Road to upper middle income country riddled with hurdles

A number of hurdles stand in the way to Bangladesh becoming an upper-middle-income country by 2030.

The Planning Commission has identified a few of these hurdles in its concept paper, drafted as the first step towards preparing the country’s eighth five-year plan.

Weakness in revenue collection, outdated stock market, increasing default loans, and inadequate investment in the private sector have been identified as major obstacles, according to the paper. 

Additionally, the lack of skilled manpower, ever-increasing income disparity, and non-performing or inadequate local government system may also hinder achieving the government’s target.

The amount of annual tax collection by the National Board of Revenue (NBR) is only 8.7% of the Bangladesh’s total GDP, while its non-tax (annual) revenue stands at only 1.3%. 

“Limited government resources may not be adequate to meet the growing demand for expenditure in infrastructure, agriculture, water resources, health, education, and social safety,” stated the Planning Commission.

According to the concept paper, prepared by the General Economic Division (GED) of the commission, achieving the upper-middle income country status may not be possible with the limited public resources, which suggests a need for reformation of NBR. 

Towfiqul Islam Khan, senior research fellow at the Centre for Policy Dialogue (CPD), also favours reforms of the tax collection system. 

“Legal barriers to reform and non-implementation of reform initiatives are responsible for stagnation in tax collection,” he told The Business Standard. 

In his view, adequate resource allocation in infrastructure development and social security will not be possible without increasing revenue collection.   

The banking sector, is at present very fragile due to ever-increasing default loans –which now stands at over Tk100,000 crore. 

The concept paper further stated that the health of the banking sector has to be improved through increasing private investment, adding that non-banking financial institutions are also facing pressure due to default loans.

“The data on investments in private sector do not look promising,” the Planning Commission stated. 

Although Bangladesh’s GDP growth exceeded targets in each of the three consecutive years of the on-going 7th five-year plan, the lack of private investment has not shown any signs of recovery. 

Despite fixing the overall investment target – both public and private investments included – at 34.4%, it is stuck at 31% due to low private investment.  

The commission said that the government’s plan to increase the rate of private investment to 32% from 22%, within a period of two consecutive five-year plans stretching from 2010-11 fiscal to 2019-20 fiscal, did not materialize. So far, the rate has only increased to 23% – a scanty 1 pecentage point to increase in 10 years.

According to the Planning Commission, the on-going government initiative to increase public sector investment is not adequate for achieving a 9% GDP growth, which is the growth rate needed to become an upper-middle income country. 
“In recent times there have been big private sector investments in the power sector. Steps need to be taken to attract more private investment in the transport sector, as well,” the concept paper suggested. 

The commission advised increasing the efficiency and effectiveness of the country’s transport system through proper coordination of the private sector, railway transport and intermodal transportation.

Dr Ahsan H Mansur, executive director at the Policy Research Institute (PRI) said that neither private investment, nor foreign direct investment (FDI) had increased over a considerable period of time, as the overall environment in Bangladesh is not conducive to investment. 

“The expected level of investment is not coming through due to poor infrastructure, legal complications pertaining to new investments, political interference, and corruption and bribery,” Mansur explained. 

In many countries, stock markets play an important role in increasing private investment. However, in Bangladesh, things are different, as the country’s stock market itself has been in severe crisis over a long time.    

A vibrant and effective stock market will inevitably help Bangladesh become an upper-middle income country through a rise in private sector investment, the Planning Commission noted. 

The paper identified a lack of skilled manpower as a significant barrier to the development of the Bangladeshi economy, adding that 32% of the labour force have no education – with only 26% having primary level and 19% having SSC level education. 

Poorly qualified manpower is not compatible with the status of a middle-income country, the concept paper noted.

The commission suggested emphasizing on science and technology, as well as the significant spread of pre-primary education, to achieve middle-income country status.

The paper also expressed views in favour of strengthening public and private institutions. “For a country with an emerging economy, Bangladesh’s public and private institutional structure is still weak, and in need of improvement; for a greater economic and administrative autonomy, the local government bodies need to be adequately functional.” 

Speaking to The Business Standard, Dr Shamsul Alam, GED member, said that as a developing country, Bangladesh “faces many challenges.” 

The 8th five-year plan will be finalized and published in June next year.  

“The 8th five-year plan will come up with an outline to address the challenges Bangladesh now faces in its way to become an upper-middle-income country,” he added.