Md Mazadul Hoque |
06 Aug 2021 23:59:33
Aug 07, 2021 12:01:25 AM
A few months ago, the government unveiled the 2021-2041 Perspective Plan. The plan was formulated with the goal of achieving a gross domestic product (GDP) growth of 9.0% by 2031 and 9.90% by 2041. The main objective of the plan is to advance the economy of Bangladesh. As part of this historic plan, the government also set targets to achieve middle-income country status by fiscal year 2031 and high-income country by fiscal year 2041. Achieve set economic goals in the plan could be a big challenge amid the Covid-19 pandemic. The persistence of the pandemic situation has become an obstacle to achieving a predetermined growth rate. Growth has been under pressure since the start of the pandemic. It is important to note that the first Perspective Plan for the period 2011-2021 which ends in December could not meet the objectives due to the unexpected epidemic of the coronavirus.
It is undeniable that Bangladesh’s economy had started to grow rapidly compared to comparable economies in terms of GDP. Leaders of powerful economies have called Bangladesh “one of the fastest growing economies in the world.” At present, the government is struggling to pull back the crown-ravaged economy by expanding monetary facilities and fiscal space. In order to revive the economy, the government has meanwhile announced 23 stimulus packages which represent 4.4 percent of total GDP. Despite the efforts made, some macroeconomic parameters are not at all favorable. Despite the crisis, foreign exchange reserves stood at over $ 44 billion. When it comes to foreign currency reserves, Bangladesh is placed in an admirable position among the countries of South Asia. Given the current foreign exchange reserves, some friendly countries are attempting to borrow foreign currencies from Bangladesh under currency swap agreements. Recently, Bangladesh released $ 200 million for Sri Lanka under a swap deal. It is a decisive step, without a doubt. But Bangladesh must attempt the expected economic battle when Bangladesh moves to a developing country in 2026.
What is worrying is that the flow of foreign direct investment (FDI) has slowed considerably since March 2020. To meet the economic challenges, there is no alternative to foreign capital. The second perspective plan aims to reduce the poverty rate from 9.9% by 2031 to 20.5%. But the poverty rate amid the pandemic has reached nearly 40.00%, according to research centers. According to the second prospective plan, investments will reach 46.88% of GDP by 2041 against 31.56% currently. Considering the current trend of FDI, there should be strategies to achieve the goals. It should be noted that FDI inflows decreased by 10.80 percent in 2020. In addition, new product creation FDI in Bangladesh declined by 84 percent in the first half of 2020, according to a report by the International Labor Organization (ILO). A Greenfield investment is a project in which foreign investors create a new business or expand an existing business in a country. In 2018, the country recorded $ 3.5 billion (350 crore) in FDI, the highest on record in Bangladesh. In the absence of the required volume of foreign investment, it is difficult to bring the economy to a new high. FDI helps to create jobs and reduce the poverty rate. More than expected export earnings depend on the influx of FDI. At the moment, Vietnam and Cambodia are seen as the competitors of Bangladesh. But, these two economies are in a race to court foreign investment. When the pandemic broke out, Vietnam and Cambodia were able to attract many US-owned factories from China. Bangladesh could not win this race. They were busy easing the pro-business tax policy, among other policies. Bangladesh’s tax policy has failed to attract foreign investors so far. Before formulating the budget, the experts made their voices heard on this crucial issue. Corporate tax in Bangladesh is higher than in Vietnam, Malaysia, China, Indonesia, Myanmar, Pakistan, India and the Philippines. Improving the business environment remains a major challenge in Bangladesh. It is of great concern that Bangladesh is lagging far behind other South Asian economies. In the World Bank’s 2020 Ease of Doing Business Global Index, Bangladesh ranks 168 out of 190 countries. It represents a slight improvement in the business climate compared to the previous year 2019.
The World Bank, in a study, suggests that Bangladesh ranks second-lowest globally for the contract enforcement indicator and 184th out of 190 for the property registration indicator. Transferring a title to property in Bangladesh takes an average of 271 days, almost six times longer than the global average of 47 days. It takes an average of 1,442 days to resolve a trade dispute through a local court of first instance, almost three times the average 590 days in high-income OECD countries. According to the World Bank, to connect to electricity in Bangladesh, a new business needs 150.2 days, while in Vietnam it takes 31 days, in Singapore 30 days, in Malaysia 24 days and in neighboring India. 55 days. Furthermore, Bangladesh is ranked 100th out of 160 countries in the World Bank’s Trade Logistics Performance Index, indicating that it lags far behind China, Thailand, India and Vietnam. In terms of global connectivity, Bangladesh was ranked 121st out of 140 economies, according to the WB study.
According to the 2019 Trace Bribery Risk Matrix study, Bangladesh has been identified as the country with the highest risk in terms of corruption threats in South Asia. US-based Trace, a globally recognized anti-corruption trade association, conducted this type of study starting in 2014.
Given the vulnerable economic situation created by the Covid-19, the country needs to stimulate foreign direct investments coupled with investments made by local conglomerates. The main macroeconomic indicators expect an increase in FDI. Otherwise, one of the border economies, Bangladesh is about to face an obstacle in achieving the goals set in the second perspective plan. Meanwhile, the government has announced to increase gross national income (GNI) per capita to $ 3,271 for fiscal year 2025, $ 5,906 for fiscal year 2031 and $ 17,229 for fiscal year 2041. As the Foreign direct investment could drop 40% globally due to pandemic, Bangladesh needs to improve the business environment. The demand for tax relief, resolving trade disputes, building deep-water ports, improving utility facilities, among other issues, was raised earlier by foreign and domestic investors. But, developments are taking place slowly. To keep pace with comparable economies, Bangladesh needs to step up efforts to ensure a conducive business environment as well as infrastructure development. Within the framework of regional connectivity, it is essential to focus on a wide range of infrastructure development issues. If the Bangladesh-China-India-Myanmar Economic Corridor (BCIM) is soon opened to operate trade, Bangladesh is expected to experience a huge volume of FDI. The success of the second perspective plan: 2021-2-41 depends on the improvement of the business climate. The UK Center for Economics and Business Research (CEBR) recently made a projection that Bangladesh’s economy would be the 28th largest in 2030. CEBR’s projection would come true if Bangladesh could soon become a more business-friendly hub. companies in South Asia.
Md Mazadul Hoque is an economic affairs analyst and member of the United Nations Association of Bangladesh (UNAB).
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