example, we need to figure out ways of regenerating agriculture in a situation of stagnant, even declining prices of farm produce. Our equity objectives require increased attention to agriculture and rural development.
FE: What are the main challenges for the current fiscal year? What are the areas that need greater attention?
Murshid: Domestic resource mobilisation is the most difficult economic challenge in the context of ambitious plan targets.
The second challenge is to stimulate private investment. Public investment would also appear to need overhauling - are we using our public resources in the best way possible? There are serious concerns about the quality, cost and rationale of public expenditures. There is a belief that frequently, these are of low value, low quality and mired in inefficiency and corruption. Some high profile projects have become hugely controversial. It is the duty of the government to take notice of such criticisms and offer adequate justifications in a cool, professional manner. The dream of a new Bangladesh requires that we bring discipline to public institutions and public expenditures. We cannot afford a business as usual situation any longer. We need to remember that our people are now better educated and are able to read newspapers and have access to electronic and social media in unprecedented numbers. They have learnt to ask questions. It would be irresponsible on our part to ignore them.
FE: Do you think the latest terrorist incident in Gulshan will cast a shadow on the economy?
Murshid: Much depends on how we manage our response. While the police response so far has been exemplary, the same cannot be said of the accompanying eviction drive carried out by other agencies in prime areas. Legality is always an issue in a country like ours - and it is not merely a question of permissions, licenses and so on. If you want the rule of law to be enforced, let it be done uniformly without fear or favour and across all sectors. What was the rationale for picking this particular sector? And why was the timing considered appropriate. I am afraid I cannot sympathise with acts that appear to be knee-jerk reactions carried out whimsically and with total disregard for basic rights. Now it is perfectly possible that these actions were in fact very carefully thought out and every action was taken keeping in mind the need to be least disruptive. Perhaps - but this was certainly not self-evident. We need to have a better sense of what is right and not. I would like to ask how many government officials whose job it was to ensure that residential areas are not encroached and that illegal businesses are not set up haphazardly everywhere, have lost their jobs or even been reprimanded? Possibly none. Someone should explain why not, if that indeed is the case.
Our response to the crisis should be strong but calm and measured. It should be well thought out and least disruptive. We must not under any circumstances, end up making the common man angry and upset because we need their support. If we are successful in this we will have learnt to carry on our businesses as usual, perhaps around a new normal, fully taking into account and being prepared for any temporary shocks that we may face. Otherwise, we allow ourselves to be routed and we become the victim of our own folly.
FE: On external front, will there be any big blow from Brexit? What are the other external factors or global developments that may affect the economy of Bangladesh?
Murshid: The impact of Brexit will be mostly indirect. We already see that the British economy is reeling in shock. It is likely to affect the EU and especially our main trading partners there, namely Germany and Italy. It is therefore quite likely that there will be some impact on Bangladesh. However, the external situation is always changing and it is difficult to project outcomes. For example, we have just heard the Saudi Arabia has opened up its labour market once again for Bangladeshis. This is a very positive development especially coming in the face of declining remittances reported in recent weeks. However, our dependence on the Middle Eastern markets has left our folks there open to the chaos and turmoil along with all kinds of confusing and conflicting religious interpretations. This could threaten our Bangladeshi values and culture, and if unattended can spell immense danger. We need to assess the real cost of such migration to our country.
FE: We are now trying to actively engage in various regional integration processes, e.g. by allowing transit-transhipment to India and singing of BBIN motor vehicle agreement. Will there be win-win outcomes both for India and Bangladesh?
Murshid: The transit issue is not a very big issue for Bangladesh in the sense that potential benefits from transit is not huge. However, it does signal a change in attitudes and sends a positive signal that we favour closer economic integration, for what it's worth.
We do have duty-free access to the Indian market. But due to several non-tariff barriers, especially on quality control and certification, export of Bangladeshi products has remained insignificant. India has, however, passed a new GST (Goods and Services Tax) law which bars individual states from imposing any additional taxes or duties on any product entering or leaving the state. Hopefully, the provision will be applicable on Bangladeshi exports.
Regarding regional integration in general, I would say that there have been too much talk and little progress. Bangladesh is comparatively well prepared for integration compared to some other countries. I consider Myanmar to be a major stumbling block for us especially in the context of our Look East policy. It is very unlikely that the country will provide Bangladesh road or rail access to Kunming of China. We need to think of alternatives - perhaps establishing coastal shipping/trading links with Thailand and obtaining access to China via the GMS (Greater Mekong Sub-region) roads. In the meantime, let us hope Myanmar will grow up.
FE: You are heading an institution that is engaged in research activities. The use of data is one of the most important parts of research. How credible are the data dished out by the BBS?
Murshid: I think BBS data compared to that of many other countries is good. There may still be problems and it is important for BBS to constantly improve quality. I recognise that there is a lot of loose talk and innuendo about BBS data although no evidence has been provided to support allegations. Researchers must always use data carefully and critically and provide solid feedback to BBS so that they can improve data quality. We must always remember that good policies require good data, and this is work in progress.
FE: Is our economy headed in the right direction?
Murshid: We have done well but we must do better. There are huge opportunities before us but in order to gain from these we need far better institutions than we currently have. The other area where we must focus with much greater energy and dedication is human development. Let me give a small example here: Vietnam has made enormous progress. It has established high quality schools that are able to compete with the best in the world. The average Vietnamese high school student is better in Maths and Science than his counterpart in the UK and Germany. If we want to look up to 'models' then here is an excellent model that we can aspire to.
FE: Finally, can you tell us a little about your plans for BIDS?
Murshid: We are an independent, public sector research institute that is more than 50 years old. We have a glorious record so that we are constantly under pressure to compete with our own past record. Currently BIDS has a shortage of researchers but we hope this situation will not persist for long. We are trying hard to recruit both young and senior researchers and encouraging Bangladeshi scholars and researchers abroad to come back and work in BIDS for a few years.
I am also keenly conscious of the fact that researchers should contribute more directly to policy formulation. We are increasingly trying to address concrete policy issues along with the more academic research that we are mandated to carry out. Strategic dissemination is extremely important and this is also something that we are looking at closely. In particular we want to make full use of advanced technological options including the use of social media and e-platforms. We have chalked out detailed plans for research and dissemination, including setting up a three-year research agenda and launching of two annual events, which we are calling BIDS Critical Conversations and the BIDS Research Almanac. While the latter is a platform to disseminate BIDS' in-house research the former is a platform of 'free, frank, open discussion' for the whole development community to thrash out ideas, views and approaches to development policy and practice.