Bangladesh, a developing country and one of the world's fastest growing economy, has seen a significant development since independence, which is mostly driven by the export of readymade garments (RMG), remittances and domestic agricultural sector.
The country is eyeing to graduate from Least Development Country (LDC) by 2024. Many studies of policymakers, researchers and academicians show that with the graduation Bangladesh is going to face rigid challenges in export market due to additional tariff of about 6.7 percent.
In addition, the country aims to achieve the uphill targets of sustainable development goals (SDG) by 2030 and be upper middle-income country by 2031 and finally become a developed country by 2041.
To transform this dream into reality, the country will have to face some challenges which if remain unaddressed, could make the dream of Bangladesh elusive.
Increasing tax to GDP ratio
Tax- GDP ratio of Bangladesh is one of the lowest in the world, hovering between 8 to 9 percent only whereas the country needs 16-17 percent to achieve many of the goals of SDGs.
Our neighboring countries like India, Nepal, Malaysia and Thailand have tax-GDP ratios of 11 percent, 17.5 percent, 14.3 percent and 15.8 percent respectively. Initiatives such as improving the tax base, reforming tax administration, compliance, making awareness among people to give tax and increasing efficiency of tax collection should be taken to address the loopholes of lower tax –GDP ratio.
Brining discipline in the financial sector
It is the most-talked issue in newspapers, among policymakers, academicians and researchers in recent times. Since independence, banking sector has been playing a vital role in the development process of Bangladesh. Although bank's contribution in GDP is between 3 and 4 percent, but it has been directly or indirectly assisting other sectors of the economy to grow and create employment.
The financial sector, which is mostly dominated by banking, has been facing dire straits in recent times. This is due to augmented growth of toxic assets of about 11.99 percent, poor corporate culture and governance.
Sky-rocketing growth of toxic assets causing liquidity shortage, failure to disburse fresh loans and profitability of banks.
Currently, Non-performing Loans (NPL) in the banking sector stood at all-time record of Tk 116,288 which is 11.99 percent of total outstanding loans. The amount will be even higher if the sum of written-off land rescheduled loans are taken into account.
In contrast, our neighboring countries like Srilanka, Thailand, Malaysia have NPL ratios of less than 3 percent, which is acceptable limit in line with the international standard. Initiatives such as ensuring corporate culture and governance, independence of central bank, making banks free from political patronage is a must to bring discipline in the sector.
Quality employment creation
According to the World Bank, job creation is the country's top-most development priority. Better jobs need to be created to exploit the potentials of the young population and reap fruits of the most-talked "Demographic Dividend". We are getting about 10 million graduates every year and the highly educated youths fail to find a good job whereas, we have hired about 0.5 million foreign professionals mostly for apparels and pharmaceutical sectors. The unemployment among young graduate is 38.6 percent. The reason behind such bottleneck is lack of skills and sync between academia and industry. The country's education system is not producing what the industry requires. The gap can be filled by focusing more on technical and vocational education, reforming the old-fashioned academic curriculum, developing hard and soft skills, increasing problem-solving and analytical skills of students.
Diversifying the export basket and tapping new markets
Bangladesh earned USD 40.53 billion from exports in 2018-19 fiscal year. Of this, the readymade garments (RMG) sector account for USD 34.13 billion which is over 84 percent of the total revenue earned from exports. Such over dependency on a single sector for two third portion of foreign currency reserve poses concentrated risk and vulnerability to sustainable export growth in future. The unfavourable signs have started to show in recent times.
Over the past 10 years, RMG export had been experiencing an increasing trend of 13 percent annually as RMG is in a declining trend already. In the first half of the ongoing fiscal year 2019-2020, garments exports to the European Union, the largest export market fell by 0.75 percent while export earnings from United States decreased by 3.67 percent. We have several promising sectors such as jute, frozen foods; leather, pharmaceuticals, agricultural products, etc if nurtured properly, could increase the export volume. Besides, endeavour should be increase to tap new promising markets such as Brazil, Japan, Korea, Mexico, Russia, Africa, Turkey, etc.
In addition to the challenges planned urbanisation, adequate health care, easing bureaucracy in business, increasing share of stagnant private investment, ensuring good governance, climate change, increasing export of skilled manpower, diminishing inequality, removing corruption, effective enforcement of laws, infrastructural development including increase operating efficiency of ports, etc have to be addressed to attain vision 2041 and ensure sustainable growth of the economy.
The government needs to take immediate actions to resolve the issues to increase investment in education, healthcare, infrastructure and create a conducive business environment for attracting both local and foreign investment so that we can reap the potential we have.
The author is an Executive Officer of the Mercantile Bank Limited and a student of MBM at BIBM.