Economy: Not rocket science
LIKE photo-graphy, economy cannot lie. It reads like an open book. We feel it in our daily grind. We suffer in or gain from it. On balance, it adds to or deducts from our future. Such is the power economy holds on our lives.
When billions go down the drain through cracks of the state-owned banking sector and a new-genre exploitative financial sub-sector, it is the depositors who are hardest hit. Confidence in the financial system dwindling, an important building block of the economy starts eroding. Unless rolled back with timely intervention -- no band-aiding adhocism -- the dyke will burst.
As if that was not enough, flight of capital and undisclosed incomes slosh through the underworld economy, get used on devious agenda or deposited in tax or confidentiality havens. In effect, huge sums of money are being lost to national exchequer, and more specifically, to investment for rapid national development.
But remittances are a different story. Economist Dilip Ratha, writing in TED Global, 2014, has described remittances as the 'hidden forces' in global economy. They account for $413 billion, which is three times more than global foreign aid estimated at $135 billion.
Ratha makes three points: First, remittance makes a significant difference in the lives of those who receive it and plays a major role in the economies of many countries. He sums it up all as “a promise wrapped with love.” Secondly, the thrust of his argument is that this is stifled by “practical and regulatory obstacles.” The processing on average costs $200 in each case, which is exorbitant, to say the least. Ratha's third point underlines the extortionist nature of the raw deal: Back in the country, dalals (brokers) eat up two years of a worker's incomes. They are caught up in an indebtedness cycle.
A good part of the benefits are skimmed off by middlemen as cumbersome procedures breed corruption. So, Dilip Ratha (TED) urges: “Simplify the complicated procedures.”
We must always bear in mind that unlike other industries like the garments, pharmaceuticals, shipbuilding or footwear, remittances have no cost attached to them. They provide net income.
The World Bank in its latest development update on Bangladesh forecasts 6.2% growth for the current fiscal year but underscores that it is below potential.
It notes high consumer confidence and a spate in domestic demand reflecting a significant purchasing power of the people by virtue of the record retail sales touching $ 12 billion mark during the two Eid festivals. But business confidence has yet to pick up. This in turn is mirrored on less-than-expected private investment overall.
The WB development update suggests that to upscale the growth rate to 7.2%, investment-GDP ratio has to be raised from the present 28.7% to 35%. Boosting investment depends on completion of the Dhaka-Chittagong and Dhaka-Mymensingh highways, double-tracking of Dhaka-Chittagong highway, the Padma Bridge, the Dhaka metro rail project and the two Bibiyana gas field-based large power plants. Massive FDI infusion is called for, requiring stability.
If these projects are completed GDP growth at 8% is possible, the WB iterates.
Public spending was reduced last fiscal as the budget deficit came to 3.7% of GDP, in place of the targeted 5%.
This meant foreign and bank borrowing fell last fiscal by 44% and 34% respectively. There is data mismatch on bank borrowing between the central bank and the finance division, the former putting it at Tk. 8,000 crore last year compared with finance division's data showing the figure to be Tk. 18,168 crore. Accounting mismatch between the finance ministry and the other ministries usually occurs, but this time the discrepancy is quite large.
What draws special attention is the non-bank borrowing. This has soared almost three-fold year-on-year to Tk. 19,737 crore due to higher sales of saving instruments.
There you come to the declining deposit rates in the banks. But the lending rates are high, practically meaning credit squeeze on the private sector. With the bank deposit rate reducing the spread vis-à-vis lending rate is increasing. Ideally, the spread should have been 5% to 6%.
Interestingly, bankers and industrialists are indistinguishable with the result that they are not unduly bothered by the narrow spread. It is, however, new enterprise that is left to its devices.
Exchange rate policy is pivotal to spurring on investment. We are intent on appreciating value of taka as against dollar. This means that our export pricing is at a disadvantage compared to some other countries competing with us in certain basket of items. We have to make up with volumes what we are losing through propped up taka. Bangladesh Bank has lifted $ 5 billion from the domestic market.
Not only are the imports relating to exportables pricey, there's also a declining trend in import. We import raw materials, intermediate goods apart from machineries so that a drop in import is neither good news for industrial productivity nor in terms of revenue collection.
The under-invoicing of exports and over-invoicing of imports receive impetus from currency appreciation.
In all, our dreams of making it to a sustainable higher growth trajectory hinge on completing the mega projects we have taken in hand. We are slow in fund utilisation, quality is at a discount through rip-offs and mismatch between physical and financial targets is chronic.
Project implementation in which our track record has been, admittedly, below par requires a sea-change in terms of a strategic implementation regime. There should be a four-tier structure by way of a transformational implementation machinery. Experts will give a framework in the shape of TOR, to be precise. The second group will provide finance, consultancy and executive support. At the third but crucial tier implementation machinery of the respective ministries. Last but not least stands the national audit office.
The writer is Associate Editor, The Daily Star.
E-mail: [email protected]
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