Dearth of institutional capacity constraining higher economic growth

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The growth of the Bangladesh economy was strong and resilient throughout the FY2016 against a number of formidable challenges. Bangladesh will need to undertake the necessary policy reforms and institutional capacity development measures if the aspiration for higher economic growth is to be realised in the upcoming FY2017. Along with fiscal policy reforms the government should concentrate on reforms of the development administration and development supporting institutions in the coming years.

These suggestions emerged from the CPD media briefing to release the State of the Bangladesh Economy in FY 2015-16 (third reading) report at CIRDAP Auditorium on 25 May 2016. The report was prepared as part of CPD’s Independent Review of Bangladesh’s Development (IRBD) programme.

In presenting the report, CPD Research Fellow Towfiqul Islam Khan, observed that Bangladesh’s economic growth over the last several years was impressive. To ensure sustainable and inclusive economic growth Bangladesh should focus on raising allocative efficiency and appropriate utilisation of the budgetary allocations. Relevant institutional capacities should be geared towards this, he mentioned. Mr Khan also stressed on the need to create more jobs in the economy, particularly in the manufacturing sector.

Mr Khan drew attention to the need for effective measures towards revenue mobilisation. Public expenditure framework should be redesigned and more allocations should be made in line with the National Social Security Strategy (NSSS). He called for effective use of the policy space in the upcoming FY2017 that has been created on account of lower resource requirement to underwrite agricultural subsidies. Addressing issue concerning the recent heist at the central bank, Mr Khan, emphasised on the need to set up an Independent Financial Sector Reform Commission to come up with remedial actions. Highlighting the fact that only 46.5 per cent of original ADP was spent during July-April in FY16, which is lowest since FY09, Mr Khan suggested that the government should pay heightened attention to ADP implementation in FY17.

IRBD-FY2015-16-3rd-reading-02Putting emphasis on the need to put in place integrated online system for VAT registration, CPD Executive Director Professor Mustafizur Rahman mentioned that there is a need to undertake appropriate preparation for introduction of the new VAT law. He also favoured staggered implementation of the VAT law. Professor Rahman also argued that more emphasis should be given on mobilisation of direct taxes including personal taxes.

Mentioning the FY16 as a year of higher economic growth CPD Distinguished Fellow Dr Debapriya Bhattacharya pointed out the contradictions that informed the performance of major macroeconomic correlates. Bangladesh’s performance was poor in terms of revenue mobilisation, creation of employment opportunities, private sector investment, and labour and capital productivity. Not only the pace of GDP growth but we should also be concerned with quality of the growth and, its drivers and sources. Dr Bhattacharya also favoured increased allocations in agricultural sector, particularly to underwrite allocation for more productive technologies and introduction of innovative systems. He strongly argued in favour of effective social safety net programmes by taking advantage of the fiscal space. Dr Bhattacharya argued that if Bangladesh is to go for higher GDP growth and attract more investment, there is no alternative but to undertake the needed reform measures on an urgent basis.

The presentations and deliberations were followed by a Q&A session with the journalists.