Published in The Daily Star on Thursday, 4 June 2015.
Muhith’s challenges
Sajjadur Rahman
Boosting private sector investment and job creation for millions of unemployed youths are the two major challenges for Finance Minister AMA Muhith as he unveils his seventh budget today, analysts said.
The other challenges include addressing infrastructure constraints, efficient governance, delivery and implementation.
Accelerating the growth of gross domestic product through higher investment remains the key challenge for the government, Mustafizur Rahman, executive director of the Centre for Policy Dialogue, said.
How Muhith deals with the matters of setting up special economic zones (SEZs) and supplying primary energy such as gas to the industries should be paid attention to, he added.
Ahsan H Mansur, executive director of Policy Research Institute, said he would be particularly interested to see what the government does to boost private sector investment.
It is high time that the government pays more attention to economic issues than the political ones if it wants to create adequate employment and take the country to a higher growth path, the economist said.
The outgoing fiscal year saw a number of macroeconomic indicators move in a positive direction including lower inflation, declining interest rate, stable exchange rate, manageable fiscal deficit, positive balance of payments and record foreign exchange reserves.
The low prices of commodities including oil on the global market have also provided some respite in terms of resources needed to meet the demand for subsidy.
Also, GDP growth is estimated to be 6.51 percent, the highest since fiscal 2011-12, despite the three-month political turmoil.
Yet, the challenges are not too small. Of these, revenue shortfall and declining export growth and foreign direct investment are the major ones.
But analysts said the most concerning issue remains with the sluggish private sector investment affecting the much-needed employment generation.
The investment to GDP ratio stands at 28.99 percent, of which the government’s share is 6.6 percent and the private sector’s 22.39 percent, according to the latest data from the planning ministry. This indicates how important the private sector is for the country’s development. But, the private sector credit growth has been declining for the past two years.
Bangladesh Bank data shows private sector credit growth nosedived to 10.85 percent in fiscal 2012-13 from 19.72 percent in fiscal 2011-12.
In fiscal 2013-14, it stood at 12.29 percent, without picking up much in the current fiscal year.
The country needs to create lots of jobs — at least 20 lakh a year — if it is to employ its booming population and avert incidents like human trafficking.
Analysts say this is not an easy task as the country has so far been able to generate employment for only 44 lakh people in the garment industry that accounts for 80 percent of the total exports.
The other manufacturing industries such as pharmaceuticals, ceramics, jute, leather and shipbuilding are not growing enough to absorb the 20 lakh young people entering the job market every year.
So, the business community, the corporate world and the youths are eagerly waiting to see if steps are being taken to boost private investment and create jobs in the economy.
“Infrastructure weakness is the biggest barrier in attracting investment and GDP growth,” said Khandaker Golam Moazzem, additional research director of CPD.
Moazzem said he would be curious to see how the budget addresses issues like improving gas supply and setting up industrial zones to meet the demand of the investors, both from home and abroad. He has suggested the government enhance allocations to these priority projects.
The government should pay attention to other issues as well.
The collections of both tax and non-tax revenue have continued to fall below expectations throughout the fiscal year.
During the first eight months of the outgoing fiscal year, tax revenue collection by the NBR registered year-on-year growth of 12.4 percent, according to the National Board of Revenue. This growth rate is far below the target of 34.4 percent.
DEVELOPMENT SPENDING
For the first 10 months of the fiscal year, the actual spending under the ADP was 51.8 percent of the originally planned allocation of Tk 80,315 crore.
Besides traditional impediments, it has been claimed that the recent political turmoil affected implementation. Later, the planned allocation for ADP was revised downward by 6 percent to Tk 75,500 crore.
LAND AND GAS
The China factor is more or less known to the people of Bangladesh. It means the rise in production cost in China has forced many of its garment makers to shift their factories to cost-effective countries, and Bangladesh is the top choice.
Japan is also very serious about relocating industrial units to Bangladesh. But the scarcity of land and gas is a major barrier to cashing in on the chance. A World Bank estimate shows if Bangladesh can provide 40,000 acres of land to Chinese investors, around 15 lakh new employments will be created.
FAST-TRACK PROJECTS
Bangladesh’s trade economy (export-import) now stands at around $70 billion. Of the amount, at least $60 billion worth of goods are carried through the Dhaka-Chittagong highway. The road is very narrow compared to the needs. Often, a truck loaded with export or import goods takes 12-15 hours to reach the Chittagong port from Dhaka or vice versa, pushing business costs up.
The Dhaka-Chittagong four-lane highway project was approved in 2006 with an estimated cost of Tk 2,382 crore (revised at around Tk 3,400 crore).
The implementation of the project started in 2010 and was supposed to be completed by 2012. The deadline for the project’s completion has already been extended four times, raising questions about the government’s seriousness.
Analysts said the construction of the road should be given the highest priority as the country’s resource mobilisation depends largely on trade through the road.
REFORMS
Regrettably, the necessary reforms which could help the government boost domestic and foreign investment and governance as well were not implemented satisfactorily.
For example, the public-private partnership law is yet to be finalised although 42 projects have been listed in the ADP for fiscal 2015-16.
The Privatisation Commission has been inactive for long, and there has been no significant headway in finalisation of the Financial Reporting Act.