'Development cannot be sustained without reforms'
Economist Ahsan H Mansur was a teacher at Dhaka University before going on to take up a senior position at the International Monetary Fund (IMF). One of the founders of Policy Research Institute, Ahsan has recently been appointed the chairman of BRAC Bank. In an exclusive interview with Prothom Alo, he spoke about the country’s economy, investment, employment, the trend in regional and global economy and its impact on Bangladesh.
Prothom Alo: So what is the country’s economic condition at the moment?
Ahsan H Mansur: There is a difference between the government’s statistics concerning the economic sector and the various economic indicators of the real situation on ground. The government’s projection of the economy is bright and dynamic, but in reality it is not so.
The government claims that growth is at its highest at the moment, but in actuality investment has plummeted and the credit flow in the private sector has slowed down, too. In fact, the credit flow is at its lowest ebb. So the claim that economy is at its highest point makes no sense.
Then if we look at the other indicators, such as the state revenue income, we see a discrepancy between the projected growth figures and reality. It is only natural for revenue to increase if there is economic growth, but our revenue income is not increasing. Official records show that there has been an 18 to 19 percent growth in the manufacturing sector, but revenue growth has only been 8 to 9 percent. Why should this be so? It should not be like that. Normally when the economy is robust, revenue growth is a bit higher than the economic growth. That is not happening here.
Prothom Alo: Shouldn’t increased growth also lead to increased employment?
Ahsan H Mansur: Yes, but the employment scenario is not good either. There is some informal employment for sure, but there is a glaring shortfall in formal sector employment. The rate of unemployment is very high among the educated population.
Even if we look outside of these sectors to ascertain the actual state of the economy, we will see many problems. For example, exports are not increasing in proportion to the GDP. In fact, exports haven’t increased over the past five years. That is a bad sign. After all, we feel exports play a prominent role in our economic growth.
It is the same with remittances, which are steadily falling. Previously remittance would make up 10 to 12 percent of Bangladesh’s GDP. This has now dwindled to 5 to 6 percent. This long-term trend does not bode well for the economy.
Prothom Alo: You say the official statistics which show economic growth do not reflect reality. So has there been negative growth or is the economy at a standstill?
Ahsan H Mansur: I would not say there has been overall negative growth, but there has certainly been a downtrend in some sectors. Despite all this, there is economic growth, but perhaps not as much as being projected. Having said that, I would add that Bangladesh’s economy is vibrant, but we surely do have an 8 or 9 percent growth rate.
Prothom Alo: So how is the economy still vibrant?
Ahsan H Mansur: There are many reasons for the country’s economy to be vibrant. One reason is that Bangladesh’s labour force has increased at a rate of 3 percent. They are doing some work or the other to earn a living. That is how we have economic growth.
Prothom Alo: Does this growth actually signify economic development or just an expansion in size?
Ahsan H Mansur: It helps to expand the size of the economy. If growth is not 6 percent or more, then the economy does not change. Our actual growth is perhaps 6 to 7 percent, not more.
Prothom Alo: We hear that India’s economy is in a bad state. Is that true?
Ahsan H Mansur: The picture we get of Indian economy is the real picture. They get an annual picture of marginal-based information of their economy which they can analyse. We don’t get such information in our country. But yes, Indian economic growth has fallen to less than 6 percent. But they are endeavouring to extract themselves from the situation and they have the ability to do so. They have a good fiscal policy.
Prothom Alo: Why is it being said that India’s economy is in a bad condition?
Ahsan H Mansur: India’s economy is linked to the global market. India must be viewed in perspective of the global economy. The global economy is not faring well at the moment and India is affected by this.
Prothom Alo: How far will India’s economic condition have an impact on Bangladesh?
Ahsan H Mansur: It won’t have a very strong impact on Bangladesh. There may be an impact from their currency devaluation which they are doing intentionally. China has devaluated its currency and so India is following suit. Korea and Japan have devaluated their currency too. They are all doing this to protect their export sectors. But Bangladesh isn’t devaluating its currency. This is driving down the price of Indian and Chinese products and their products will flood our market. That means our trade gap with them will widen further.
Prothom Alo: What is the state of our financial sector? The banking sector is said to be in a bad condition.
Ahsan H Mansur: Bangladesh’s financial sector is in a very poor state. The financial sector has four pillars: the currency market which is comprised of the banking and non-banking sectors, the share market, the insurance sector, and the bond market. Three of these four pillars are in a bad state. The bond market hardly exists. The poor state of the share market is nothing new. The insurance sector is just on paper with the insurance companies merely premium collection agencies. They do not protect the clients in any way. None of the local insurance companies have the required actuarial allowance. So the only hope is in the currency sector. Most of the institutions in its non-bank financial sector are suffering from acute liquidity crisis.
Prothom Alo: So what is the future of our economy?
Ahsan H Mansur: If the prevalent trends continue, then it will not be possible to hold onto whatever good we have achieved in our economy so far. Unless investment increases and fresh employment is generated, there can be no development.
Prothom Alo: What is the way forward then?
Ahsan H Mansur: There must be extensive reforms all over. In perspective of India and China’s currency devaluation, we must do so too or our export sector will fall back further. Our products will not be able to stand up to global competition. There must be extensive reforms in revenue management. The deep-rooted vested interests in the revenue department must be uprooted.
Prothom Alo: What is the main weakness in our revenue management?
Ahsan H Mansur: There have been no reforms in the administration of the revenue management since the British rule. We lack the technology-based administration required for revenue collection, given the present size of our economy. The government must realise this.
The corrupt elements in the revenue department are happy with the way things are because they can fill their pockets. The unscrupulous section of taxpayers is also happy with the present system. They will pay the revenue officer 10 percent and keep 90 percent for themselves. Nothing will go into the state coffers. This corrupt culture has seeped down to the grassroots. This must end. This requires extensive reforms.
There must be technological development and policy reforms in the system. If not, revenue will fall further in proportion to the GDP. Our tax to GDP ratio is 8 percent. Nowhere else in the world is it so low. It will not be possible to implement the Sustainable Development Goals with this ratio, nor will it be possible to become a higher medium income country.
There is a lot to be done. Our investment scenario is not good. Our ‘ease of doing business’ indicators are poor. Our power situation has improved but our ‘enforcement of contract’ culture is not good. We sign contract but do not follow the clauses.
Our treatment of foreign investors is not always exemplary. The manner in which our revenue department has treated Grameenphone gives out a negative message. The revenue department accused Grameenphone of evading Tk 12 billion in taxes, but Grameenphone rejects these charges. They are calling for neutral arbitration, but the revenue department refuses. Grameenphone is one of the two biggest foreign companies in Bangladesh and the manner in which they are being treated is a disincentive to foreign investors. We also harassed the Korean EPZ investors.
An environment conducive to local investors must also be ensured. A skilled workforce must be created. There is a lot to be done.
Bangladesh’s people are hard-working. We can take our economy much forward. This requires political will to carry out extensive reforms in the economic and financial sectors.
Prothom Alo: Thank you.
Ahsan H Mansur: Thank you, too.
*This interview, originally published in Prothom Alo print edition, has been rewritten in English by Ayesha Kabir.