Sovereignty of political leadership has been lost

Everyone acknowledges the problems in Bangladesh's economy. How should the economic problems be viewed?

There is a general recognition of the prevailing problems in Bangladesh's economy. The economy is in mild crises and deep problems. Officials in the government's administration initially would not acknowledge these problems, but now they are admitting that problems exist. The problem crossed the red line in January 2023 when we approached the International Monetary Fund (IMF) for loans.

There are three problems in the economy that are to be taken into consideration. Firstly, how will we portray this situation, with what indicators and trends is the present situation being manifest? Secondly, how far is such a situation conducive to going to the next phase of development? Ahead of us there is the graduation to LDC, SDG implementation, completing the eighth five-year plan, implementing the plans under new circumstances, tackling the complex geopolitical situation and more. Thirdly, what is to be done at the moment? That is, in the short term.

Surprisingly enough, Bangladesh's economists are in consensus over the 'diagnosis' and 'treatment'. The irony is that, the local economists have long been making the statements that are now being made by the World Bank and IMF. So it is not just at a national level, but even at an international level that a sort of consensus exists regarding Bangladesh's problems and the way ahead. The question is, will Bangladesh be able to carry out these tasks recommended for the transition period in an honest and holistic manner?

How complex is the situation?

In recent times there has been a synthesis and intensifying of economic trends. This came to notice due to the slowdown in growth. There are two reasons behind this. One is that the estimation of growth is being made every three months (on IMF conditions). The tendency of inflating the annual growth rate has been controlled in comparison to before. Last quarter (October-December 2023), growth was under 4 per cent. The second is, the pace of the economy has slowed due to a slump in investments and also a decrease in consumption. No one is saying that growth will increase in the coming fiscal (2024-25). The predictions of all international agencies have been depreciative.

Over the past 15 years of the present government, the total investment in ratio to the GDP could not be taken over 30 to 32 per cent. Private investment remains stuck at 23 to 24 per cent. Foreign investment too is almost at a standstill. Investment will fall further rather than increase in the days to come. The government is controlling credit flow for various reasons. Businesses are not getting the required foreign currency to open letters of credit to bring in raw materials and capital goods. And the wavering policy for interest rates failed to increase investment in the private sector. On the contrary, it is harming the interests of the small savers.

It's like this. The government so long has been operating a one-engine Boeing aircraft. The engine was government investment. The shut-down second engine was private investment. Now the power of the first engine is waning too. So long government investment had been 7 to 8 per cent of the GDP. The financial requirement of the government is not being met through revenue collection. The revenue budget is being exhausted on repaying debts, salaries and allowances, and subsidies. And so funds cannot be provided to implement the budget. Then again, we are unable to use foreign funds in projects as it is not possible to arrange the local supplementary funds for those projects. This year has seen an all-time low in Annual Development Programme implementation, only 27 per cent (In the first seven months).

Why are we not getting funds?

A major reason that we are not getting funds for spending is that we do not have the required revenue income. There is growth and growth means income. So why is tax not collected from that income? The tax-GDP ratio is still under 10 per cent. Bangladesh so long had the lowest tax-GDP ratio in South Asia, now this is even lower than that of countries in the poorer regions of Africa.

This is a manifestation of extreme problems in financial or revenue management. It indicates a lack in administrative efficiency. At the same time, it has not been possible to collect taxes or prevent money laundering due to adverse political economy. In many cases the income of certain elite persons, their establishments and groups was not quite "sanctified" and so was kept outside of the tax net. But even though there was a crisis in the revenue sector, it was in control. This was because the revenue deficit was more or less around 5 per cent of the GDP.

In the past decade, the external sector had been a mainstay of the economy. Even though the net export revenue and remittance would fluctuate, the trend was positive. The flow of foreign aid also keeps the foreign sector vibrant. But now the imbalance emerging in the foreign sector had been added to the accumulated problems of the revenue sector. Further added to this is inflation. This is a threefold complex problem in the economy.

How precarious is the state of foreign debt?

The festering ulcer of the external sector is the debt situation which is now being reflected in the taka exchange rate too. The inherent dilemma of the "visible" development carried out by the government over the last one and a half decades is manifest in this debt situation. This situation has emerged because policy reforms were not carried out in time, institutional flaws were not addressed and there remains a lack of transparency and accountability in socioeconomic management. The economy, in a sense, is afflicted with diabetes. If diabetes is not treated in time, it gradually debilitates all the organs or the body. We did not treat this disease of Bangladesh's economy in time. The neglect continues.

Failing to collect investable funds from domestic sources, we had to take loans from outside. But it must be kept in mind that in this span of time we have borrowed twice the amount from domestic sources than from outside. While many are concerned over foreign debt, I am more anxious about local debts. As the government has borrowed from the banking sector extensively, this has restricted credit flow in the private sector. The government is taking loans against high interest treasury bonds. The government has released bonds of over Tk 20 billion (Tk 2000 crore) in order to meet the energy sector debts.

