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Tuesday, April 5, 2016

Economy in 2015: No Surprise; It Keeps Growing

Sajjadur Rahman

It is often said that numbers do not lie, but when it comes to the Bangladesh economy, the saying appears to be on shaky grounds.
Bangladesh's gross domestic product, which is the broadest measure of the health of an economy, grew an impressive 6.5 percent last fiscal year.
In addition to the steady GDP growth, the economy saw some other positives: controlled inflation, sliding lending rates, stable exchange rate and healthy foreign exchange reserves.
This good run is expected to continue into the new year, with the World Bank forecasting growth of 6.7 percent for fiscal 2015-16.
Based on these numbers, it is safe to say that the economy is doing well. Yet, the sentiment does not resonate across the country.
Despite the abatement of political turmoil for a good eight months now, businesses are still shaky.
People had thought that the economy and the investment environment would pick up once the political uproar dies down. “But that never happened,” said Salehuddin Ahmed, former governor of Bangladesh Bank.
Even with the declining interest rate regime, bankers are in want of borrowers; they simply do not see the enthusiasm they had witnessed among the business community several years ago.
For instance, five years ago private sector credit stood at around 26 percent. Now, it has slumped to 13 percent.
In fiscal 2010-11, private investment as a percentage of GDP stood at 22.14 percent. In fiscal 2014-15, it was 22.07.
Ahmed said infrastructure has improved slightly but still it failed to spur private sector investment.
New investment and expansion of existing business units have almost ground to a halt, and with it, job creation, Ahmed said.
For instance, the interest rate in the call money market, which reflects the market demand for money, has gone down to as low as 1.25 percent, which is the lowest in a decade.
Not only that, BB has stopped accepting the commercial banks' huge surplus money through the reverse repo two months back: it has run out of options to re-use the funds.
“The main concern lies with the people engaged in business. They just do not see any demand,” said Ahsan H Mansur, executive director of Policy Research Institute.
The investment climate has not improved at all even after the dissolution of political turmoil, said Mansur, also a former official of the International Monetary Fund.
The stock market, which is often considered the barometer for a country's economic health, is not going through a good phase either.
The government and the central bank took ad-hoc measures in the outgoing year to resuscitate the ailing market but to no avail.
There is no sign of recovery in the construction and the real estate sector that has been going through a trough since 2011.
At present, there are 10,000 flats unsold, according to the Real Estate and Housing Association of Bangladesh.
External factors -- crisis in the US, Eurozone and China -- are also creating concerns for Bangladesh's exports.
Remittance, which is one of the lifelines of the Bangladesh economy, suffered 0.68 percent negative growth in the first five months of the current fiscal year.
Imports dropped 2.30 percent in the first four months of fiscal 2015-16, while exports increased 6.71 percent.
Biru Paksha Paul, chief economist of BB, acknowledged that the economy has to move at much faster pace than what it is going now.
Bangladesh can enjoy demographic dividends for the next 20 years and if the country does not move fast, people will miss out on the opportunity.
“There must be an investment blitz in infrastructure, be it in tube rail, expressway or setting up connectivity.”
He, however, disagreed with the analysts on the private sector credit growth and GDP growth: the quality of credit has improved significantly now than few years ago.
“There is nothing wrong if 13 percent private sector credit can generate a GDP growth of 6.5 percent,” Paul said, while citing the case of India, which grew by over 8 percent with just 15 percent private sector credit.
But to jump-start the economy in the new year, Mansur said the government can come up with an investment package of around $25 billion, which may increase the budget deficit to 7 percent of GDP from present 5 percent for a period of time.
Simultaneously, BB can raise $8-$10 billion by issuing sovereign bonds.
In that case, the government will be able to spend an additional $5 billion for development works each year, as a result of which all sectors -- be it cement, steel or services sectors -- will see significant rises in demand, he said.
All the analysts however agreed that the situation will not materialise unless the government enhances its capacity to implement development works.
Also, an improved investment climate, political stability, good governance and reforms are crucial for moving to a higher growth trajectory, they added.

Source:  The Daily Star, 31 December 2015


Economy in ‘sluggish’ ambience in 2015

Asjadul Kibria

Despite overcoming an initial setback, stemming from political turmoil in the first quarter of the year, country's economic activities navigated through a 'sluggish' ambience in 2015.

There were no thrills and spills felt. Inflation was on a downturn trend, giving some respite for the consumers, thanks to a glut of global commodity market and no major internal shocks. But a concomitant slowdown in private sector investment activities, industrial output and consumption demand, as reflected in low growth of revenue earning and external trade, flattened out the ease that could be derived.

Economists and businesspeople came to such conclusions while reviewing the trends of the economy in the year humanity is going to ring out.

They said private investment didn't pick up as required even after having favourable factors like fewer political disturbances, lower interest rates and easing of the power situation.

During January-March period of 2015, economic activities had been disrupted heavily due to continued hartal and blockade over the January 5, 2014 parliament elections. Several trade bodies at the time claimed businesses counted a per-day loss of over Tk 22.77 billion.

Centre for Policy Dialogue (CPD) analysis calculated that the loss incurred by the country's production sector in first two and a half months could come to 0.55 per cent of the country's Gross Domestic Product (GDP).

Economic activities, however, made a turnaround as the normalcy came back in the country in the second quarter. And there was no political turmoil for the rest of the year as political programmes disappeared in the wake of a preventive clampdown.  

Nevertheless, overall economy didn't move onto a higher trajectory in the last nine months of the year, as reflected in several indicators.    

"Private investment didn't pick up, which is reflected in moderate credit growth and low growth of import, especially of raw materials," said Dr Mirza Azizul Islam, former adviser of caretaker government.  

Credit to private sector increased by 13.22 per cent up to the end of October while the central bank's target is 14.3 per cent by the end of December.

Both opening and settlement of letter of credits (L/Cs) for importing industrial raw materials declined 0.14 per cent and 0.61 per cent respectively as of the end of October, according to Bangladesh Bank statistics.

"Without increase in private investment significantly, we can't achieve the target of 7.0 per cent or higher rate of economic growth in the coming days," he added.     

Dr Zahid Hussain, lead economist at the World Bank Dhaka Office, however, opined that there was a mixed scenario in investment.

"As no direct indictor or statistics on investment situation is available, we have to rely on different proxy indicators," he said while talking to the FE.

"Both industrial term loans and imports of capital machinery increased significantly last year that reflects some improvement in investment although."

Disbursement of industrial term loans increased 22 per cent in January-September period of 2015 over the same period of 2014, revealed the central bank statistics.

The value of both fresh and settled letters of credits (L/Cs) for importing capital machinery increased by 15 per cent and 25 per cent respectively up to the end of October.

"Although law-and-order situation improved significantly, investment situation was not up to the expectation in 2015," said Mr Manzur Ahmed, Adviser of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

"Without enough investment, there was a sluggish trend in employment generation."

Mr Ahmed was of the view that despite having a political stability and better electricity production, there was no investment boom due to gas crisis, lack of uninterrupted power supply to the industries and high interest rates.

"Almost no new investment took place and emphasis was on running the current operations with moderate expansion," the adviser of the apex trade body said about the state of economy in the outgoing year.

