Transition to middle income status: Bangladesh must address institutional weaknesses
The news that Bangladesh has been placed on a list of countries graduating from least developed country status has generated a lot of enthusiasm in the national media, as well as in government circles. The Daily Star, in an op-ed, hailed the news as a milestone. He rightly underlined: “As Bangladesh celebrates the Golden Jubilee of its independence, this achievement places us on the world map as a country of great potential. “
The Prime Minister of Bangladesh called on business leaders to mobilize to move forward. “Prepare for the graduation challenges of LDCs,” she said at a rally organized by the Bangladesh Federation of Chambers of Commerce and Industry (FBCCI) to celebrate the Golden Jubilee of the country’s independence on December 1 in Dhaka.
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The good news arrived on November 24 in the form of a statement from the UN Headquarters in New York. “The General Assembly of the United Nations adopted resolution A / 76 / L.6 / Rev.1, the exit of Bangladesh, the Lao People’s Democratic Republic and Nepal from the category of least developed countries”, indicates the declaration.
Incidentally, the three countries, Bangladesh, Laos and Nepal, will cross the threshold and graduate from the LDC category after a preparatory period of five years. Even though the standard period is three years, these three nations have been granted an “exceptionally extended” period, given the economic and social damage caused by the Covid-19.
Earlier this year, in response to a recent intervention by the government of Bangladesh, the United Nations Development Policy Committee (UN CDP) agreed to extend the transition period by two years. As part of the reset, Bangladesh aims to graduate from LDC status in 2026, become an Upper Middle Income Country (UMIC) by 2031, and achieve high income country status by 2041.
To its credit, the government of Bangladesh realized that in light of the strains on the economy and the country as a whole, triggered by the pandemic, and the policy measures adopted to contain it, the additional two years were an appropriate request.
So what are the other challenges and obstacles that Bangladesh faces as it embarks on this historic journey? A quick review of recent studies by national think tanks and international agencies reveals that the main obstacles that stand in the way of middle-income country status are low investment, unequal distribution of income and wealth, a private sector hampered by the lack of diversification. , and weak institutions.
Participants in two recent conferences have emphasized the role of institutions and underlined the critical impact of the absence of a solid regulatory framework, of an efficient and united bureaucracy and of the slow development of a favorable ecosystem. . “It will be very difficult for Bangladesh to achieve its development goals if the institutional weakness persists,” Professor Selim Raihan of Dhaka University told the CPD-Cornell University virtual conference.
At a BIDS conference, Professor Rehman Sobhan recently issued a bugle call to strengthen our institutions to support economic development.
A startling rebuke of our development strategy came earlier this year from the World Bank’s Systematic Country Diagnostic 2021 Update (SCD) report. He identified four major challenges, and the first was the narrow-based private sector which was characterized as “uncompetitive to stimulate growth and job creation”.
It is well known that only a few large firms, including conglomerates, lead formal sector markets. “These companies remain mostly inward-looking and benefit from rents from protected domestic markets and RMG exports under special incentive programs and being supported by close links with the banking sector.” , added the SCD.
Professor Wahiduddin Mahmud, a prominent economist, in his new book and in a recent editorial in this journal, also pointed to rampant capital flight, which is leading many well-run private companies to fall into a debt repayment crisis. “Governments are forced to bail out these businesses with various financial aids, such as granting additional loans and rescheduling existing loans at concessional interest rates. Interest rates on these loans in real terms, i.e. taking into account inflation, often turn out to be negative, putting a heavy burden on financial institutions and harming the economy in the future. its whole, ”he added.
The private sector, it must be recognized, faces one of the most constraining business environments in the world, supported by a regulatory governance regime that is unpredictable, non-transparent and discretionary.
Many of the challenges Bangladesh faces as it returns to the path of sustainable resettlement stem from exogenous factors. With the new Omicron variant raising its head and adding to the uncertainty surrounding the resumption of Covid-19, one needs to be aware of the latter’s endurance across the world, particularly in Europe and North America, and of the potential threats to export earnings and remittances.
As companies at the top thrive, small and medium-sized enterprises (SMEs) face major hurdles. These include lack of access to finance and excessive regulation.
Bangladesh is still too dependent on a few export products, which has also generated its own weakness. Although Bangladesh’s export sector has made remarkable progress over the past decades, exports have remained highly concentrated in a few products and limited markets. The vulnerability of export concentration is well recognized in Bangladesh’s planning landscape, according to the SCD. Particular attention has been paid to the Eighth Five-Year Plan and other forward-looking plans, and many measures and policy options have been designed to diversify both products and markets. “A mix of skills, finance, improved technologies, entrepreneurship and adequate quality infrastructure is key to the success of the export diversification program,” acknowledges the World Bank document.
Between 2003 and 2016, Bangladesh’s economy generated on average more than 1.15 million net jobs per year. The strong job creation has been accompanied by a continuous displacement of the labor force from agriculture to industry and services and from rural to urban areas. Female employment, which has grown by 4.4% per year, has grown at a faster rate than male employment.
Since 2015, however, the manufacturing sector has become less efficient at generating jobs, while the participation of women in the labor market has declined in urban areas; and there has been uneven progress in poverty reduction across the country. Slower growth in recent years has affected Bangladesh’s poverty reduction and job creation goals.
Another problem in the post-graduation phase is the loss of trade-related ISMs (international support measures). Unless the right and timely policy actions are taken with the support of our trading and development partners, we could face real challenges later in the decade.
Dr Abdullah Shibli is an economist and IT consultant. He is also a Senior Research Fellow at the International Sustainable Development Institute (ISDI), a Boston-based think tank.