Focus on welfare of poor more than prestigious projects: Prof Wahiduddin

In the current economic situation, the government should prioritise the welfare of the lower-middle and the lower classes of people over implementing prestigious development projects, renowned economist Dr Wahiduddin Mahmud has observed.

During a solo speech event titled "Conversation with Prof Dr Wahiduddin Mahmud", organised by the Economic Reporters Forum (ERF) on Saturday, he also said the current problems in the country's macroeconomy have arisen as a result of erroneous and ad-hoc policy decisions.

Wahiduddin Mahmud stressed the importance of focusing on the well-being of the lower, and lower-middle classes in society to maintain their standard of living.

He also emphasised that human resource development should be given equal attention alongside infrastructure development.

Dr Wahiduddin elaborated, "If human resources are not nurtured and developed, infrastructure remains merely a skeletal framework. Developed human resources are the lifeblood of infrastructure. Conversely, neglecting human resource development could potentially lead Bangladesh into the trap of remaining a lower-middle-income country."

In his long speech, the former Dhaka University professor analysed various facets of the country's economic landscape, including infrastructure development, monetary policy, fiscal policy, education, healthcare, environmental concerns, geopolitical strategy, and macroeconomics across different sectors. He also engaged in a questioned and answer session with journalists, addressing their inquiries.

Dr Wahiduddin also offered insights into the economic dynamics between Bangladesh and China.

Given the absence of a trade balance between Bangladesh and China, it would not be prudent for Bangladesh to join a China-led bloc due to the political and economic considerations of its production capacity, he said.

Geopolitics

Dr Wahiduddin mentioned that Bangladesh is heavily dependent on China and India for imports. However, the market for its manufactured products is mainly in Europe and America.

"As a result, Bangladesh must maintain an equilibrium in relations with all countries. There is no scope for Bangladesh to join any alliance," he said.

Furthermore, he stressed the importance of Bangladesh sustaining engagements with Western countries to boost exports, stating, "This also involves politics. If the European Union does not provide GSP plus benefits on human rights issues, it will not be good for us."

Dr Wahiduddin also highlighted that Bangladesh is scheduled to graduate from the status of a least developed country (LDC) in 2026, which will result in the loss of preferential market access in world trade. However, he expressed concerns about the country's preparedness for this transition, noting, "But, the country is not adequately prepared for graduation from LDC status."

He went on to say that Canada has given benefits to Bangladesh but only Canada's assistance is not enough.

"Vietnam has bilateral agreements with 25-30 countries. What is the situation in Bangladesh in this regard? Bangladesh is a member of the South Asian Free Trade Agreement (Safta). But it didn't work. Bangladesh needs a GSP facility in the US for handicrafts and export diversification," he added.

Regarding BRICS, he said, "It is a new geopolitical alliance. However, this alliance does not seem to be very successful because countries such as Brazil and India will not be helpful in fulfilling China's objectives."

Determining investment priorities

Prof Wahiduddin said infrastructures like flyovers are definitely needed, but they come at a high cost.

"Loans are necessary to finance them. If we continue in this manner, we can do a lot. We will have infrastructures similar to those of the United States.

"But, the question is, eventually, we will have to repay this debt. Furthermore, if there isn't proper coordination among these infrastructures, they won't be fully utilised. Despite the fact that the debt-to-GDP ratio is around 30%, it has increased significantly in recent years. The way it is growing, we will have to repay $5 billion in loans annually after 3-4 years."

He suggested that various factors including planning, expenditure, prioritisation, engineering flaws, and operational efficiency should all be considered while doing infrastructure development.

"If infrastructure serves only the purpose of reducing travel time or providing comfort, it will not be justified. It's crucial to assess whether domestic and foreign investments are attracted through these infrastructures, whether investment costs are decreasing, and how much revenue is being generated."

However, it should also be noted that infrastructure doesn't solely attract investments, he noted, adding that efficient governance, gas connectivity, and land allocation are also crucial.

The macroeconomic situation

Regarding the current dollar crisis, inflation, and declining reserves, he said that problems related to foreign exchange rates and reserves, as well as inflation persist over the past few years.

"The issues that existed before still persist now. Due to factors such as the COVID-19 pandemic and the Ukraine war, some problems have arisen. Some issues have also arisen due to weak management or mistakes.

"When the economic situation was good, the dollar exchange rate was not left to the market. Had the exchange rate been adjusted with the market time and again, there would have been no sudden jumps. When reserves were increasing, they were spent in various ways. Developing countries do not use reserves in this manner. They always aim to boost reserves. India has done so. If Bangladesh Bank wanted, it could have bought dollars to increase reserves. But it didn't utilise the opportunities fully."

Caution was needed even in deciding to borrow foreign loans in the private sector, he said, adding, "It should have been kept in mind that the dollar rate fluctuates. Now, many are unable to repay foreign loans on time, which will ultimately fall on the country."

Due to these mistakes, finding a solution to the current problems is becoming difficult, he observed.

A lending rate cap was imposed to protect the interests of businesses, he mentioned, adding, "Budget, monetary policy, and exchange rate management are linked to each other. As a result, if there is a problem in one area, it will affect another. Trying to fix it with hasty measures or ad-hoc solutions won't work."

Macroeconomic management needs to be a systematic process. Otherwise, uncertainty and instability will prevail.

Money laundering

"That money is siphoned off from Bangladesh is true. However, there is no information on who is doing it or how much it's happening. But some traders are involved in it. The government is trying to curb hundi or money laundering through incentives on remittances [through legal channels], but it is not taking any initiatives after analysing the demand for hundi."

Many banks have opened exchange houses abroad, but the exact amount of remittance being collected and coming in is not transparent, he mentioned.

Prof Wahiduddin said, "Thousands of crores of Taka have been smuggled out of the bank…By following the money trail in the banking system, it can be understood who has taken it and where. Even if it is done anonymously, there remains a financial 'footprint' in the flow of money."