Bangladesh: 'Ignite investments for faster growth'
DHAKA (The Daily Star/ANN) - MCCI in its quarterly economic review urges govt to address capital flight
Bangladesh should focus more on raising the level of investment in the country to attain the status of a middle-income country by 2021, a leading chamber said yesterday.
“Appropriate measures should be taken to remove the problems relating to capital flight in order to boost up investment and the country's growth prospects.”
Most of the public sector banks are now suffering from huge capital shortfalls due to rising default loans, the Metropolitan Chamber of Commerce and Industry, Dhaka said in its quarterly review of the economy for January-March this fiscal year.
“A thorough reform of the banking sector should be initiated in order to improve the capital base of public sector banks, mitigating the capital shortfall caused by mounting default loans.”
“It is a great riddle that when investment in the country as a proportion of GDP has been falling for several years, some economists are complaining that huge amounts of capital leave the country every year.”
The trade body said others major impediments to growth of the economy are inadequate infrastructure, lack of investor confidence in the economy that discourages making fresh investments, and shortage of power and energy.
Though below potential, Bangladesh's economy is progressing well, it said.
Garments exports increased by 2.39 percent year-on-year to $20.929 billion in July-March period of the current fiscal year.
“This growth is too low for achieving the target of earning $50 billion by 2021. In order to achieve that goal, the industry needs to attain a growth of more than 12 percent,” MCCI said.
Apparel shipment went down due to various factors – a fall of the euro against the US dollar, Brexit issues, the US elections, and a decline in consumption in the West, the chamber said.
“People in the West now spend more on smart gadgets than on clothing. These are the major reasons behind the fall in consumption of clothing items worldwide.”
Remittance accounted for about 30 percent of current account receipts in fiscal 2015, more than offsetting the trade deficit, it said.
“Experts fear a further shrinkage of remittance in the coming days. Overall development activities in the Gulf Cooperation Council (GCC) countries are gradually shrinking because of lower prices of fuel oils on the global market as well as the declining exchange value of the US dollar.”
A consequent fall of the labour demand in the GCC economies, the source of about 55 percent of all remittance, may lead to further declines in remittance inflows, according to MCCI.
“The slow growth of remittance inflows is indeed puzzling when a huge number of people have taken overseas jobs in the recent years.”
According to the Bureau of Manpower, Employment and Training, some 749,249 workers went abroad in 2016 compared to 555,881 in the previous year.
The global credit rating agency Moody's, in its April 2017 report, expects remittance inflows to stabilise near current levels, and potentially pick up in line with future increases in global oil prices.
“Nevertheless, if the current trend of falling remittance does persist, it would have an adverse credit impact by dampening consumption and widening the current account deficits,” it said in the review. In such a situation, government and Bangladesh Bank should take appropriate steps to encourage expatriate workers to send remittance through official channels, the chamber suggests.
The suggestion of the Human Development Report 2016 that Bangladesh should set up a remittance bank for easy and transparent inflow of foreign wage earnings into the country is also worth looking into, according to the chamber.
“Bangladesh's low labour costs and efficient supply chain, especially in the garments industry, are generally believed to be attractive to foreign investors, but yet they are discouraged to make fresh investments in the country because of its underdeveloped infrastructure, and such other impediments, such as the shortage of power and energy, lack of consistency in policy and regulatory framework, scarcity of industrial lands, and political uncertainty.”
The government needs to address these impediments to attract more foreign direct investment in the country in order to achieve the target of graduating to a middle-income country by 2021.
During the July-March period of the present fiscal year, the agriculture sector performed well, but continuous government support with inputs and finance will be needed to sustain the sector's growth in the future.
The manufacturing sector also did well, although infrastructure deficits, insufficient availability of competent manpower at managerial levels, high cost of bank loans that discourages both local and foreign investors, and gas and power supply problems were undermining the performance of the sector.
The government will need to adopt suitable measures to remove these bottlenecks in order to support the growth of this all-important sector, the chamber said.
Services sectors also performed well. However, government intervention will be needed to mitigate some sector specific problems in banking, insurance, transportation and communication, tourism, real estate business, and especially, private sector health and education services.