As part of the Independent Review of Bangladesh’s Development (IRBD) programme CPD organised a media briefing to release the State of the Bangladesh Economy in FY 2015-16 (third reading) report at CIRDAP Auditorium on 25 May 2016.
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Published in The Daily Star on Thursday, 26 May 2016
Jobs scarce despite higher economic growth: CPD
Star Business Report
Bangladesh has failed to create adequate jobs despite higher economic growth in recent years, the Centre for Policy Dialogue said yesterday.
The independent think-tank said the economy is estimated to register 7 percent growth in the outgoing fiscal year, largely supported by the pay hike of public employees, after maintaining more than 6 percent growth in the past decade.
But the economic growth, particularly since 2013, could not result in enough job creation, it said.
The CPD said the number of jobs rose impressively during 2002-2013, by 13.6 lakh per year. But the number appears to have fallen to only three lakh a year since 2013, it said, referring to the latest labour force survey by Bangladesh Bureau of Statistics.
The number of jobs declined by 12 lakh in the manufacturing sector in two years since 2013, said Towfiqul Islam Khan, a research fellow of the CPD, at a press briefing at Cirdap auditorium in Dhaka.
The CPD organsied the briefing to unveil its analysis on Bangladesh’s economy in fiscal 2015-16 that ends on June 30.
“We have to think about the GDP growth that does not ensure enough job creation to benefit the greater section of the society,” said CPD’s Distinguished Fellow Debapriya Bhattacharya.
The CPD said the economy is expected to get rid of the 6-percent-plus growth trap at a time when private investment declines as percentage of gross domestic product and tax collection remains low.
The rate of job creation, and labour productivity have also declined although various factors such as inflation, bank interest rate on loans, balance of payments position and exchange rates remain fabourable for economic growth, the CPD said.
Impressive economic performance since the early 2000s was accompanied by strong growth in labour force up to 2013, it said. But, this trend is currently showing signs of stagnation.
“In light of impressive GDP growth, sluggish labour market growth and an emerging demographic dividend provide causes of concern.”
The government should pay attention to raising private investment and jobs through budgetary measures in the coming fiscal year, the CPD said.
It also called for increased allocation for social sectors, particularly education and health.
Bangladesh ranks 155th out of 161 countries and 189th out of 190 countries in public spending as percentage of GDP on health and education.
The CPD said the unemployment rate for educated labour force, particularly for those having secondary and higher secondary education, has increased significantly but has fallen for uneducated workers and jobseekers.
This regressive trend is a major concern for a country seeking to maintain the status of a middle-income country, it added.
Bhattacharya said education is not giving guarantee of employment. Most of the unemployed people have higher secondary education, he said.
He said the outgoing fiscal year will be marked as a year of high growth but four indicators, including the decline in private investment as percentage of GDP and job creation, have created a ‘dialectical situation’.
“It is the picture of major contradiction of Bangladesh economy. So, only high growth will not be enough, its quality and sources are important,” said Bhattacharya.
The CPD said the role of private investment in GDP growth becomes rather weak. It said investment growth in the manufacturing sector remains sluggish particularly because of a lack of adequate infrastructure, including the supply of quality electricity and gas.
New investment in the apparel sector, which accounts for 48.3 percent of the manufacturing sector, has also been slow, said the CPD.
The organisation, citing a statistical modelling, said private investment in Bangladesh would more than double had its law and order situation been like that of India.
“Thus the rule of law emerges as a very significant factor in driving private investment which in turn is quite crucial to ensuring high growth,” the CPD said.
On the preparation of budget for next fiscal year, the CPD demanded making projection of revenue and expenditure in a realistic manner, saying the gap between the two is widening.
The think-tank suggested a 2-3 year plan to implement the VAT and Supplementary Duty Act 2012 in a realistic and staggered manner as there is opposition from businesses.
It said prices of some items such as electricity and steel will go up for the imposition of 15 percent value added tax. These two items currently enjoy reduced rates of VAT.
The CPD said it favours the new law that aims to automate the VAT system but capacity of small and medium enterprises needs to be enhanced for the implementation of the law.
CPD Executive Director Mustafizur Rahman said the government should keep the VAT rates at a low level for some items as the impact of the indirect tax falls on common people. The existing law provides scope for VAT exemption in some service sectors. “We suggest keeping the VAT rates reduced in some areas in socio-economic and industrial context,” he said. The focus should be on collecting more income tax.
