The looming threat of income inequality

Despite progress in many areas, growing income inequality is a concern for Bangladesh as it can create social and political unrest, warned an economist in his book unveiled yesterday.

“The long-term rise in income inequality is worrisome and could create social and political unrest,” said Sadiq Ahmed, vice-chairman of Policy Research Institute, who had held several senior positions at the World Bank. The inequality challenge needs to be addressed forcefully, he said. “International experience suggests that income inequality can mainly be addressed with a very strong and focused redistributive fiscal policy.”

In his book, Ahmed highlighted the need for progressive and universal personal income taxation, and substantial increases in public spending on health, education and social protection to reduce the income inequality.

Finance Minister AMA Muhith along with Prime Minister's Political Affairs Adviser HT Imam, Economic Affairs Adviser Mashiur Rahman and Bangladesh Bank Governor Atiur Rahman unveiled the book -- “Growth with equity: contemporary development challenges of Bangladesh”.

Former finance minister M Syed-uzzaman moderated the programme.

The book is a compilation of research papers written between 2012 and 2014. It is a dispassionate analysis of the phenomenal growth of Bangladesh and an incisive enquiry into what extent the equity issues were tackled.

The author said Bangladesh is one of the few countries in the world that achieved an average GDP growth of more than 5 percent over the last 30 years.

“The growth rate is stable and on an upward trend, despite lots of international and domestic turmoil. This shows the resilience of the people and a hope that further progress is possible under the seventh five-year plan and beyond,” Ahmed said.

The ability to achieve the target for 7-8 percent growth hinges critically upon the ability to increase the investment rate from an existing 28 percent of GDP to 34 percent by 2020, he added.

On the equity front, he said, the record is also impressive. “Poverty has come down steadily and consistently. Human development indicators show sustained long-term improvements and progress with gender empowerment has drawn international attention.”

“Some 60 percent of the population consumed at 1.5 times the poverty level and 80 percent of the population consumed at 2 times the poverty level.”

The huge concentration of the poor around the poverty line suggests that there is a large number of near-poor who are vulnerable to shocks related to weather, health or political turmoil, and can easily cause many to slide back into poverty, he said.

Ahmed also highlighted several policies that will be required to address the growth constraints, including investment, infrastructure, skilled workforce and social security.

Muhith said one of the main targets of the government is reducing income inequality by focusing on poverty alleviation.

On infrastructure, he said the situation is worse in Bangladesh than in other regional countries. “It's mainly because of the quality of infrastructure that is very poor in the country.”

The government's focus is also on improving infrastructure, especially the roads, according to Muhith.

“No new roads will be constructed right now.”

Governor Atiur Rahman said the country is entering a new phase of growth amid multiple transitions: from lower- to higher-middle income country, with increasing trade and financial integration and amid a difficult global environment.

“The resilience of our economy has been deeply linked to the equitable nature of our growth drivers -- agriculture, labour-intensive manufacturing and remittance.”

“But as Sadiq Ahmed reminds us, we cannot take this for granted. We need to emphasise growth with equity so that our growth continues longer, touching more lives,” said Rahman.

Employment serves as a bridge between growth and equity, he added.

“Human capital formation by investing in health and education, and social safety net policies is essential to promoting a virtuous cycle of growth, poverty reduction and equity.”