While total investment remains stable at around 28-29 per cent of GDP, private investment has been stagnant around 22 per cent for last three years.

The FBCCI adviser also pointed out deterioration of governance as another major hurdle, especially for small and medium enterprises (SMEs).

"Different regulatory authorities become extension of bureaucracy," he remarked. "From banking regulator to tax authority, everywhere businesses have to face hassle."

All of them also pointed out that export growth was slow while remittance slower in the passing year.

Export earnings increased around 6.0 per cent in January-November period of 2015 over the corresponding period. At the same time, growth in remittance inflow stood at 2.4 per cent.

They also found revenue earning also below the required level to reach the annual (fiscal year) target.

The National Board of Revenue (NBR) data showed revenue from income tax registered 9.5 per cent growth in January-September period while it was 8.0 per cent for local Value Added Tax (VAT).

"On the upside, inflation was low along with stable exchange rate, higher foreign-exchange reserves and lower interest rates in the outgoing year," added Dr Zahid Hussain.

"Inflation was lower mainly due to lower global commodity prices although people didn't get the benefit of the lower oil prices in the international market," he continued.

Global oil prices hit rock bottom, coming down to blow $40 per barrel in December from $50 per barrel in January 2015.

According to the International Monetary Fund (IMF), global commodity prices dropped 5.0 per cent in November in a slide that started in June.

"Consumption demand was subdued last year, which also contributed to pull-down of inflation," said Dr Aziz.

asjadulk@gmail.com


Source:  The Financial Express, 30 December 2015


MACRO MIRROR: ECONOMIC DEVELOPMENTS IN 2015

Dr Fahmida Khatun

The year 2015 is ending with some positive notes for the Bangladesh economy, though challenges continue to accompany them. The New Year will, to a large extent, be shaped on the basis of how the economy has performed and what have been achieved in 2015. The political turmoil, amidst the protest of the opposition party, Bangladesh Nationalist Party, demanding free and fair elections marked the beginning of the current year. As the government celebrated its second year of assuming power on January 5, 2015, the opposition party that boycotted the national parliamentary elections of 2014 on the condition that elections be held under a neutral caretaker government, voiced its demand once again. 
But political unrest, as always, had turned into violent actions for some time in January and February 2015, with both parties trying to stick to their respective positions. Due to general strikes called by the protesting party, the economic and social life of the country was disrupted for a while. The year 2015 consisted of the last two quarters of FY 2015 (January-June 2015) and the first two quarters of FY 2016 (July-December 2015). Therefore, the economy felt the heat of the political unrest to some extent during the third quarter of FY 2015. This had a toll on the economy in the short-term since production, transportation and various services were disrupted, which in turn impacted the supply chain of commodities across the country as well as the livelihoods of people.
The government targeted a 7.3 percent growth of gross domestic product (GDP) in its national budget for FY 2015. The actual GDP growth was, however, 6.5 percent in FY 2015, even though it was 0.4 percent higher than the previous year. This has been due to a relatively calmer political situation since the fourth quarter of FY2015 and the government's efforts to make up for the loss.
Political stability, however, has not removed political uncertainty. Though the government seems to be governing confidently while the opposition party seems to be getting weaker day by day due to a lack of space for its activities as well as a lack of leadership, investors are not fully free from worries about the future.  
If investment figures are any indicator, their cautious moves in regards to investment decisions are obvious. The investment-GDP ratio hovers around 29 percent. In FY 2015, the total investment was 0.7 percent lower than what was targeted for, but 0.4 percent higher than the previous fiscal year. Private investment increased by only 0.1 percent in FY 2015 compared to the previous year. Public investment couldn't achieve its target either and fell short of the target by 0.6 percent. Low implementation of the Annual Development Programme (ADP) during July-November 2015 is a major factor for lower public investment. Political unrest has impacted the ADP implementation efforts. Decline in subsidy that comprises a major expenditure of the government has also contributed to this. Subsidies declined due to low commodity and petroleum prices in the international market. However, lower public expenditure is worrying, since infrastructure requires huge public investment for the private sector to come forward.  
Remittances, one of the important sources of foreign exchange reserves of the country, showed a downward trend for some time of the year, but achieved 7.6 percent growth in FY2015. However, the remittance growth has been negative from July to November 2015, despite manpower export going up by 41.3 percent. Export numbers have not been encouraging, either. During FY 2015, exports grew by only 3.4 percent against the target of 10 percent. This has prompted policymakers to set export growth target at a lower level of 7.3 percent in FY2016. From July to November 2015, export growth was at 6.7 percent, mainly driven by higher exports of readymade garments (RMG) that picked up recently. Though still competitive in the global market, the RMG sector will have to learn to absorb higher costs due to stringent compliance requirements through increasing productivity. 
The challenge of domestic resource mobilisation continues since last year. The target growth for FY 2015 was revised downward from 24.2 percent to 12 percent. And the actual growth was 1.2 percent higher than the revised target. But the budget for FY 2016 has once again overestimated revenue collection effort. The target for FY 2016, set at 29 percent will be challenging at its current pace. From July to September 2015, revenue grew by 9.6 percent, indicating that during the rest of FY 2016, the revenue collection has to be invigorated at a rate of 34 percent. 
Inflation has been a silver lining in the economic landscape in recent times. Lower international commodity prices has contributed to this. Additionally, restrained monetary growth and a stable nominal exchange rate between Bangladeshi taka and US dollar has also pushed inflation downward. The mean average inflation reached 6.21 percent in November 2015, close to the target of the central bank to keep inflation at 6.2 percent by June 2016.
The year 2015 has also been significant for Bangladesh as country's position has been upgraded from a low income country to a lower middle income country status with a per capita income of USD 1,314. Despite challenges, achievements such as this are encouraging for Bangladesh. 
In the short term, the global economic outlook for 2016 does not look promising. Major economies are struggling to recover from shocks while a few others are facing the threat of deflation. Therefore, the main boost for Bangladesh economy has to come from within the country. Fiscal prudence and revitalising investment will be critically important for achieving the growth targets. Institutional reforms, a daunting but essential task, have to be completed to realise the potential of the economy and fulfil the aspirations of accelerating and sustaining growth and prosperity.

The writer is Research Director at the Centre for Policy Dialogue. 