The CPD also recommended reduction in prices of diesel and kerosene, saying the recent cuts in prices of oil favoured the richer section of the society. It stressed the need for an agricultural price commission to ensure fair prices for growers and an independent financial sector reform commission to identify problems in the sector.
“Repeated recapitalisation of state-owned banks by people’s tax is difficult to justify. The state could not provide adequate support to the poorest and marginalised sections due to a scarcity of resources,” the CPD said.
Published in Dhaka Tribune on Thursday, 26 May 2016
CPD stresses quality growth
Tribune Business Desk
Bangladesh’s leading think-tank laid emphasis on ensuring quality rather than quantity in measuring economic growth to build a prosperous nation.
Centre for Policy Dialogue said the key drivers of economic growth remained outside of real sectors, which is a matter of concern and may affect the GDP growth prospects.
Despite the macroeconomic stability, a number of concerns, including stagnant private investment, decline in agricultural growth, appreciation of the real effective exchange rate, weak (particularly public) banking sector performance and low efficiency of development spending threaten to undermine the economic potential and growth prospects, according to the CPD analysis.
The report on Macroeconomic Performance for FY2015-16 (third reading) was released at the Cirdap auditorium in Dhaka yesterday.
“This is the year of higher growth, and at the same time, a year of declining private investment, revenue collection, employment generation and labour productivity – all these creating a dialectical situation in the Bangladesh economy,” said CPD’s distinguished fellow Debapriya Bhattacharya.
“It is important to focus on the quality and sources of growth, not just the quantity for sustaining or strengthening growth momentum,” he said referring to the government’s over 7% growth forecast for the current fiscal year.
CPD research fellow Towfiqul Islam Khan presented his keynote paper on the economic performance, and said Bangladesh has been experiencing a peculiar situation whereby the modestly 6% plus GDP growth has been achieved.
However, this type of situation is not uncommon in developing countries, he said, adding that Philippines had experienced ‘rising growth with declining investment’ in early 2000s.
It is rather surprising to find that despite attaining a double-digit value addition growth rates in the manufacturing sector in last two years, (in net terms) more than 12 lakh jobs were lost in the sector, the keynote paper said.
“Indeed, a GDP growth with a very weak employment generating capacity will not be able to serve the development ambitions of Bangladesh.”
Putting emphasis on employment generation and private investment—the key driver of economic growth—CPD said given the nature of service sector-led GDP growth, on account of mainly public sector services with sluggish growth in investment in the manufacturing sector, the role of private investment in GDP growth is becoming rather weak.
“It is also a matter of concern that the attained higher level of GDP growth rates (as per official estimation) did not create adequate employment opportunities in the economy. Moving forward, Bangladesh needs to translate the macroeconomic stability into higher investment and higher growth.”
Amid this higher growth forecast, both revenue collection and public expenditure are projected to fall short of target, leaving cause for concern regarding implementation of the national budget.
On the National Board of Revenue’s uniform VAT rate fixation at 15% under the new VAT law passed in 2012 in the parliament with effective from July 1, 2016, the CPD said the new VAT act should not be implemented without settlement of contentious issues with the business people.
“Without reaching consensus with the business people in implementing VAT act, the administration will fall in problem,” said Debapriya.
CPD Executive Director Professor Mustafizur Rahman said: “VAT is a progressive system. However, VAT rate should be fixed in a way so that common people do not feel pain.”
About the black money, the CPD said the culture of black money whitening facility without any condition and punishment given in every budget should be stopped, as it puts negative impact on the faith of other policies of the administration.
“We should come out of this culture and solve the problem,” said Debapriya.
He called for a regulation to check the capital flight from the country.
“Money has been transferred to other countries, which is now true like a daylight as Panama Papers recent revelation on dealing with offshore holding reminds us.”
Strongly criticising the repeated recapitalisation facility to the sate-owned banks in the budget, the CPD said it has been given at the expense of people’s tax money, which is difficult to justify while the state failed to provide adequate supports to the poorest and marginalised sections of the country due to scarcity of resources.
The local think tank suggested that administered prices of diesel and kerosene need to be readjusted to share the benefit with the entrepreneurs and poor people.
For the sustainable growth, it said the government will need to most energetically pursue a number of institutional and policy reforms including in areas of revenue mobilisation, public expenditure management, budget transparency and financial sector.