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Economists on Saturday said developing a redistributive fiscal policy, improving institutional capacity and having a strong financial sector were required to ensure an inclusive upper-middle income Bangladesh.
In the 4th BEF Conference organised by Bangladesh Economists’ Forum at the Westin Hotel in the capital, they also warned of middle-income trap saying that Bangladesh would have to design policy for dual graduation, least developed to developing country and lower-middle income to upper-middle income country.
The theme of the conference was ‘Strategies and Policies for an Upper-Middle Income Bangladesh’ and four papers on tax policy, financial sector management, balance of payment and export diversification were presented at the conference.
In the papers, economists suggested that the government ensure good governance of functional institutions, human capital development and equitable distribution to go to the upper-middle income status.
‘Income inequality has gone up. We do not want a Bangladesh just a middle income Bangladesh. We want inclusive middle income Bangladesh,’ Centre for Policy Dialogue distinguished fellow Mustafizur Rahman said.
Without having a more equitable society, Bangladesh would not be able to be an upper-middle income country, he said.
The dual graduation would be difficult for Bangladesh and the country would have to design policies how to make the journey possible, Mustafiz said.
He also suggested tapping the potential of regional export market saying that there was immense potential for Bangladesh in India but the country exports to the market stood only at $1 billion.
Along with export products diversification, Mustafiz emphasised intra-RMG diversification.
Sadiq Ahmed, vice-chairman of Policy Research Institute of Bangladesh, suggested making the budget growth-oriented, developing a redistributive fiscal policy to lower income inequality and establishing a productive, efficient and equitable tax system for upper-middle income Bangladesh.
He also suggested reforming public enterprises to maintain long-term fiscal solvency and avoiding misuse of public resources and promoting fiscal decentralisation.
Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development, stressed strong and coordinated medium-term macroeconomic policy saying that as an upper-middle income country Bangladesh was likely to face increased economic and financial vulnerability.
Bangladesh needs to ensure that all banks are strong and healthy, he said.
‘It also needs to manage the pace of further liberalisation of the financial markets and to balance it against the risk of interconnectivity of domestic financial markets with global financial flows.’
Mujeri suggested that the government introduce appropriate measures and regulations to ensure that the stock market does not become a source of instability or short-termism in the economy.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said in his paper that Bangladesh’s balance of payment was suffering from export concentration in terms of lack of diversity in exports of goods and services and also in terms of destination of exports.
He said that no country in the world could become an upper-middle income country or high-income country with such a high degree of concentration in a single product requiring low level of skill and corresponding low level of wages for workers.
Mansur also suggested developing a comprehensive strategy for improving the country’s service account balance over time and reorienting the economy to enhance service sector productivity and to manage exchange rate policy flexibly with a view to ensuring competitiveness of exports.
Demanding elimination of trade policy bias against exports, PRI chairman Zaidi Sattar said that high tariff protection raised profitability of import substitute production that created an inherent anti-export bias.
‘Regardless of how much trade infrastructure (transport, customs, and port facilities) is improved and modernised, as long as the structure and degree of protection remain at the current levels, the attractiveness of sales in the domestic market will far exceed the incentives for exports — particularly non-RMG exports,’ he added.
‘There is no doubt that Bangladesh would become a middle income country. The issue is what kind of upper-middle income country we want,’ South Asian Network on Economic Modeling executive director Selim Raihan said.
He identified high and growing nonperforming loans as one of the challenges for transition to high-middle income country.
Regarding export diversification, Selim said that there was serious consensus among politicians and businesspersons over the stimulus package for the RMG sector but this kind of consensus remained absent in other sectors.
He blamed lack of appetite for reforms for the week financial sector, low tax-GDP ratio and high concentration of export basket.
Criticising the poor governance in the banking sector, former interim government adviser AB Mirza Azizul Islam said, ‘You give loans to your friends and relatives and don’t bother to recover those.’
Allowing four members of a family to be the directors of a bank was not conducive to good governance in the sector, he said.
Mirza Aziz said that there were allocations for too many large projects in the country but the funds were not properly utilised.
He suggested the government spend more in health, education and social safety net to be an upper-middle income country.
Planning minister MA Mannan assured that all the government projects except Padma Bridge would be completed in estimated time.
He said that all the necessary reforms for upper middle income country remained under consideration of the government but there was a fear of losing momentum of development.
The minister also said that the government was working to tap the potential of regional market and trying to ensure geographical diversification.
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