Source:  The Daily Star, 28 December 2015

Open Sky: Message of Kaushik Basu for Bangladesh

Biru Paksha Paul

Economics can turn into an inspirational story if the economist deals the subject with passion and insight.  That is what Professor Kaushik Basu did while examining the strengths and weaknesses of the Bangladesh economy. His strong assertion for globalisation could create both debate and determination toward the gradual acceptance of the market economy.  He compares globalisation to gravity, stating that it is there and it will be there whether you like it or not. The wise way would be to invent a way to turn gravity to our favour. Water flows downward by its intrinsic property, he further states. Smart people will convert that property into hydroelectric power. In the same vein, Dr. Basu sees the sources of strength for Bangladesh, such as the demographic blessing and geographic location, that could take advantage of the benefits of high, effective demand and connectivity. 
The Chief Economist of World Bank, Professor Basu, delivered a public lecture on December 13 in Dhaka. He asserted that what Bangladesh has achieved over the last four decades is nothing less than a fascinating development story. The country was once doomed to fail but it has emerged from  ashes with steadily rising growth. Social indicators are not perfect, but the major numbers exceed those of many other developing nations including India - an emerging giant whose per capita income is almost 1.5 times higher than Bangladesh's.
This implies that if Bangladesh's per capita income catches up with India's per capita, Bangladesh will be placed in a more advanced position than the latter in almost all social indicators, indicating the country's leading role in protecting the poor. Professor Basu's visit has been instrumental in changing the relationship between the current regime and World Bank. 
When journalists catapulted arrows of criticism on how the World Bank handled the case of the Padma Bridge, Dr. Basu instantly congratulated the Government of Bangladesh on undertaking the mega project with self-financing capacity.  Kaushik applauded Bangladesh for moving ahead with its dream project without fear, almost echoing Rabindranath's verses, "Where the mind is without fear, where the head is held high ..."
Although the acrimony between the two parties had taken place before Dr. Basu joined the World Bank, he did not disown any incidents of the past.  Rather, he viewed the matter from a positive angle by asserting that a good outcome may often show up after bad history. Professor Basu ascertains that the bilateral relationship between Bangladesh and the World Bank has now reached a new height of mutual respect. And Bangladesh has earned that status by spearheading the titanic project with unflinching determination. No one ever thought that the Senior Vice President of World Bank would be so effusive in brightly painting a developing nation like Bangladesh. Our country gained both morally and psychologically from Dr. Basu's visit to Dhaka.
The day the Prime Minister inaugurated the construction of the Padma Bridge also marks the day the Chief Economist of World Bank landed in Dhaka.  The confluence of the two circumstances may appear intriguing.  Some were curious as to why the two events occurred simultaneously. But there is no connection between them. Primarily, Kaushik Basu is the guest of Bangladesh Bank.  The central bank invited Dr. Basu much in advance as the chief guest of an international workshop held in mid-December, and Dr. Basu honoured the call from Governor Atiur Rahman. 
 Gradually, Dr. Basu's programme began to unfold, comprising various high profile meetings including ones with the PM, Finance Minister, and Planning Minister.  They were all impressed by Dr. Basu's wisdom to read the inner strength of the Bangladesh economy. Professor Basu places enormous importance on patriotism and the country's united spirit and thus, paid homage to Bangabandhu, who he considers to be a visionary and a great leader.  While meeting the Prime Minister, Kaushik did not forget to mention his mother, who was originally from Jessore.  And thus he could convince our leader about his candid feelings for Bangladesh. 
Dr. Basu was very enthusiastic about the rural economy and to learn about financial inclusion, an essential strategy Bangladesh Bank has been campaigning for to promote inclusive growth and consequently, sustainable development.
Kaushik Basu sees Bangladesh as being on the cusp; lying between moderately high growth and the actual takeoff. Seldom have we seen such optimism and econometric rigour in the analyses of even local critics. Basu claims that few countries of the world were fortunate enough to maintain an average growth of 6-plus percent for 12 years, as maintained by Bangladesh. 
When Basu speaks, economists listen to both his diction and predictions. Basu's economics is both statistical and inspirational since this game theorist sheds light on moral qualities. Basu's main message for Bangladesh is to ensure that this takeoff happens by investing in infrastructure and accelerating growth in a balanced, inclusive fashion. Kaushik Basu believes that a vibrant Bangladesh will soon turn into a marvelous development model – a story that will radiate awe and inspiration on the globe.

The writer is chief economist of Bangladesh Bank.  

Source: The Daily Star, 22 December 2015

Bangladesh's recent economic growth: How inclusive is it?

Mustafa K. Mujeri

Bangladesh's development, especially since the 1990s, is widely treated as a unique story of success on many counts. In particular, the progress in social sectors has been noteworthy with several social indicators showing one of the fastest improvements in the history of development. As opposed to the typical 'income-mediated' (where rapid and broad-based economic growth plays the key role in social progress as in the case of South Korea) and the alternative 'support-led' (in which case high public spending in social sectors is the key mover as in Sri Lanka) pathways, Bangladesh's social development has rested more on a premise where grassroots activism and social organisations have played key roles in bringing about innovative and low-cost solutions to social problems along with pro-active public sector initiatives. The country's economic growth averaged below 4.0 per cent in the 1980s that rose to above 6.0 per cent in recent years. This shows that the country is yet to achieve rapid economic growth as experienced by many of its neighbours. On the other hand, Bangladesh's public spending in social sectors (e.g. in health and education) as a share of GDP (gross domestic product) is also low, which does not compare favourably with the average of the low-income countries.

The above suggests that Bangladesh's significant success in social development can neither be fully explained by high economic growth nor by high social spending; rather Bangladesh's  social transformation has mostly been driven by grassroots programmes of targeting women's empowerment, rapid growth of female labour-intensive garments industry, labour migration and remittances which provided the required thrusts.

The country's rapid social development has also been associated with significant growth in consumption and income thereby contributing to rapid reduction in poverty and deprivations. The real per capita income has more than doubled since the early 2000s and income poverty has declined substantially with less than a third of the country's population currently living in poverty compared with nearly two-thirds in the early 1990s. Following wide-ranging reforms and pursuit of prudent policies, macroeconomic fundamentals have strengthened, economic stability has been restored, saving and investment rates have risen, and the private sector has emerged as the prime mover of the country's economic growth and development. In addition to labour-intensive readymade garments industry, the major stimuli to economic growth has come from a rapidly diversifying agriculture, micro- and small-scale enterprises in manufacturing and services sectors, remittances from the migrant workers, and an expanding  middle class who acts as the pioneers in exploiting innovations and bringing about socioeconomic progress.

TWO CHALLENGES: While the above features can rightly be treated as significant strengths for future development, two important challenges remain: first, how to raise the rate of economic growth to 7-8 per cent and above over the medium term for achieving the middle-income country status; and second, what measures are needed to make economic growth more inclusive for realising the dream of reducing poverty and eradicating extreme poverty within the shortest possible time.

With respect to the second challenge, a key question is: how inclusive has Bangladesh's economic growth been in the last decade?

Unfortunately, there does not exist any consensus regarding specific interpretation of inclusive growth. However, two alternative definitions of 'pro-poor' growth are available in the literature. The first one is that growth can be treated as pro-poor if income of the poor people grows faster than that of the population as a whole which means that income inequality should decline. The alternative is that growth should be considered as pro-poor as long as poor people benefit in absolute terms, as measured by standard poverty measures.

We illustrate the difference between the two concepts using Figure 1. The figure shows the share of income of the richest 30 per cent of the population on the vertical axis and that of the poorest 30 per cent on the horizontal axis. We have used 30 per cent as the cut-off point since the share of the poor in total population is around that number in Bangladesh. For our purpose, we consider the shares in 2000 as the base case scenario depicted by point A.

