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Tuesday, April 5, 2016

No progress in economic freedom

Md Fazlur Rahman

Despite improvements in labour, corruption, and monetary indicators, Bangladesh remains stuck in the category of "mostly unfree" countries in an international survey on economic freedom.
The country's economic freedom score is 53.9, making its economy the 131st freest -- the same as last year's -- among 186 countries in the 2015 Index of Economic Freedom, an annual guide published yesterday by Washington-based Heritage Foundation and The Wall Street Journal.
Bangladesh was ranked 132nd in 2013 and 130th the previous year.
Its position remains unchanged at 27 among 42 countries in the Asia-Pacific region.
The country's overall score eroded by 0.2 points since last year though it made improvements in labour freedom, freedom from corruption, and monetary freedom outweighed by notable declines in investment freedom and business freedom.
Launched in 1995, the Index evaluates countries in four broad areas of economic freedom: rule of law, regulatory efficiency, limited government and open markets.
Based on its aggregate score, each country graded in the Index is classified as “free” (combined scores of 80 or higher), “mostly free” (70-79.9), “moderately free” (60-69.9), “mostly unfree” (50-59.9) and “repressed” (under 50).
The Index covers 10 freedoms: property rights, freedom from corruption, fiscal freedom, government spending, business freedom, labour freedom, monetary freedom, trade freedom, investment freedom and financial freedom.
Over the last five years, Bangladesh's economic freedom hovered around the lower end of the “mostly unfree” category, said the report.
Modest score improvements have occurred in just four of the 10 economic freedoms (financial freedom, labour freedom, freedom from corruption, and trade freedom), and overall policy reform appears to have stalled.
A general disregard for the rule of law, rampant corruption, and a judicial system that suffers from political interference provide a weak foundation for economic modernisation.
Lack of a national consensus on the direction of future policy changes has diminished the momentum for economic reforms, and deteriorating prospects for near-term improvements in economic freedom make it unlikely that the relatively high growth rates of recent years can be maintained.
Most data used in the 2015 Index covers the second half of 2013 through the first half of 2014.
Bangladesh scored 20 in property rights on a scale of 0-100 as it couldn't improve its position in the area. The score in freedom from corruption indicator is 27.
Institutional accountability is not well established in Bangladesh, and the judiciary is not clearly separated from the executive, according to the report.
“Government effectiveness is undermined by pervasive graft. Contract enforcement and dispute settlement procedures are inefficient. Antiquated real property laws and poor record-keeping systems complicate land and property transactions. Poor governance is one of the main barriers to foreign direct investment.”
Bangladesh has improved in the areas of labour and monetary freedom, scoring 63.7 and 67.7 points respectively. Business freedom, however, went down to 62.2 points.
The index said reform measures in recent years have streamlined the procedures for establishing a business, but other institutional deficiencies such as pervasive corruption and poor access to credit discourage start-ups. The labour market remains underdeveloped, and the enforcement of labour rules is ineffective.
Both trade and financial freedoms remained unchanged at 59 and 30 points, and investment freedom dipped to 45.
It said Bangladesh has a relatively high 13 percent average tariff rate.
“Efforts are underway to improve customs processes. Foreign investors face bureaucratic hurdles. The financial sector remains underdeveloped despite modernisation efforts. State-owned commercial banks account for over 30 percent of total banking system assets. Stock market capitalisation is low.”
The country scored 92 points in government spending indicator and 72.7 points in fiscal freedom.
Despite relatively high income and corporate tax rates (25 and 45 percent), the country's tax revenue remains low at around 10 percent of gross domestic product, said the index.
Public expenditures account for 16.3 percent of domestic economy, and public debt has grown to a level equal to about 40 percent of the GDP.
Globally, economic freedom has increased for the third year in a row, it said.
The Index, once again, demonstrates that countries with higher levels of economic freedom substantially outperform others in economic growth, per-capita incomes, health care, education, protection of the environment, reduction of poverty and overall well-being.
 Hong Kong has maintained its status as the world's freest economy, a distinction that it has achieved for 21 consecutive years.
Despite the global progress recorded since the Index's inception in 1995, the number of people living without economic freedom remains disturbingly high: 4.5 billion, or 65 percent of the world's population. And more than half of these people live in China and India.

While structural reforms in the two countries sometimes boosted growth, the governments have failed to institutionalise open environments that promote broad-based and sustained improvements in the economic well-being of the population as a whole.

Source:  The Daily Star, 29 January 2015

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