Bangladesh economy in global context : Challenges and prospects01 January 2020
The pace of global economic activity remains weak ,as it continued slowing sharply in the last three quarters of 2019. Momentum in manufacturing activity, in particular, has weakened substantially, to levels not seen since the global financial crisis. Rising trade and geopolitical tensions have increased uncertainty about the future of the global trading system and international cooperation more generally, taking a toll on business confidence, investment decisions, and global trade. A notable shift toward increased monetary policy accommodation-through both action and communication-has cushioned the impact of these tensions on financial market sentiment and activity, while a generally resilient service sector has supported employment growth. That said, the outlook remains precarious. Global growth is forecast at 3.0 percent for 2019, its lowest level since 2008-09 and a 0.3 percentage point downgrade from the April 2019 World Economic Outlook. Growth is projected to pick up to 3.4 percent in 2020 reflecting primarily a projected improvement in economic performance in a number of emerging markets in Latin America, the Middle East, and emerging and developing Europe that are under macroeconomic strain. Yet, with uncertainty about prospects for several of these countries, a projected slowdown in China and the United States, and prominent down- side risks, a much more subdued pace of global activity could well materialize. To forestall such an outcome, policies should decisively aim at defusing trade tensions, reinvigorating multilateral cooperation, and providing timely support to economic activity where needed. To strengthen resilience, policymakers should address financial vulnerabilities that pose risks to growth in the medium term.
Making growth more inclusive, which is essential for securing better economic prospects for all, should remain an overarching goal. After a sharp slowdown during the last three quarters of 2018, global growth stabilized at a weak pace in the first half of 2019. Trade tensions, which had abated earlier in the year, have risen again sharply, resulting in significant tariff increases between the United States and China and hurting business sentiment and confidence globally. While financial market sentiment has been undermined by these developments, a shift toward increased monetary policy accommodation in the United States and many other advanced and emerging market economies has been a counterbalancing force. As a result, financial conditions remain generally accommodative and, in the case of advanced economies, more so than in the spring. The world economy is projected to grow at 3.0 percent in 2019-a significant drop from 2017-18 for emerging market and developing economies as well as advanced economies-before recovering to 3.4 percent in 2020. A slightly higher growth rate is projected for 2021-24.
The global growth pattern reflects a major downturn and projected recovery in a group of emerging market economies. By contrast, growth is expected to moderate into 2020 and beyond for a group of systemic economies comprising the United States, euro area, China, and Japan-which together account for close to half of global GDP .The groups of emerging market economies that have driven part of the projected decline in growth in 2019 and account for the bulk of the projected recovery in 2020 include those that have either been under severe strain or have underperformed relative to past averages. In particular, Argentina, Iran, Turkey, Venezuela, and smaller countries affected by conflict, such as Libya and Yemen, have been or continue to be experiencing very severe macroeconomic distress. Other large emerging market economies-Brazil, Mexico, Russia, and Saudi Arabia, among others-are projected to grow in 2019 about 1 percent or less, considerably below their historical averages. In India, growth softened in 2019 as corporate and environmental regulatory uncertainty, together with concerns about the health of the nonbank financial sector, weighed on demand. The strengthening of growth in 2020 and beyond in India as well as for these two groups (which in some cases entails continued con- traction, but at a less severe pace) is the driving factor behind the forecast of an eventual global pickup.
Bangladesh is a rural nation state with most people living outside of the urban areas. Dhaka, the capital, is one of the largest cities in the world; with a population over 10 million. Foremost industries are jute, sugar, paper, textiles, fertilizers, cigarette, cement, steel, natural gas, oil-refinery, newsprint, power generation, rayon, matches, fishing and food processing, leather, soap, carpet, timber, ship-building, telephone, and so on. Agriculture generates about one third of GDP, provides work of over 60% of the labor force and accounts for about half the value of export earnings. The services segment accounts for about 52% of value added, agriculture 31% and Industry 17%. Bangladesh import more than it exports. Aid and remittances from external works finance the external deficit. Exports of garments have enlarged significantly in recent years, but import growth has sustained unabated. Bangladesh has rare proven mineral resources, except deposit of enormous natural gas .