In terms of Figure 1, the growth strategy followed by Bangladesh has resulted in changes in the distribution of income between the two groups. This has altered their shares in total income as well.  We can term such changes as Pareto optimal if the outcomes fall at any point within the space bounded by BAC. This is due to the fact that any movement from point A to a point say B represents a situation in which economic growth raises the income share of the 30 per cent of the poorest without making the rich any worse off (as their share does not fall). On the other hand, movement from point A to a point like C represents a case where the income benefit of additional growth accrues to the rich without making the poor any worse off in terms of shares in total income.

Similarly, any point located on the 45 degree line divides the income in a manner such that the income distribution does not change; while any point between the horizontal line containing B and the 45 degree line indicates that a larger share of income accrues to the poor relative to the rich and the opposite happens in the case when the point lies between the 45 degree line and the vertical line containing C.

In terms of the two alternative definitions of pro-poor growth mentioned above, the first requires that the changed income shares should lie within the area covered by the 45 degree line and the above-mentioned horizontal line such that the poor benefit more from economic growth. On the other hand, the alternative interpretation suggests that growth will be pro-poor as long as the poor also benefit from growth indicating that the changed situation should lie at any point to the north-east of point A irrespective of any specific location around the 45 degree line.  

INCOME SHARE: Now, the question is: how has the income share changed between the rich and the poor over the last decade in Bangladesh? We examine the issue with reference to Figure 1. The Household Income and Expenditure Survey (HIES) data show that the share in total income of the richest 30 per cent was 62.40 per cent and the share of the poorest 30 per cent was 10.74 per cent in 2000 which changed to 63.29 per cent and 9.32 per cent respectively in 2010. This shows that, in 2010, we have moved to the left of the vertical line containing C (say, to a point like D) such that the share of the poorest 30 per cent has declined between 2000 and 2010 while the share of the richest 30 per cent has increased. This shows that, relatively speaking, the richest 30 per cent have benefited more than the poorest 30 per cent from economic growth during the period. On the other hand, the middle 40 per cent have raised their share in total income from 26.86 per cent in 2000 to 27.39 per cent in 2010 showing their relative gain in terms of accessing the growth benefits.

In this respect, one interesting aspect is to explore if the situations are different in rural and urban areas. Again using the HIES data, one finds that the income share of the poorest 30 per cent have declined from 12.36 per cent in 2000 to 10.25 per cent in 2010 in the rural areas while the share of the richest 30 per cent rose over the same period from 57.88 per cent to 60.93 per cent. The middle 40 per cent in the rural areas were also losers in terms of income share since their share declined from 29.76 per cent in 2000 to 28.82 per cent in 2010.

In the urban areas, the poorest 30 per cent gained as their income share rose from 8.93 per cent to 9.02 per cent over the 2000-2010 period. On the other hand, the income share of the richest 30 per cent declined from 65.81 per cent in 2000 to 62.72 per cent in 2010. The middle 40 per cent turned out to be gainers who could raise their share from 25.26 per cent to 28.26 per cent over the same period.

The above results indicate that the pattern of economic growth in Bangladesh during the first ten years of this century has not been much inclusive resulting in loss of income share by the bottom 30 per cent of the population. On the other hand, the remaining 70 per cent of the population have increased their shares although the richest 30 per cent have gained the most. The gainers and losers are, however, different in rural and urban areas. In the rural areas, the poorest 30 per cent and the middle 40 per cent are both losers while only the richest 30 per cent are the gainers in terms of income share. In the urban areas, income shares of both the poorest 30 per cent and middle 40 per cent rose while the income share of the richest 30 per cent suffered a decline. This shows that adopted policies and structural features of the growth process during the period had different impact on rural and urban growth in terms of changing the income shares of various population deciles in different ways.          

The empirical evidence on inclusive growth in different countries suggests that no specific growth strategy is uniquely appropriate and the outcome with respect to growth inclusiveness depends on individual country characteristics and its structural features. The general conclusions, however, show that inclusive growth is facilitated by rapid growth in agriculture and the rural economy especially at the initial stages, emphasis on adequate and efficient delivery of essential public services especially health and  education, development of infrastructure, and good governance, all of which are vital for the poor to access socioeconomic opportunities.

SUSTAINED ECONOMIC GROWTH VS INCLUSIVE GROWTH: It is well established that while sustained economic growth is necessary for Bangladesh, it is not sufficient for triggering inclusive growth for which sectoral composition of growth also matters. In the context of Bangladesh, the emphasis on agriculture and the rural economy is critical for reducing poverty and generating inclusive growth. Many empirical studies confirm that growth originating in agriculture generates highest benefits for the poorest households and unskilled workers followed by the construction industry. One study observes that growth originating in agriculture in low-income countries is nearly three times more poverty reducing than growth originating in manufacturing and nearly double that of growth originating in construction activities.

For sustaining inclusive growth, it is important to make adequate public investments in social sectors especially education and health along with other essential services so that the poor can enhance their capacity to avail newly created opportunities. The association between inclusive economic growth and the level of public spending on education and health is well documented. In this context, literacy is probably the most significant factor as it enhances employability. One study reports that, in India, nearly two-thirds of the difference between the elasticity of the headcount index of poverty with respect to non-farm income between Bihar (the state having the lowest absolute elasticity) and Kerala can be attributed to Kerala's substantially higher initial literacy rate. Similarly, infrastructure occupies a central stage in Bangladesh's development. The problem of energy scarcity is just one of the many infrastructure challenges facing Bangladesh. Almost all infrastructures in the country require substantial expansion and upgrading to meet the increasing demands of economic growth.

Bangladesh's public expenditure on health is relatively low and favours the non-poor. At the present stage of development, an urgent compulsion for Bangladesh is therefore to adopt new approaches for extending access to healthcare to its entire population based on equity, affordability, and sustainability. The healthcare planning also needs to take into consideration the ageing factor which will become increasingly vital for Bangladesh. The changes in the age composition of the country's population show that the period between 1950 and 2010 experienced a minor increase in old-age dependency ratio (by only 0.3 percentage point) to reach 7.4 per cent in 2010. Available population projections, however, show that the ratio of the aged population (people older than 64 years) to working-age population (aged 15-64 years) will face a continuously rising trend to move to 11.0 in 2030 and further to 23.1 per cent in 2050 from 8.0 per cent in 2014.

Obviously, the efforts needed to promote inclusive growth would require a major role of the government at all levels to ensure that public actions are effective and efficient. But the perceptions on Bangladesh's business environment and bureaucracy are still not favourable and Bangladesh continues to receive very low ranks in Doing Business and other perception surveys. Needless to say, these low rankings are big constraints in raising productive investments and attracting foreign capital inflows needed for moving towards more inclusive and rapid growth regimes.

This analysis on inclusive growth over the last decade shows that although recent economic growth in Bangladesh has been beneficial to the poor, the income benefits that accrued to the poor are fairly modest. The country definitely has a need and the ability to move towards a more inclusive growth regime. For the purpose, concerted efforts are needed to make the growth process more inclusive through strengthening the sources of inclusive growth and bringing necessary reforms to enable the poor to access a greater share of the benefits of growth.

The writer is Adviser, Institute of Microfinance, Dhaka.   

mujeri48@gmail.com 


Source:  The Financial Express, 06 December 2015

Seventh Five Year Plan What are its shortcomings?

