People don't believe key institutions run by rules: Prof Rehman Sobhan

Eminent economist Prof Rehman Sobhan has said people don't believe that key institutions like the Bangladesh Bank, the National Board of Revenue and the Anti-Corruption Commission are run in line with rules and regulations. 

"It needs to analyse the institutions that do not operate according to the law. Even, many do not believe that there are any rules in Bangladesh. This distrust is called institutional failure," he told a book unveiling event of the South Asian Network on Economic Modeling (SANEM) in the capital on Sunday (21 April). 

For instance, he said although Bangladesh Bank has made rules for rescheduling defaulted loans, not all customers are getting that benefit equally. Similar picture can be found in other institutions also. 

He believes that foreign direct investment is declining in Bangladesh because of or the lack in reliable institutions. 

Commenting on the book titled: "Is the Bangladesh Paradox Sustainable?," Rehman Sobhan said, "Bangladesh is not only a paradox in terms of economic growth, but the growth of Vietnam and China is also a paradox." 

Despite having very weak institutions, China and Vietnam are moving forward economically, he added. 

Prof Selim Raihan, executive director of SANEM, François Bourguignon, emeritus professor of Paris School of Economics, and Umar Salam, economist of the Oxford Policy Management, have edited the book, while Cambridge University Press has published it. 

The book says Bangladesh's growth has occurred despite weaker institutional quality than many sub-Saharan countries. 

Economic Adviser of the Prime Minister Moshiur Rahman said there is a link between tax legitimacy and effective tax collection. 

"Tax policies need to be further scrutinised so that more supplementary duty, VAT and excise duty can be collected to increase revenues," he said. 

According to him, turnover tax is more about protecting business people than raising revenue collection. 

He further said due to laxity in the implementation of rules, failure to pay loans or defaulted loans is increasing in the banking sector.

Prof MM Akash said there is a lack of autonomy in the banking sector. As a result, negative power often overshadows positive power, makes reforms difficult. 

He said, "Who are the real beneficiaries of the institutional defects should be identified. Understanding the power dynamics within the state is important." 

Selim Raihan thinks that the issues that have advanced Bangladesh primarily may not be effective in the next phase of development. 

"Bangladesh has established a pocket of informal institutions and a political settlement mechanism that facilitates the growth drivers. For this, development may not be sustainable in future," he explained. 

Tax-GDP ratio in Bangladesh is very low. As a result, the implementation of the proposed budget is also low, he added. 

Prof Raihan said Bangladesh has a strong anti-reform coalition that prevents breaking the cycle of corruption. 

He also mentioned that Bangladesh needs several steps to get new growth drivers, including integrated industrial policy, political coordination, development of banking system, development of tax sector, significant allocation on health and education sector in the budget alongside intensifying institutional reforms.

Another editor of the book, Umar Salam, said that the institutional diagnostic concept is mainly derived from the growth diagnostic concept, where the obstacles to the growth of an economy are identified and suggested to be removed, adding that maximum growth can be achieved with this. 

How the growth drivers have worked in the case of Bangladesh and what are the challenges have been presented in the book through research, he said.