Originally posted in প্রথম আলো on 13 July 2023
BIPSS Policy Café
‘Bangladesh had phenomenal economic success, what went wrong?’
There is universal consensus that Bangladesh has achieved phenomenal social and economic progress over the last 50 years. Despite the setback during the Covid outbreak, there is still significant growth. Now, however, the achievements are under threat for multifarious reasons, global and local.
These comments were made at the BIPSS Policy Café discussion held yesterday, Wednesday, at The Westin in the capital. The discussion on ‘Bangladesh Economy: What is the Outlook?’ was moderated by the president of Bangladesh Institute of Peace and Security Studies (BIPSS), Maj. Gen. ANM Muniruzzaman (retd), with Fahmida Khan, executive director of the Centre for Policy Dialogue (CPD) and Parvez Karim Abbasi, assistant professor of economics, East West University, as panelists.
Setting the ball rolling on the discussion, Maj. Gen. Muniruzzaman (retd) posed the question, what went wrong that we had to go to IMF?
Taking up the question, economist Fahmida Khatun said that certain inherent weaknesses were responsible for the predicament, pointing to the dissatisfactory Tax-GDP ratio of around 7 per cent and the Revenue-GDP ratio of around 8 per cent, despite support from donors.
“The banking sector is in a messy situation,” she said, “with many benefitting from politically influenced policy decisions.” The interest rates and foreign exchange rates did not have adequate deregulation. We have a negative account balance and not enough to pay loans. That is the reason we had to resort to IMF.
What about the stringent IMF preconditions, asked the BIPSS president.
Parvez Karim Abbasi replied that the IMF loan conditions were the very same set of suggestions that the think-tanks here, including CPD, have been making for a long time.
He said, if you spend more than you earn, you go for a stabilisation loan. This could be beneficial for the economy, but this is an election year when the government spends more. The common man is already affected as one can see by the long queues in front of the TCB trucks.
Muniruzzaman picked up the issue of inflation, which the government puts at 9.6 per cent. But, he said, others say it is much higher.
The government puts the average inflation rate at 9 per cent, said Fahmida Khatun, but if we break it down and look at inflation item but item, it is much higher. We monitor the TCB item-wise rates and see some items show 20 per cent inflation, some 30 per cent, some 40 per cent, some even 50 per cent. And these are government figures. So it is felt inflation may be at least 20 per cent in actual terms.
Wages haven’t increased. Government has increased wages of public service holders, but what about the others. She pointed out that this will push prices up higher and the common man will suffer more. Nutrition value of food has reduced and the quality of meals has declined for the vast majority.
As for IMF conditions, she said that the government had no option but to accept these but is unable to fulfill them, such as tax collection.
The BIPSS president Muniruzzaman then raised the issue of falling forex reserves, remittance and the dollar crisis. Exports had declined and so had remittance, though a lot of people were taking up jobs overseas. There was a big difference in rates between remittance sent through formal channels and informal channels.
Economist Abbasi said that one country had tried multiple exchange rates before us and that was Nigeria. Now they are in trouble. It is a recipe for disaster. All the blame is put on Covid and the Russia-Ukraine war. This is partially responsible for the situation, but not fully.
He referred to the quick rental power plants (QRPP) and the independent power producers (IPP), where the energy providers were paid even if they did not provide energy. There was commitment to 100 per cent power coverage, but coal-fired power plants shut down.
Rural poverty is increasing as is rural unemployment. Did we not learn from other countries, he asked. We were so consumed with the positive aspects of our economy and we overlooked the rest.
General Muniruzzaman turned to the banking sector and the allegations of systemic looting.
The CPD executive director said that the banking sector was in dire straits. She said that the Bank Company Act 1991 had good measures, but it had gone through many revisions. Default loans had mounted and changed policies had a negative impact.
Responding to the question raised by the moderator on bilateral trade and trading with India in Indian rupees, Parvez Karim Abbasi said on paper it looked fantastic as we are freeing pressure on the dollar reserves and will reduce transaction costs. But what will happen if the taka depreciates against the rupee. Where will we get the rupees? We buy from India, more than we sell.
The election is in January. What should be the priorities of the newly-elected government?
In reply to this question thrown by moderator Muniruzzaman, Fahmida Khatun replied that attention should be paid first to high commodity prices, to inflation, to food. Default loans should be reduced, taxation should be increased. This should not be just for the election year, because in two years we will be graduating. We need expenditure control, rational expenditure.
Parvez Karim Abbasi also rated inflation high on the priority list, adding employment and tackling corruption. He also said capital flight was an important issue to be paid attention.
Emphasising the importance of the topic under discussion, the moderator Muniruzzaman ended with the famous quote of the Clinton campaign era, “It’s the economy, idiot!”
The panel discussion was followed by a lively session of questions and comments from the audience. Attending the BIPSS Policy discussion were retired civil and military bureaucrats, former diplomats, foreign diplomats, academics, media persons, business persons and others.