Fariha Fairuz Chowdhury

It is apparent from the final draft of the Seventh Five Year Plan FY 2016-FY 2020 that the government has a clear vision for transforming the economy of Bangladesh from a rural-based agrarian economy into an urban-based industrial one. With a target of 8 percent GDP growth by 2020, the highly ambitious plan includes worthy initiatives like emphasising the incorporation of ICT, generating employment opportunities, and promoting gender equality. However, the plan has some shortcomings, especially when it comes to Technical and Vocational Education and Training (TVET).
The total number of polytechnic institutions enlisted by the Bangladesh Technical Education Board is 7,002, among which 293 are government organisations and 6,709 are private ones. According to the Labour Force Survey (LFS) 2010 by the Bangladesh Bureau of Statistics, 47.56 percent of the total employed population in Bangladesh is engaged in agriculture followed by 35.35 percent in the service sector and 17.52 percent in manufacturing and other industries. The vision of the government is in tune with this trend. The question is whether the goals and plans set by the government in the Seventh FYP are complying with this vision.
The report that has been produced by General Economics Division (GED) of the Planning Commission, as a background study for the Seventh FYP, written by Binayak Sen and Mahbubur Rahman,  acknowledges the fact that agricultural modernisation requires a modest human capital requirement but when an economy is striving to be industrial, the 'skills-mix' should look very different. It clearly states that “only emphasis on below-primary or primary education will not be enough in this growth scenario; the focus needs to be given to secondary and technical education commensurate to the demand of the export-led labour-intensive manufacturing growth. Again, if the stage of growth is shaped predominantly by the service sector growth, the emphasis needs to be shifted to post-secondary and higher technical education and training." A mismatch between demand and supply of skills might be very costly for Bangladesh at this stage. The final draft of the Seventh FYP should have reflected this statement from its own background study on the whole but has disappointed its audience in many ways. 
In the 'Plan Goals and Targets' part of the draft, for instance, there are only two targets dedicated to education and none of them talks about TVET. ICT has been heavily incorporated in various parts of the plan, including secondary, higher and madrasa education but not TVET. 
One of the most crucial exercises while drafting such a plan is to analyse past failures and attainments. The chapter on 'Progress with TVET during the Sixth Plan' is quite vaguely written, lacking in proper statistical representation, analysis and interpretation. Likewise, the 'Major Challenges' part should have been more specific and backed by necessary data like the ones presented in other streams of education except technical and vocational education and training! Similarly, the 'resource allocation' part of the plan does not extensively explain how much budget will be provided for the TVET sector over the next five years. Also the issue of research and knowledge development in the TVET sector of Bangladesh has not been seen in the report. These shortcomings in preparation and presentation of the report can thus be (mis)interpreted by the audience of the plan as lack of research or attention to this sector.
The plan fortunately acknowledges the skills deficiency of migrant workers and has provided plans for training people for overseas employment. It also recognises the promotion of gender equity and special attention to disadvantaged groups and persons with disabilities. 
It is apparent from the final draft of the Seventh FYP that the government will be heavily dependent on the National Skill Development Policy (NSDP 2011) for the development of the TVET sector. However, instead of repeating the words from the policy paper, the plan could have been given a structured direction toward how these policies are going to be implemented with time bound targets. A constructive way to develop targets and goals is to follow the SMART criteria used by George T. Doran in his paper published in Management Review in 1981. SMART stands for: Specific – target a specific area for improvement; Measurable – quantify or at least suggest an indicator of progress; Assignable – specify who will do it; Realistic – state what results can realistically be achieved, given available resources; Time-related – specify when the result(s) can be achieved.
In order to avoid the mismatch of supply and demand of skills, it is important to plan from a demand-side point of view. Thus developing linkages between industries and polytechnics is a critical pre-requisite. The responsibility of the National Skill Development Council (NSDC), chaired by the honourable Prime Minister, is to promote technical and vocational education in close cooperation with industry, and handling the routine coordination with all the Industrial Sector Councils (ISCs). The role of the NSDC has unfortunately been missing from the Seventh FYP. It could have explicitly specified some targets to be fulfilled by this body over the next five years. The NSDC can contribute greatly in fulfilling the target of generating 13 million jobs which has been one of the highlights of the Seventh FYP. 
Policies and interventions alone cannot bring change in society. In Bangladesh, the profile of a TVET student is perceived as male, poor and 'left-out' from the general education stream. This long-established misconception needs to be rectified. The government and development agencies, through a planned social marketing approach, can promote the message that students of TVET can be well-earning, respected members of the society, that they can be employers and entrepreneurs. 
The Sustainable Development Goals (SDGs) have stressed the importance of TVET under Goal 4, which aims to substantially increase the number of youth and adults who have relevant technical and vocational skills, for employment, decent jobs and entrepreneurship by 2030. Also, according to the SDG targets, the technical and vocational students of the LDCs are expected to be given a substantial number of scholarships by the developed nations by 2020. The Seventh FYP can be a head start for achieving these targets. 
The importance and potential of the TVET sector is undeniable at this stage. Since the Seventh FYP is still a 'draft' and there is still scope for adjustments and improvements, the GED of the Planning Commission might consider revising the TVET part of the plan so that it becomes a complete guideline for the development of TVET and the system can be held accountable for its progress over the next five years.
The writer is Research Assistant, Education Global Practice, The World Bank, Bangladesh. 

