Socio-economic trends and prospects

Steadily growing but still a low income economy, Bangladesh has over the years developed a social consensus for inclusive socioeconomic growth equitably opening up advancement opportunities for all population segments. To this end, annual national budgets consistently allocate substantial expenditure outlays in the social sector (around a third of the total budget) for pro-poor human development (healthcare, education and training) and social safety net to unleash the creative energies of the entire population; besides expenditure for infrastructure and other areas promoting enabling environment for private sector driven rapid growth.
Bangladesh Bank has been supporting the government's inclusive growth efforts by promoting inclusive financing of all productive initiatives including those of the traditionally underserved farm and non-farm SMEs and other innovative niche area entrepreneurs. BB's inclusive financing promotion takes place within the overall monetary growth envelop of monetary programmes designed to maintain price stability and macro-financial stability. Attention of the inclusive financing initiatives on adequacy of credit flows to SMEs helps enhance macro-financial stability, with incremental output on the supply side and employment and income generation on the demand side.
BB has got the entire Bangladesh financial sector engaged enthusiastically in inclusive financing initiatives on the one hand by invoking their corporate social responsibility, and on the other hand by steering facilitation and adoption of cost saving modes of off-branch delivery and management of numerous loans to SMEs in dispersed locations. Supervisory attention to end use, recovery rates and asset quality of loan portfolios in the new customer bases accompany the inclusive financing facilitation efforts. BB's caution-mixed inclusive financing promotion initiatives are serving Bangladesh economy well, as evidenced by stable, steady economic growth amid the global financial crisis and the lingering global growth slowdown. Unlike elsewhere including advanced economies, credit flows for output activities of SMEs in Bangladesh held steady and did not suffer exclusion crunch during or following the global financial crisis, upholding internal demand and output activities on steady long-run growth path.
Main thrusts of the BB initiatives for promotion of inclusive financing   include:
i)     Articulation of commitment to inclusive financing in BB's Monetary Policy Statements issued ex-ante on half yearly basis to anchor inflation expectations.
ii)     Spearheading and guiding the mainstreaming of social responsibility in corporate ethos and objectives of financial institutions.
iii)     Promoting and facilitating adoption of cost saving options of financial service delivery to numerous clienteles in dispersed off branch locations, including mobile phone/smart card based banking using micro finance institutions (MFIs) and other locally active area agents. BB has steered major upgradation of the entire financial sector IT infrastructure, inter alia introducing online interbank clearing and settlement of transactions through diverse platforms interconnected by a national payments switch, and online access to credit information on borrowers including SMEs.
iv)     Liquidity support refinance to lenders against their loans to the inclusive financing target sectors including agriculture, SME and 'green' initiatives. The refinance lines are mainly funded by development partners, with small BB participation within the overall monetary growth envelop of monetary policy stance.
v)     To bring down high borrowing costs for SMEs, a partial risk guarantee scheme for lenders to SMEs with development partner support is expected soon.
vi)     Direct SME financing facilitation is being supplemented by 'factoring' or discounting of their receivables against credit sales to buyers of good credit standing, easing pressure on their finances.
vii)     A BB supervised, government funded equity and entrepreneurship fund (EEF) extends partial equity support to agro based and IT sector enterprises including SMEs. Private sector venture equity providers have also come up lately.
viii)     To facilitate delivery of financial and other services, SMEs are being drawn into suitable local or regional clusters convenient for networking between themselves and with their backward and forward linkages.
BB's Inclusive financing promotion initiatives conducted within the monetary growth envelop of the current monetary stance aim at smoothing out impediments to necessary growth of SME and other target sector financing, and not at creating any credit surge.
The following brief overview of Bangladesh's macroeconomic stability with decade-long above 6 percent annual average real GDP growth would further reconfirm that BB's inclusive financing promotion approaches have served the economy and financial sector well during and following the global financial crisis; protecting credit flows for productive activities and aiding stability both on the demand and supply sides amid global growth slowdown.
Healthy macroeconomic trends upholding BB- and Ba3 sovereign credit ratings with stable outlook, for four successive years now by S&P and Moody's respectively is well supported by robust improvement in all other key macroeconomic indicators. The estimated size of GDP in FY13 stood higher at about $128.8 billion from only $47.1 billion in FY2000, while GNI per-capita increased by about 245 percent to $923 in FY13 from only $377 in FY2000. At the end of June 2013, the amount of international reserves is expected to stand at around $15 billion, which would be more than four months' imports equivalent. At the end of June 2013, government debt, budget deficit and investment as a percent of GDP are expected to reach 37.2, 4.8 and 26.8 percent respectively from 46.4, 6.1 and 23 percent respectively at the end of June 2000.
Robust economic growth with stable inflation:
* Steady progress in overall domestic economic activities along with positive developments in three major subsectors of the real economy aided by various supportive policy initiatives helped in achieving 6.03 percent real GDP growth in FY13 keeping the economy on its long-run growth path despite episodes of internal (floods, cyclones), and external (spiraling commodity prices, global financial crisis) shocks.
* BB's monetary policy succeeded in maintaining stable inflation (mostly in single digit, only rarely at or near double digit level), while prudent fiscal policy helped accumulating higher revenues with moderate deficits leading to declining public debt ratio.
Impressive export growth:
* Exports more than quadrupled over the past decade, still on growth trend amid global slowdown.
* Apparels comprising three-fourths of total exports are keeping steady market share in US and growing in EU.
* Non-apparels exports are also on sustained growth path, in diverse sectors including horticulture and fishery, jute goods, ceramics, pharmaceuticals, leather goods, light engineering, shipbuilding, IT services and so forth.
Rising remittance inflows:
* Remittance inflows from migrant Bangladeshis continue growing at double digit rates bolstering the foreign exchange reserves and external sector viability.
* Government is facilitating migration of workers to job markets abroad.
Substantial poverty decline evidences
inclusive growth:
* Population in poverty fell from 61.6 million in 2000 to 44.8 million in 2010.
* Consumption Gini-coefficient remained unchanged at 0.33 over ten years, evidencing social cohesion.     Challenges on medium and longer-
term progress path:
Bangladesh is poised to cross the (lower) middle income country group GNI threshold in a couple of years. Time now therefore to chart the next phase of its progress path aiming at: (i) reaching the upper middle income country group GNI threshold by 2030, and (ii) attaining developed advanced economy status by 2050.
* Bangladesh already has two of the most important requisites: (i) the demographic dividend of a large youthful workforce, and (ii) a broad based social consensus on social responsibility driven inclusive development strategy to harness the ingenuity and creative energy of all population segments in overcoming challenges on path of rapid poverty eradication and eventual prosperity.
Demographic window of opportunity:
* While population growth is now 1.5 percent per year, the working age population is growing at 2.5-2.8 percent.
* Growing working age population not only widens opportunity for rapid development but also presents skill development and employment creation challenges.
Other overriding priorities:
* Enduring social cohesion and harmony, fostered by liberal democratic practices tolerant of  plurality of views and perspectives;
* Good governance in all spheres of social life, cemented by clarity of roles and responsibilities, transparency and accountability;
* Education, training, skills development and innovation nurturing programmes on massive scale for the young and the working age population, to meet the job market needs;
* Rapid modernisation and integration of the country's financial sector with global financial markets, enabling it to attract and handle the typical massive investment flows in a fast advancing economy. The BB will itself need to modernise and evolve fast, in steering this integration with global financial system in an orderly manner without jeopardising stability.

The author is the governor of Bangladesh Bank. The write-up has been abridged from Golden Series Lecture given in London recently for Official Monetary and Financial Institutions Forum.