We are not Sri Lanka, but it does not take much to be so
Bangladesh's public debt – both domestic and foreign - have been rising, raising concerns of a possible Sri Lanka effect on the economy.
Bangladeshi economists have urged caution. External observers – principally the World Bank and IMF - have indicated that our position is not comparable to that of Sri Lanka.
However, that ought to provide us with little comfort. We ought to carefully consider whether the tradition of conservative, macro-economic management that has been a hallmark of our economic strategy is now being compromised.
Bangladesh must rein in public expenditures led by mega projects and start investing in governance. Such a strategic shift has become urgent in order to revamp private sector energies and encourage FDI, which would be a better way to advance on our goals than a largely public-sector led, hugely expensive and wasteful mega-project led strategy.
Therefore, first we need a careful, impartial analysis of the burden of public debt, and factor-in the uncertainties of the global economy before we decide on splurging on more mega-financing and non-traditional uses of reserves.
We ought to bear in mind two factors: reserves equal to five to six months' worth of imports is not a large amount although it is still comfortable. We also need to understand that a mechanical reliance on indicators like debt servicing ratio could be fraught with danger in a context where GDP estimates could suffer from measurement errors.
In addition, the world food and energy markets have become volatile which requires us to err on the side of more than usual caution.
Thus, given the many uncertainties that face us today, our view of what level of reserves is safe, must be carefully determined. Now is certainly not the time to experiment with non-traditional uses of reserves or to assume a liberal stance towards reverse FDI from the country. Wouldn't it be a bit difficult to argue that we need to encourage FDI when in fact, we are encouraging exactly the opposite?
The reality seems to be that a lot of resources do actually flow out of the country. Can we think of ways to sanitise this flow even if not prevent it altogether? Would it then not make better sense to consider reverse FDI when this matter has been rationally resolved?
Yes, we are not Sri Lanka but as we have seen, it does not take too much effort to turn into one.
K A S Murshid, is the former director general at BIDS