Source: The Daily Star, 03 December 2015

MACRO MIRROR: Rural transformation in focus

Dr Fahmida Khatun

RURAL Bangladesh is changing its face. Both physically and structurally. With the rise of various new and emerging activities, today's rural economy is different from that of the eighties or nineties. Not only is there more concrete and electricity, one now finds agents of bKash helping to send and receive money through mobile phones or info-ladies equipped with a laptop, mobile phones and apparatus travelling on bicycles providing advice on health, family planning, education, legal issues and marketing. One also finds beauty parlours and cyber shops.
Infrastructure and technology have played an important role in bringing about such changes which, in turn, have led to economic and social transformation. For example, road infrastructure in rural areas has created employment and income opportunities for both men and women in many ways. Poor and landless people, including destitute women, can work in construction and maintenance of road. On the other hand, improved roads have reduced travel time and increased accessibility of jobs outside rural areas. Better infrastructure has also enabled us to develop rural markets. Private investments for shops, restaurants, pharmacies, tea stalls, saloon, etc. have created employment opportunities for the rural population. Expanded connectivity between rural and urban areas has also increased the value of land significantly. 
Better roads have reduced travel time and increased access to social services including health and education. As a result, mobility of women, both in terms of work and accessing maternal and child healthcare programmes, has increased. A large number of schools in rural areas operated by both the government and non-government organisations have contributed to increased accessibility of rural girls to education.          
The other stimulus has come from the use of technology in rural areas. Farmers are now able to receive market information through mobile services. A large number of women enjoy services provided by mobile technology. Mobile-based services such as mobile money, healthcare, education and information and helpline services have flourished in Bangladesh rapidly during the last decade. These have created opportunities for rural livelihoods.
Participation in microcredit by a large number of women has undoubtedly increased their household income and empowered them socially. Additionally, technology and information flow has also contributed towards empowerment of women. Girls' education has not only created increased employment opportunities for them, but it has also made a positive impact in a number of areas, including increased decision-making power of women and girls, higher marriage age of girls and greater say in choice of spouse. Women's education and access to information are critical factors for increased use of maternal health services and improved health outcomes, as well as reduced fertility and improved family nutrition.
Despite such spectacular changes, rural Bangladesh lags far behind urban areas on many counts. With about 70 percent people living in rural areas, economic and social opportunities are far less than that of urban areas. The rural-urban divide is obvious in poverty statistics. The Household Income and Expenditure Survey 2010 shows that the percentage of people living below the poverty line is much higher in rural areas than both the national and urban levels. For example, according to the HIES 2010, the incidence of extreme poverty is 17.6 percent at the national level, 21.1 percent in rural areas and 7.7 percent in urban areas. Similar trends exist in case of access to health, education, technology, water, sanitation, electricity and other services. 
Hence with the majority of the poor located in rural areas, the real effort towards poverty alleviation initiative has to be focused more on rural poverty alleviation. Diversified employment opportunities and increased productivity can play a key role here. Though the share of agriculture in the economy has reduced over time, a large number of people still eke out their livelihoods from agricultural activities. With a share of only about 18 percent of the total gross domestic product, the agriculture sector absorbs 42 percent of the total labour force of the country. Understandably, productivity per labour is very low as there is an excess supply of labour. This pushes agricultural wages downward. 
Again, the adoption of technology in the agriculture sector is crucial. With limited agricultural land, technological innovation for high-yielding varieties has played a key role in higher production. However, innovation in the agriculture sector has to be an ongoing process as the country is vulnerable to weather variability and climate change. Water-tolerant and drought-resistant crop variety has been introduced in recent times. But there is still scope for further adoption of advanced technologies in the sector for diversification of agricultural commodities and production of high-value crops for the export market. This requires increased resource allocation for research and development for the agriculture sector. Skills development of human resources is equally important. 
The recently launched “The Least Developed Country Report 2015” by the United Nations Conference on Trade and Development has highlighted some of these challenges to rural transformation. While the importance of the rural economy for holistic development is undeniable, we tend to overlook this reality, preferring to focus all our attention to the urban economy. However, as we enter into a new global development regime in the post-2015 period, the focus has to shift more towards a balanced growth both in urban and rural areas. Eradication of poverty of all forms and from everywhere, as outlined in Sustainable Development Goal 1 formulated by the UN, is not possible without poverty alleviation in rural areas where a lion's share of poor people live. 

The writer is Research Director at the Centre for Policy Dialogue.

Source:  The Daily Star, 30 November 2015

Foreign direct investment: Bangladesh perspective

Dilwar H Choudhury from Virginia, USA

  • Depending on how a country positions itself, Foreign Direct Investment (FDI) may remain a myth or it can become a reality. Being a third world country is no barrier to FDI, but third world behaviour pattern is certainly a hindrance to it. FDI is sought by every country, rich or not rich. Bangladesh is no exception. Recently, there has been a great deal of activities in Bangladesh for attracting FDI and Diaspora investments. Most recent initiative was a Road Show in UK organised by the Board of Investment. Sometime back, speaking at a local event Governor of Bangladesh Bank Dr Atiar Rahman wondered why FDI inflow had been so poor despite Bangladesh being a low-wage manufacturing hub.

These events and observations prompted me to inquire into the myths and realities of FDI. To my mind attracting foreign investment in a country is equivalent of marketing the country itself in the first place. Just as consumers buy products reflecting not on a single feature of the product, an investor also invests, relying not on a single advantage available in a country. Similar to a person's character traits, every country has some core values that draws or repels an investor. Such core values of the country may be broadly summarised as: a) levels of personal freedom, b) accounting standards, practices and applications, c) legal and justice system.

This thought process takes me several years back to my job as a banker in an international bank in UK. It was 1991 and the first Persian Gulf War had just begun. Iraq was attacked by allied forces. UK was one of the associates of the alliance. As the war intensified, a large number of wealthy Iraqis fled from Iraq and the great majority of them landed in UK with big amount of money. Our bank received large Iraqi funds of all times. It was paradoxical that Iraqis would be coming in a body to invest their fortune in an enemy country. Many Iraqis were interviewed by the British journalists to know the reasons behind their choice. Almost all of them said they had moved to UK because of the personal freedom they enjoyed there. Once in UK, they enjoyed the same freedom any other person living there would have, not discriminated nor undermined. Historically, the urge for personal freedom had driven people from one land to another. The American immigrants moved from Europe to avoid religious persecution and economic discrimination. Mindset of modern FDI sponsors had changed very little. They not only bring a mass of capital and entrepreneur skills, but also demand safety and security. The sense of security is not just the overwhelming presence of law enforcers and cc cameras but also the very perception of freedom and security. A country under autocratic rule may provide ample physical security but not the mental freedom. That is why, you would notice that FDI does not flow so easily to a land under autocratic rule, however favourable the cost of labour might be. If personal freedom is denied, every other advantage becomes irrelevant. After the recent Paris carnage, 80 per cent of hotel booking dropped in France. Urge for freedom looms large in every human mind wherever they might be living.

The second most important factor for FDI is accounting transparency. The accounting principles of the country should provide for punishment of financial misrepresentation, accounting manipulation, scam and fraud. Take for example, the US company Enron's account manipulation and also the participation of accounting firm Arthur Andersen LLP in the scam. When the scam came to light, erring personnel were indicted and both Enron and its accountants were brought to justice. Bernard Madoff was sentenced to 150 years in jail for his capital market scam in Wall Street, New York. The corporate weight of Enron, business standing of Arthur Andersen LLP, Madoff's influence in financial circle could not help them to hide their misdeeds. United Kingdom also maintains similar financial discipline. Robert Maxwell, a British billionaire and Member of Parliament, committed suicide in 1991 when his pension fund fraud was revealed by the auditors. His Jewish connections and media influence could not be of any help.

How do we fair in Bangladesh in this field? The principal fraudsters of Oriental Bank got away with their crimes. The accounting firm which audited and certified the accounts of Oriental Bank is still in business with impunity. The scam leaders of Hall Mark Group and the ringleaders of BASIC Bank fraud are still at large. These are not discrete incidence in Bangladesh financial market; rather speak expressively of the overall financial mismanagements, inadequacy of regulatory control and lack of application of law. Financial crimes can never be totally eliminated but nothing prevents one from bringing the perpetrators to justice. These incidences put most of our financial statement into question and investors are unable to rely on financials of the companies they invested in or planned to invest. All FDI investors do not come to set up a new industry. They may look for private equity investment in an existing firm. These investors would always look for an accounting standard to rely upon.

As regards diaspora investment we see a far more dismal picture. Dhaka Regency Hotel & Resort Ltd. is a conglomerate of more than 100 diaspora investors. There have been allegations of widespread accounting irregularities within the hotel managements.  United Airways (BD) Ltd. is another conglomerate of over 100 diaspora investors. The company also had gone public and raised substantial amount of funds from the market through public issue. The company is now reeling with huge debt and near zero asset level with dwindling revenue. There is no process in place to make the management accountable for the dubious dealings that led to company's present position. These events, only to name a few, discourage the diaspora investors who contribute significant amount of capital, play a passive role in managing the affairs of the company and expect fair returns on investment. In our country, when a company fails the investors have no recourse against the wrong doers. These are the inadequacies of our accounting and legal system.

