Getting the economy back on track

Photo: STAR

Bangladesh economy has been growing at a rate of around 6% for the last few years. Considering the global economic downturn, it has been one tremendous achievement. The economy of Bangladesh has been hailed as resilient and the people of Bangladesh must be applauded for their efforts against natural and manmade disasters. However, every cloud has a silver lining and more importantly, vice versa. Any national economy suffers a threat of "overheating" when it goes through periods of high growth.
Bangladesh is at such a stage now. The economy cannot bear the pace it has achieved in recent past. There is an acute shortage of new investments. It is as if a beating heart has suddenly run out of blood to pump. The economy is up and running but there is no investment to keep the flow and produce more products and employment.
Our government has been quite reluctant to admit that we are going through a liquidity crisis.
On March 28, Bangladesh Bank remarked that we do not have a liquidity crisis. On April 20, Bangladesh Bank Governor Professor Atiur Rahman admitted that we are in a liquidity crisis but said it would go away soon.
The government in recent years has taken loans form private banks. When the government takes such loans it means there are little funds left in the banks to lend out to investors. So investors are not getting loans and as a result, new projects are not being implemented by the entrepreneurs who are the ones who produce products and create jobs.
We need more investment and we need it fast. It is imperative that we find an alternative source of funding. And this is where the issue of disclosing undisclosed money comes up.
This year's budget has a provision that any amount of undisclosed money can be declared and invested after paying due taxes to the National Board of Revenue (NBR). This clause, 19 (b), has been there in previous budgets and has always generated much debate and discontent among certain segments of the society. There have been questions raised on the ethicality of having such a clause in the budget. But we need to get more pragmatic. We need to understand what we must do in order to contain this economy before it dries out due to a lack of investment.
Bangladesh economy is a largely informal one. Some believe the size of the informal economy may even be 80% of the total economy. The economic estate that Bangladesh has achieved does not allow the informal sector to be so big. We need to integrate the informal economy with the formal sector. We will not get enough investments from proper channels. We must channel the undisclosed money and utilise it to feed our economic engine.
There are a few allegations that this provision does not work well. In the last few years it has not been able to channel any substantial amount of money. But we must look at it from the other side.
We must understand that there is a sense of distrust among potential entrepreneurs about this clause. We must understand that it is us who need the money to run our economy. The demand is greater from our side and we must act accordingly. There must be good incentives for people to declare undisclosed money. If undisclosed money is invested in the industries then we should incentivise the industry by giving them a tax holiday for a certain period.
Doing this has a lot of positives. First, this incentivises investment which we direly need. Second, once the money is in the formal network the government will get taxes from it indefinitely after the tax holiday is over. We will have many more vibrantly taxable institutions. Third, these new organisations will create employment. Fourth, this incentive will pave the path for new entrepreneurs and motivate older ones to make new investments. The growth of entrepreneurship is the best sign of a healthy economy.
And the development of an entrepreneurship culture is a dire need for us at this moment.
Let us look at the real estate sector for an example. This sector is quite huge and has backward linkages with industries like cement, rod and ceramics. As a result a lot of employment depends on this sector.
Real estate sector must continue to thrive if we want to see our lands properly used, which is so very vital for a small country with enormous population. But this sector has been facing a peculiar situation for the last few years or so. There has been acute shortage of buyers. The entire industry has come to a halt.
And we must understand that this is only an example and other sectors of the economy are also facing such adversities. We must deal with this now otherwise our economy will lose many of its achievements in different industries.
It is quite surprising to see that when the government is asked about this stagnation it tries to shift the blame to somewhere else. Recently, it was said that real estate sector is unproductive and so the problem concerning this industry is not significant for the national economy.
The accusation seems rather astonishing. Real estate sector is very important for any capitalistic economy. Apart from creating jobs and supporting backward linkage industries, it develops infrastructures which are vital. We have a small country with a huge population and that makes it imperative for us to plan and implement commercial spaces and housing projects which will utilise our lands properly. In this regard, the role of the real estate sector is most important. Because, in a capitalistic economy, it is the real estate sector which implement projects which accommodate businesses and people. Thus, the growth of real estate sector may lead to better infrastructural development in our country.
The demand for real estate products in Bangladesh has not been met yet. In fact, more than half of the market is yet to be explored. The problem with the current scenario lies on the buyer side. Small buyers, who buy individual units from the real estate developers, are the principal clients of real estate. But in the last few years, these buyers have not been participating in the market. The reason is that they are afraid. In our country, due to people's lack of awareness, ignorance and mistakes people do not submit their taxes accordingly and so the amount of disclosed money in the tax file remains very little. So when they want to buy land or an apartment or commercial space they feel scared. This situation is not ideal for the economy. If people are in an environment which discourages them from spending then the economy will come to a standstill, as basic principles of macroeconomics suggest.
There are a few other issues the government needs to review as well. On May 16, the finance minister admitted that it was a mistake that the government did not analyse the situation properly before going for implementing rental power plant projects. Most of these power plants are oil-based, and oil has to be imported. The government, on the other hand, has to procure power from them at a high cost and sell it at a subsidised price. This creates a huge burden for the economy and fuels inflation. As inflation is an economic phenomenon felt very closely by common people, this situation is creating headaches for the government. In this concern, it must be mentioned that we have not been able to use our coal reserve properly largely because there is no policy regarding the use of this natural resource.
This budget is a very vital one for Bangladesh. It seems that our economy, after doing quite well for some time, has lost track and this budget must get it back on track. There has been talk about this being an "election budget," but I believe that the priority of this budget should be the revival of our economic growth. If this budget fails to be pragmatic and effective, an abyss is there in the waiting for us. But realistic planning and efficient implementation with strong leadership may take us to the path of sustained growth and development.

The writer is Professor, Institute of Business Administration, University of Dhaka.