Identify new growth drivers for high-income target: Economists

What economists say

• Bangladesh requires 7.8% GDP growth by 2031 to reach upper middle-income status
• It needs 10.2% annual growth by 2041 to achieve high-income status
• Current economic model is sufficient to help reach 6.5% growth in 2031, and 5.9% in 2041
• Improvement in productivity growth, savings and investment, and female labour participation will help achieve over 8% growth by 2041
• Massive reforms needed in the fields of urbanisation, connectivity, financial sector, and trade policy to increase competitiveness, diversify exports, increase savings and investment, and attract more FDI

Bangladesh needs to find new growth drivers to boost the growth path to the desired level, economists said on Saturday.

They stressed the need for taking up massive reform measures, increasing female labour participation, increasing savings, attracting foreign direct investment (FDI), and increasing competitiveness by reducing trade barriers to this end.

Expressing their views at a session on the concluding day of the three-day annual development conference organised by the Bangladesh Institute of Development Studies (BIDS), they observed that the locus of the projected growth path of Bangladesh is laying substantially below the required growth to achieve the status of an upper-middle-income country by 2031 and high-income status by 2041.

Even with a significant increase in investment and total factor productivity, along with a slowdown in population growth, it will not be possible to raise the country's GDP growth to 7.8% by 2031 and 10.2% by 2041, they added.

Dr Hossain Zillur Rahman, executive director of the Power and Participation Research Centre (PPRC), chaired the session themed "Growth, employment and poverty", while Zahid Hussain, a former lead economist of the World Bank Dhaka office, and two senior economists of the global lender Nora Dihel and Ayago Wambile presented two papers.

In his keynote titled "Adjusting Bangladesh's growth model to sustain progress", Zahid Hussain said growth achieved in 1990-2004 came mostly from policy innovation.

Changes in the structural variables such as improvements in infrastructure, financial sector, trade orientation, and macroeconomic stability played a significant role in achieving growth during that period. 

He also said the role of policy innovation subsequently faded and persistence played a larger role in growth in the 2004-2014 period, and growth achieved that time was an echo of the past growth.

The role of the residual factors became more important later when persistence also had a very strong presence, said Zahid Hussain. 

He also proposed some adjustments in the growth model of the economy.

He said Bangladesh requires 7.8% GDP growth by 2031 to achieve the status of an upper-middle country. But the current pattern of the economy is sufficient to reach a 6.5% growth by that time.

He further said that the current model is capable of helping the economy achieve growth of 5.9% in 2041, far below the 10.2% target set aiming to achieve high-income status.

Raising the investment-to-GDP ratio to 38% from currently around 30%, increasing total factor productivity growth to 1% from 0.8%, and reducing population growth to 0.4% from over 1% would not be sufficient to increase GDP growth and achieve the targets, he observed.

Zahid Hussain identified productivity growth, savings and investment, and female labour participation as crucial issues for further development of Bangladesh and said improvement in these fields will help to achieve over 8% growth by 2041.

He proposed a set of strong reforms in the fields of urbanisation, connectivity, financial sector, and trade policy to increase competitiveness, diversify exports, increase savings and investment, and attract more FDI.

Nora Dihel, in her paper, said the export performance of Bangladesh is driven mostly by lower costs and preferential access. The share of exports to the country's GDP is going down due to losing competitiveness.

Export accounts for about 10% of Bangladesh's GDP, which is substantially lower than the 25% export-to-GDP ratio maintained by many developing countries, she noted.

Extensive protection through tariff and para-tariff barriers is a major reason for Bangladesh's lower competitiveness in international trade, she pointed out, adding that Bangladesh imposed a 14.8% MFN (Most Favoured Nation) tariff on imports, which is substantially higher as compared to other developing countries. But the tariff rate reaches over 30% when other import taxes and para tariff barriers are included.

Syed Akhtar Mahmood, former lead private sector specialist of the World Bank, said policy innovation has certain outcomes in growth, adding that such innovations would increase investment and productivity.

But the entrepreneurial response or response by the market actors is also important to accommodate new innovation, he added.

Ayago Wambile, senior economist of the World Bank, in his paper, titled "Present and future climate risk across Bangladesh: integrated findings on hazard exposures and poverty vulnerability", said the frequency and intensity of natural hazards in Bangladesh are increasing. Areas with multiple or co-occurring hazards show higher poverty than other areas, he added.

He urged policymakers to pay attention to the districts and upazilas where the poverty rate increased or remained the same in 2016 per the latest household income and expenditure survey of the Bangladesh Bureau of Statistics (BBS), compared to the 2010 survey.

Hossain Zillur Rahman asked for disaggregated data regarding poverty for areas even below the upazila level.

Rangpur is historically a poverty-prone area but the condition of people adjacent to the EPZ at Nilphamari is comparatively better, he mentioned, adding that people living by the major rivers in the region need special attention.