The third aspect is presence of an upright legal and justice system. In all orderly managed countries, legal reform is a constant and dynamic process. When Herstatt Bank of Germany collapsed due to overexposure in FE Open Position and settlement failures, the law relating to bank's Open Position was changed overnight and many other jurisdictions adapted the process. After the failure of BCCI bank, there had been a change in financial reporting process in UK and USA. Many other jurisdictions carefully emulated the process in their own system.

What I mean is that financial crisis, scam, fraud, deception will happen but legal reforms to prevent them should not wait. There had been Hall Mark fraud, BASIC Bank Scam and rampant wilful credit default by influential borrowers. But appropriate legal reforms were not initiated to prevent recurrence of such swindling. Our justice system was also not geared up to contain and defeat these fraudsters. FDI usually comes from residents of and companies in developed countries which have a robust legal base to deal with the scammers. People familiar with these best practices would be unwilling to venture in a poorly regulated jurisdiction.

The Financial Express in its September 03, 2015 issue reported that David Meale, Charge d'affiars of US Embassy, Dhaka, told his business audience in a meeting of AmCham on September 02, 2015 that Bangladesh had great potential for FDI and his country's investors were interested to invest in Bangladesh in power, infrastructure, leather, pharmaceuticals and IT. However, bureaucratic delays, poor infrastructures and lack of adequate legal provisions for alternative dispute resolutions are some of the major roadblocks.

However, it's not entirely a gloomy outlook. Bangladesh has set some great examples by adapting robust compliance procedures in ready-made garments (RMG) factories after Rana Plaza debacle. By adapting international best practices of business transactions, Bangladesh can move from one scale of acceptance to the next higher level. All we need is a change of mind and when this happens, foreign investors themselves would discover their trail to Bangladesh.

The writer, a former banker, now lives in Virginia, USA. dilwar1940@gmail.com


Source:  The Financial Express, 26 November 2015

GDP target lowered as economy hobbles

Nazmul Ahsan


The Planning Commission has lowered the estimate of Gross Domestic Product set for the current fiscal year, citing the downward trend in the economy and sputtering investment situation.
The GDP growth could be as high as 6.8 per cent if the slowing economic trend continues during the rest of the financial year, a report of the commission said.
The General Economic Division of the Commission prepared the report and submitted its findings and projections on GDP and other macro-economic fundamentals to the finance ministry past week, a top finance official said.
The report, however, said the projected seven per cent economic expansion is only possible if a turnaround in the economy takes place.
The report was based on the first quarter performance (July-September) of the overall economy.
Former finance adviser to a caretaker government Mirza Md Azizul Islam said GDP could rise as high as 6.2 per cent in the current 2015-2016 fiscal year.
The projected GDP growth for 2015-2016 was set at seven per cent, while the growth was 6.1 per cent in the previous fiscal year.
‘We are worried about a prolonged sluggishness in the economy as the first quarter economic performance has dampened the GDP outlook,’ a senior Commission official told New Age on Tuesday.
He said tepid growth in private sector investment and huge revenue shortfall during the first four months of the current financial year was a headwind for the economy and the major factor for projecting less than expected growth.
The finance ministry in a report early this month said credit growth in private sector during July to September period was 2.63 per cent, compared with 2.91 per cent a year ago, export growth was 0.83 per cent as against 0.88 per cent, import registered negative growth of 2.98 per cent during the period, and remittance in July to September registered a negative growth of 2.0 per cent, as against 22.65 per cent growth a year earlier.
The report, citing the data of Bangladesh Bank, said letter of credit opening during  the first quarter registered a 9.8 per cent negative growth, L/C opening for capital machinery registered 6.95 per cent growth compared with 14.05 per cent year-on–year, raw material import registered a 1.43 per cent negative growth as against 12.22 per cent growth year-over-year.
A top finance ministry official said the projection of the GDP by the Commission was premature, given the estimate was based on only three months economic data.
‘We hope a good time in investment and economic activities will return soon with the beginning of 2016 calendar year,’ the finance official said.
AB Mirza Md Azizul Islam said the dismal performance in the first quarter suggests the projected seven per cent growth in the current fiscal year is absurd.
‘Growing security concerns among common people and investors, coupled with political uncertainty, are the major contributors to the slowing economy,’ Aziz told New Age.
The World Bank recently projected 6.3 per cent GDP growth, while IMF put their estimate at 6.5 per cent for the current fiscal year. 


Source:  The New Age, 25 November 2015

OPEN SKY Why is Bangladesh different?

Biru Paksha Paul

Bangladesh is categorised as a lower middle income country in the World Bank's country list.  Economists now classify the country as a developing nation. In the past, we were defined as a third world country – a notion which no longer exists. Despite being defined from various angles, Bangladesh is distinctly a different country among its peers from a macro point of view.
In 1971, Bangladesh became independent defeating a mighty Pakistani army. But our economic power in comparison to Pakistan seemed much weaker after independence. No macro statistics ever showed any superiority of Bangladesh over Pakistan in the 1970s and 1980s, lending credence to the claim of the anti-liberation forces that abandoning Pakistan was a blunder. Bangladesh's economic fate began to change since the early 1990s when the country embarked on liberalisation. Although its South Asian neighbours including Pakistan started opening its economy at the same time, Bangladesh's performance began to outshine Pakistan's in most economic fronts, something our founding fathers dreamed long ago.
Liberalisation empowered Bangladesh to outperform Pakistan in terms of economic trends in investment, trade, and growth while more foreign aids flowed into the latter without strengthening its economic base. While Pakistan is struggling hard to remove its name from the list of “failed states”, Bangladesh has carved out a model of a vibrant economy. No one in the mid 1970s and early 1980s anticipated that Bangladesh would demonstrate a stable growth rate of more than 6 percent for more than a decade. That's exactly why Bangladesh is different. 
If we can further liberalise our trade by reducing tariffs and non-tariff barriers and by removing age-old regulations, our growth will exceed even 7 percent. We have already outperformed India in many socio-economic indicators like life expectancy, infant mortality, and participation of women in the labour force. Our stability in growth and inflation is better than India's and actually the best in the region. That's also why Bangladesh is an example to many other countries.   
Our geographic location provides us with a strategic advantage over our peers. Sri Lanka has a central position in the Indian Ocean, but it is an island state. In contrast, Bangladesh has a balanced sharing of land and sea so the country can take advantage of land transport with India, Nepal, Bhutan, and Myanmar. The open south side meeting the Bay of Bengal gives the nation the opportunity to navigate across the world and explore the benefits of the vastly-untapped blue economy. Thus Bangladesh can build its future as a hub of regional connectivity, attracting huge investments in infrastructure and communications. Only a few nations on earth enjoy such connectivity with thriving nations of Asia that include two emerging giants of the world: China and India. Our demographic dividend will be short-lived (another 40 years), but this geographic advantage will always be there. And that creates the difference for Bangladesh.  
Bangladesh is also special among its peers in regards to the debt-GDP ratio. Its debt ratio, being 30 percent, is one of the lowest among countries of equal status. Only one or two other nations could achieve a persistent growth rate over 6 percent over a decade with such a low debt ratio. Both India's and Pakistan's debt ratio is close to 70 percent. While India successfully cultivated foreign loan to add value to its GDP, Pakistan failed, registering almost 4 percent growth over the last two decades. This distinction of Bangladesh also conveys a message of opportunity to borrow from outside to undertake mega projects that enhance growth potentials.  
Participation of Bangladeshi women in the labour force is one of the highest in the region although there is room for improvement in the quality of employment. But the social mindset has already changed towards working women. Bangladesh will take advantage of this advancement in the future when more jobs will be created in the services sector now occupying 55 percent of GDP. Only a few countries on earth treasure that advantage.  
Bangladesh has done very well in popularising the concept of financial inclusion - a much needed paradigm to ensure sustainable growth. While private sector credit occupies 40 percent of GDP, almost 30 percent of outstanding loans are now serving small and medium enterprises - an essential step to expand employment without concentration in the capital city. The banking industry is revolutionising their services and outreach.  The central bank is tirelessly and passionately digitising the entire banking sector day by day.  
The country is energy-hungry with inadequate infrastructure. Manpower still suffers from inefficiency. Higher education lacks quality. But Bangladesh has a track record of overcoming terrible odds in a reasonably short period of time. History will back me up on this. “A basket case” has now turned into a vibrant economy.  
Bangladesh commands respect in the global stage for that.  
The writer is chief economist of Bangladesh Bank.