When discussing foreign debt, the issue of foreign loans taken in the private sector is not raised. If a loan of Tk 100 is taken, 20 per cent goes to the private sector. If foreign loans in the private sector cannot be repaid, it has an impact on overall foreign relations including the exchange rate.

It is said that Bangladesh has never failed in repaying its foreign debt. Yet the foreign quarters are not getting payment for months on end for the goods they have sold. Investors are not being able to take their profits back to their countries. The minimum sum in this regard is USD 5 billion (USD 500 crore). This Bangladesh is supposed to have never failed in paying foreign debt. A crack has appeared in this place of pride.

Why has this happened?

There are many reasons behind this situation emerging. Firstly, the expected amount of tax couldn't be collected from domestic sources. Secondly, it wasn't possible to make private investment buoyant. There are several other reasons that foreign-assisted projects also could not be implemented on time. The infrastructure projects are being implemented at over-inflated costs.

It is not as if the government did not take up people-oriented projects at all. Many projects were taken up under the social safety net programme. But the beneficiaries have been provided with nominal allowances. There is corruption in distributing the allowances among the actual beneficiaries. Above all, there is gaping neglect in the education and health sectors. We have not been able to allocate more than 2 per cent of the GDP for education. We have not been able to allocate more than one per cent of the GDP for the health sector.

In recent times, the official statistics regarding the country's socioeconomic situation is something to be noted. A certain picture has emerged. For instance, the recently published sample vital statistics report reveals that the average life expectancy of the people in Bangladesh has decreased, infant mortality has increased. People are borrowing for survival. Food insecurity has increased. Unemployment among youth has increased. Around 40 per cent of the labour force is either unemployed or are lacking in education. The little employment that has taken place is in the informal sector, not any dignified form of employment. According to the government's household survey, there has been an exponential increase in disparity among consumption, income and wealth. Bangladesh is now among the top countries in the world with a fasted growing ultra-wealthy population.

How did this gap come about?

It must be acknowledged that this government has made a continual effort to hold up a transformative vision and a pragmatic roadmap. There has been quite a few positive, albeit  isolated and random, policies and programmes for public welfare. But in this journey, the lack of democracy has held it hostage to vested interests, and the development efforts did not yield balanced results. The energy sector has exacerbated the situation.

Over the last one and a half decades, there has been a significant change in the pattern of Bangladesh's vested interest groups. Now BGMEA can no longer be called the power monopoly. Now the vastly powerful and influential are those in the energy sector, the bank owners, that is, defaulters, the contractors of mega infrastructure construction.

Why are all these problems not being sorted out?

From the experience of various countries it has been seen that a one-engine plane can fly just a certain distance and no more. While one engine is functioning, the steps needed to be taken to start up the second engine can't be carried out. Such countries invariably become authoritarian states falling away from democracy.

In a democratic system, the government gets feedback from the people, but these inroads gradually close in those state systems. This is characterised by lack of democracy within the party, absence of a representative local government, national elections bereft of competition, etc. The administration, the law enforcement agencies, the judiciary and the surveillance agencies lose their neutrality. A cunning professional community, controlled media and a passive civil society emerges.

An unholy nexus in Bangladesh has now grown between the political elite, the business community and the group within the state machinery. This alliance is an obstruction to accountability and transparency in the economy. Yet competition and transparency is extremely essential to take Bangladesh to the next level of inclusive and expanding development.

It must be kept in mind that a competitive economy requires competitive politics. Our politics is now a fading scene. Subservient loyalty and meritless connections have gained precedence over rights and merit in political, social and economic exercise. This is a major obstacle to enterprise, innovation and excellence.

What link does this situation have with politics?

As I said before, a new pattern of powerful groups has emerged in the political economy over the past one and a half decades. The old have come in new avatars, new groups have joined. We would see business relations with politics in the past. Now the interests of the administration and a group within the state machinery have been added too. And so entrepreneurs with the ability to compete are frustrated and dismayed.

The new government came and started up bank sector reforms, which ground to a halt within just three weeks. Actually, political power is required to tackle the vested interest groups that are responsible for this complex economic situation in the country. It does not seem that the new government has managed to achieve this power by means of the past national election.

There is difference between rhetoric and reality. A realistic basic assessment must be made of these problems and then a holistic and coordinated programme be taken up in the coming budget. But one trips up here too. We do not see the leadership that is required for economic management. IMF no longer has faith in verbal promises of policy reforms. The market doesn't have that confidence either. That means the economic is in a crisis of confidence. In such conditions, GDP growth will be slow, employment will fall. Social conflict and inequality will increase. The middle class that emerged during this government's rule, will be hit the hardest.

So what is to be done?

Overall, the sovereignty of political leadership has been lost. There used to be the political elite, the corporate elite. They have now been joined by the elite of the state machinery. Some of these in the new group are in uniform and some not in uniform. This new power sphere does not have confidence in Bangladesh's future. If this state of affairs is to be changed, the practice of competitive democracy must be reinserted in the society and the economy. In the long run, initiative with no accountability or liability never bode well. Neither is this sustainable.

Thank you.

Thank you too.