Rising inequality saps growth, Muhith warns

Finance Minister AMA Muhith yesterday warned saying that rising inequality could stop the country's growth potential.
“It (inequality) is an impediment to progress and needs to be addressed immediately,” Muhith told a seminar co-organised by the newly established Dhaka School of Economics and Bangladesh Economic Association at the Palli Karma-Sahayak Foundation (PKSF).
“Effective demand is not growing because of the gaping inequality and it will stop growth at one stage,” said the minister.
He, however, admitted that it is not easy to address the problem.
Quazi Kholiquzzaman Ahmad, chairman of PKSF, presided over the event while Managing Director Quazi Mesbahuddin Ahmed presented a paper on 'Macroeconomic performance: vision, realities, strategies, constraints and future prospects'.
Sadiq Ahmed, vice chairman of Policy Research Institute and a former World Bank official, spoke on the paper. The seminar will run for five days and make recommendations for the government.
Besides inequality, the finance minister spotlighted issues such as poor foreign investment inflows, rising population, inefficient land use, food insecurity, low productivity and soaring fuel oil price which according to the minister are major challenges to macroeconomic stability.
Quoting the latest household income and expenditure survey, Muhith said though Bangladesh has achieved remarkable success in reducing poverty, growing inequality is posing a big threat to the development.
“Steps need to be taken immediately, otherwise unmet demands of the poor will stop the growth,” said the minister.
On poor foreign investment and donor fund flows, Muhith said Bangladesh's expenditure is almost met by domestic resources, which is creating a pressure on the economy and the banking sector.
He cited the example of deposit-lending ratio that has exceeded the regulatory limit and thrown the banking system into volatility. This lending is also fuelling the inflation. The power sector is consuming huge amount of domestic finances, he added.
Of the cost estimated for the sixth five year plan (2011-15), 92.5 percent will come from the domestic sources, which the minister sees as 'impossible'.
“Even the contractor of the elevated expressway is trying to get fund from the Bangladesh sources,” said Muhith.
On food security, the minister urged the people to diversify the crops to add more value. About fuel oil prices, the minister said a rise in the price affects the macro-economy badly.
He said inefficiency and corruption are eating up the capacity and productivity of the nation. On the much-talked-about remittance, Muhith said it will not go down in today's world.
The minister said an effective land use policy is important, as people need to know how they will use their lands for industries and other purposes.
Sadiq Ahmed was upbeat about the implementation of the public private partnership as many countries, including India, have implemented it.
Ahmed said volatile stockmarket, soaring inflation, rising imports, declining remittances and exchange rate are some of the major emerging challenges for Bangladesh.
Kholiquzzaman urged economists to devise a mechanism to identify 'tolerable inflation'.