Higher price of products in international market happens from previous two or three years. The following are the explanations for higher price of products as well as decreasing the purchasing power of general people. The private sector investors are not financing in the country and showing signal that production will decrease in near future. For this reason, businessmen are not selling their products, storing products and creating scarcity of products to earn more money. The government has endeavored to control inflation. Since the 1990s the average inflation rate has been about 5.6%, remarkably low related to the second half of the 1980s, when the rate was about 8%. Among the main sources were domestic demand pressures, fed by higher incomes and strong monetary and credit evolution. The exchange rate remained stable, but progression in monetary aggregates has started to increase. Available reports show that money growth gradually falling since 2018 .A culture of stability has been developed with hard term foreign and local borrowings that is intensely supported by the international donor community. But because of the volatility of the political process, there are hardly any institutional safeguards that would strengthen a free culture of stability.
In principle, democratic institutions perform their functions. But the absence of a good governance culture of tolerance and compromise has prevented the proper functioning of democratic institutions as well public institutions .
In the face of an uninterrupted period of high growth in recent years, socioeconomic development has not been an unambiguous boon for the majority of the residents. According to the most recent figures, still a substantial percentage of the population lives under the poverty line. UNDP figures indicate that 41.3% of the population lives on less than $1 a day, with 84.0% living on less than $2 a day. Female economic doings accounts for 52.7% of the economy, but females earn less than half the income of their male counterparts. Rural areas still lack basic health care conveniences and educational institutions. Thirty percent of the total population is still regarded as undernourished. Only 39% of the population had sustainable access to improved sanitation. Minorities and women are still disproportionately affected by structural underdevelopment.
On the employment side, the overall employment intensity of economic growth, as well as the employment elasticity with respect to GDP growth, is reported to be low and diminishing. With an employment elasticity of 0.495 (during 1990s), and employment growth of 4.4 percent (same as labor force growth), not counting current unemployment and under employment, the country would require a GDP growth of 8.89 percent per year. The lower the elasticity from the observed ones, the higher would have to be the growth rate to absorb the surf. On the other hand, the transformation of the employment configuration has been from agriculture in the direction of the services sectors rather than towards the manufacturing sector. Whatever employment has taken place is mostly in the informal sector; leading to non- formalization of the economy plus labor. It indicates the magnitude of employment tasks that Bangladesh is faced with low employment of resources.
Economic performance in fiscal in recent years showed considerable resilience, although global economic challenges and domestic natural disasters. The economy maintained a performance consistent with earlier years. In the years under review, the momentum for growth sustained and international reserves increased despite severe import pressures. Overall GDP growth rates were high. .However, rising inflation, high levels of underemployment, and budget and trade deficits continued the main concerns for the economy. Substantial growth growth in overseas workers remittances, merchandise export to create a cushion to the external balance. And stringent macroeconomic performance to take care the internal balance.
The economic growth and inspiring gains in several social indicators over the past decade point to Bangladesh's enormous potential. These achievements have been made despite poor governance, an adverse domestic political environment, deficiency of infrastructure and repeated natural calamities. However, these accomplishments cannot be sustained for lengthy if the system fails to address deep-seated problems. Constant efforts with clear objectives and well-devised strategies can bear results.
A business is an organization designed to afford goods, services, or both to consumers. They are the units that perform most of the economic movement in our economy. Most businesses happen to generate a profit. There are some businesses that exist to perform a function other than profit, such as cooperatives and non-profit organizations. The traditional classification of a business is an entity that brings together time, effort and capital in order to produce a profit. Businesses can either be privately owned or publicly owned by the government. Government usually standardizes business for a variety of purposes. This will include collecting corporate taxes. Also definite business pose a risk to the public and so must be regulated. If they were left unregulated, they could, while carrying out their functions for profit, do permanent harm to the environment.