Source:  The Daily Star, 24 November 2015



NATIONAL SOCIAL SECURITY STRATEGY : A roadmap to poverty reduction in Bangladesh

Shamsul Alam

Social security is important not only for addressing vulnerability, but also for solving the problems of entrenched poverty and reducing marginalisation. The importance of a well-designed social security system has increasingly been accepted within national and global policy circles for addressing triple problems of poverty, vulnerability and marginalisation. Bangladesh's latest initiative in social security—National Social Security Strategy (NSSS)—takes up the challenges through an inclusive, focused, and coordinated approach to poverty reduction. 
The provision of social security is embedded in Article 15 (d) of our Constitution as citizens' right to social security. In line of the constitutional obligations, the main vision of the newly launched social security strategy is to “build inclusive social security system for all deserving Bangladeshis that effectively tackles and prevents poverty and inequality and contributes to broader human development, employment and economic growth.” To that end, the goal of the NSSS is to “reform the national social security system by ensuring more efficient and effective use of resources, strengthened delivery systems and progress towards a more inclusive form of social security that effectively tackles life cycle risks, and prioritises the poorest and most vulnerable members of society.”  
Social protection is embedded within the Seventh Five Year Plan. The plan outlines the implementation of the National Social Security Strategy as a core goal in building the foundations of a progressive and inclusive social security system. The priority challenges planned to be addressed over the next five years amongst others include (a) expanding coverage of core social security schemes for the extreme/hardcore poor and most vulnerable people of the society, focusing on mother and child, youth, working age, the elderly and people with disabilities; (b) ensuring that the most vulnerable women are provided with income security and greater opportunities to engage in the labour market, in particular when they enter motherhood; and (c) expanding coverage to the residents of urban areas and to socially excluded people. 
Human beings face shocks and challenges at different stages of their life cycle and the poor and vulnerable segments of the population are the worst victims. If not addressed on time, some of the underlying risks could have life-lasting negative impacts. While coverage of safety net beneficiaries has increased over the last decade, the targeting performance suggests need for improvement and streamlining. 
Many of the existing social safety net programmes of Bangladesh fit in with the life cycle framework, but concerns of targeting have been paramount. Much of the social security budget is spent on government pensions and food distribution schemes. Programmes to mitigate pregnancy and early childhood risks and disability are remarkably limited in both beneficiary coverage as well as financing. The average benefit of the old age allowance programme is very low and lots of poor, old people are excluded. The disability benefits and vulnerable women's programmes similarly suffer from low coverage and low average benefits since most current programmes are small and the average benefit per individual is low.
The successful implementation of the NSSS will provide a strong basis for Bangladesh to extend proper social security to its poor and vulnerable populations. It recognises the differences in risks at different stages of the life cycle and provides support to various demographic groups. The proposed reforms too are to be instrumental in eliminating leakages, improving targeting, increasing the average value of the transfers, lowering the risks faced by the poor and the vulnerable, reducing poverty and income inequality.
The reforms through the NSSS seek to consolidate the multitude of often duplicative programmes into core programmes based on the life cycle, enhance beneficiary coverage so that the programmes are by design inclusive of the poor and the vulnerable, with special emphasis on the extreme poor, and increase the average programme benefits to make a meaningful impact on the recipients. The NSSS has placed greater emphasis on strengthening the administration and management of Social Security schemes. This increases the efficiency and effectiveness of schemes while also reducing fiduciary risk. Improvements have generally focused on three main areas: professionalising staff and institutions; improving management information systems; and, the delivery of transfers to recipients. 
The government understands that improvements in the administrative arrangements for the NSSS will be critical to its success. Administrative problems and weak governance in the implementation of SSPs are interlinked. Establishing good institutional arrangements for administering well-designed SSPs will also help lower leakages. The review of past experience suggests that there are a number of areas that need to be reformed. 
The key priorities, accordingly, are to address a vastly simplified institutional arrangement that allows proper planning, implementation, and M&E of the NSSS. The professionalisation of staff is also important to create a group of public servant experts in the delivery of Social Security schemes both at national and local levels. The effectiveness in identifying recipients for social security schemes also require (a) upgrading the MISs so that they are able to underpin the effective and efficient delivery of transfers and promote cross-governmental coordination and monitoring of performance; (b) strengthening payment mechanisms to minimise leakage and to use the social security system to promote financial inclusion, in particular among the poor; and (c) establishing an effective grievance redress system so that all citizens have recourse to appeal decisions on selection and can notify the competent authorities about instances of misconduct and failures in the delivery of the promised benefit.
The government will continue deepening the partnership with different stakeholders in the area of delivering social security services based on the NSSS. NGOs can be helpful in piloting innovative ideas for possible scaling up, identification of potential beneficiaries, especially those that are hard to reach because they live in remote areas or belong to marginalised or vulnerable social groups of the population, and helping redress grievances and disputes relating to the implementation of the NSSS. 
Bangladesh now has a roadmap to a social security system that is inclusive, focused, as well as coordinated enough to achieve the objectives and get the maximum value of public money. The targeted, focused and coordinated approach will ensure that we do not embark on a fragmented implementation, with both duplication and under-coverage resulting from improper targeting, leakages and lack of inter-ministerial coordination. With a comprehensive strategy, our task in the future is to make sure that the roadmap is followed for further reduction in poverty. 

The writer is Member (Senior Secretary), General Economics Division, Planning Commission. He can be reached at sabau47@yahoo.com.

Source:  The Daily star, 06 November 2015