Private sector encompasses of various businesses owned and managed by one or more private individuals or organizations. These all range from the small business sector, partnerships, limited companies and public limited companies. Individuals can now get government grants or loans to set-up their own corporate. This inspires growth within the small business sector. Balanced interest and expansion of the Internet, e-commerce and computer technology have also seen the growth of the private sector. At the same time, Unifications of companies in the banking and finance world give the opportunity for the company to offer more products to its customers and still be competitive. Furthermore, private sectors consist of various type of business corporate such private limited companies, sole proprietorship, partnership, corporation, conglomerates and so on.
Infrastructure improvement, particularly road networks and electricity supply, for moving the country forward both in the short and long term. And from second question, trade is an economic system in which goods and services are exchanged for one another or money, on the basis of their perceived worth. Every business involves some form of investment and a satisfactory number of customers to whom its output can be sold at profit on a consistent basis. In today's borderless world, business resolutions can and do have a greater impact on people's welfare and the environment, than the decisions of most governments.Growth in GDP will and should remain the most followed economic indicator policymakers, industry leaders and researchers alike. After all, no other macro variable is so intricately linked with most other economic indicators. So instead of denouncing GDP growth as an erroneous measure of progress, it will be better off ensuring accurate reporting of these numbers by the statistical agencies. Macroeconomic stability-the hallmark of our economy-are coming under serious pressure owing to a combination of financial, fiscal and external sector imbalances. And combating these ongoing challenges next year will be no walk in the park. Authorities have to strike a careful balance of policies to alleviate an ongoing liquidity crisis in the banking sector while tackling the twin-deficit of a current account and fiscal deficit. Reducing delays in bank loan repayment, decreasing non-performing loans and curbing illicit outflow of funds will help alleviate both the current account deficit and the liquidity crisis in a more sustainable manner.
The central bank still seems find itself at a crossroads: selling foreign reserves to prevent exchange rate depreciation while aggravating the liquidity crisis or allowing a market-based depreciation of the currency. If the central bank stands aside, the rate of depreciation might be faster but it will help reduce the current account deficit by powering exports and remittance inflows, albeit with some lag. Igniting private investment and job creation, has remained one of the toughest challenges for policymakers. Not surprising since the remedy that it needs-quality fiscal stimulus for better infrastructure and efficient financial intermediation- should not remain elusive. Year in year out we see tax revenue receipts falling short of budgetary targets and the 2020 should not be no different. Fundamental challenges such as a narrow tax base, tax evasion by the super-rich and lack of a simple and automated procedure for tax collection will remain big challenges in 2020.
When it comes to fiscal policy, collecting revenue is only one side of the challenge. Efficient utilisation of these resources is the other. A study by the International Monetary Fund found that countries with the most efficient public investment get "twice the growth bang for their public investment buck" than the least efficient. No points for guessing Bangladesh's rank in this efficiency spectrum. That the sharp rise in public investment to 8.0 per cent of GDP in recent years has hardly eased infrastructure constraints is evidence of low spending quality. Lowering cost overruns through higher accountability and transparency in cash management, creating a robust government procurement process and designing an incentive structure for public officials that ensures stringent monitoring and evaluation will be challenges yet again in 2020.
Bangladesh private investors need efficient financiers. But an economy plagued by an ailing banking sector, a virtually non-existent corporate bond market and an underdeveloped stock market can never direct resources optimally from savers to borrowers. The challenge of cracking down on loan defaulters will remain a big one in 2020. It is unlikely that stakeholder confidence will be restored anytime soon in a sector where tax money is still used to capitalise graft-ridden state banks. If the stock market remain disconnected from the economy, since the firms driving economic activity is not represented in the market. Big firms including multinational companies, government companies need to be listed to improve liquidity and public confidence.
(Dr Muhammad Abdul Mazid, former Secretary and Chairman NBR. mazid.muhammad @gmail.com)
Muhammad Abdul Mazid