Public sector needs to keep pace with private sector
Bangladesh has made a number of achievements in the last 50 years. At the time of its independence, Bangladesh had a huge population size and high poverty rate along with a narrow and undiversified economic base, weak infrastructures and inadequate resources—both financial and human. Considering all these, our 50 year-long journey has so far been remarkable. We have seen improvements in economic and social spheres, which earned appreciation of the international community.
There has been an increase in per capita income due to higher gross domestic product (GDP) and a drop in the population growth rate. This has led to reduction in poverty. We are on track to graduate from Least Developed Country (LDC) category in 2026 and aspiring to become an upper middle-income country by 2031.
In order to achieve the next milestones in the next few decades, we need to put emphasis on some areas. Private investment—both domestic and foreign—is one of them. It has been stuck at around 24 percent of GDP for many years. An emerging economy should strive for private investment of at least 35–40 percent of GDP. To have more private investment, some preconditions need to be fulfilled. These include maintaining political stability, strengthening infrastructures, removing bureaucratic barriers and enhancing human skills which will help improve ease of doing business.
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The economic growth we have achieved has not generated adequate employment. Youth unemployment is 10.6 percent. About 30 percent of the youth are in NEET situation who are not in education, not in employment, and not in training. Unfortunately, higher academic qualification leads to higher rate of unemployment. The current growth pattern is showing the pattern of a jobless one. Private sector investment remains low, which is why enough jobs are not being created. Private sector's contribution to the economy is about 80 percent. So it is the major source of employment generation. On the other hand, university graduates cannot be employed due to a lack of required qualifications wherever there are job opportunities. So, quality of education is a major issue that needs to be addressed when we talk about the next big leap.
Once we graduate from the LDC status, we will step into a new global landscape. We will be bound by new terms and conditions in export and financial markets. The duty-free and quota-free (DFQF) market access we are enjoying now as an LDC, will no longer be available for us after 2026. We will have to enter the global market paying applicable duties like other developing and developed countries. Besides, we will not be able to access foreign grants and low-cost fund any more. External finance will have to be mobilised from global sources at the existing commercial rate of interest.
Moreover, we will have to abide by various compliance related issues—human rights, labour rights, and environmental standards, among others. We will need to comply with a lot more issues and follow international treaties than what we do now.
We need to remember that a number of large economies have been stuck even for 20 or 30 years in the middle-income status after they graduated from low income status. To cross over the hurdle, there must be qualitative changes in many areas. Only achieving a higher income status will not work if quality education, improved health services, planned urbanisation, and improved law and order are not ensured. These are essential to achieve a sustainable higher income economy. How far we could reduce corruption and ensure good governance will also matter to a great extent. Without achievements in these areas, we are very likely to be confined in the "middle-income trap."
Without diversification of the economy, growth might stagnate. Export diversification is one the critical concerns. An economy which is dependent on a single export product is vulnerable to any domestic and external shock. We also need to diversify our financial sector and financial products. We must look beyond banks and non-bank financial institutions, and develop our capital market as an additional source of financing growth. We also have to improve our revenue mobilisation effort as our tax-GDP ratio is the lowest even in South Asia. In the fiscal year 2019-20, tax-GDP ratio was only 9.5 percent and in fiscal year 2020-21, it is estimated to be 11.4 percent. This is far below the requirement. Domestic resource mobilisation will have to play the key role in financing our economic activities after LDC graduation.
To prepare us for the next big leap, our female workforce needs to get more access to the labour market. Female labour force participation rate is only 36 percent. Moreover, over 90 percent omen work in the informal sector where jobs are low-paid and requires low skills. These jobs have no guarantee also. Whenever a crisis emerges, like the ongoing pandemic, informal sector workers are the first ones to lose jobs. Therefore, women need to be qualified and skilled so that they can be engaged in high-paying jobs. This will not only improve their own welfare but also contribute to higher growth of the country.
Technology will play a crucial role in the next leap. It improves efficiency by reducing time and cost and contributes to higher productivity. The government aims to achieve a digital Bangladesh. However, the desired level of progress is yet to be achieved. Globally, technology is moving very fast. A lot of investment is needed to keep pace with the rapid changes and provide larger access to technology at an affordable price. Without higher access to technology, there will be digital divide which in turn can accentuate inequality.
Rising inequality also stands in the way of next stage of development. Bangladesh's GDP size is increasing so is its per capita income. Ironically, inequality is rising too. If we compare who is received how much benefits of Bangladesh's growth it is mind-boggling. For example, the richest 5 percent households of the country were 31.55 times richer than the poorest 5 percent households in 2010. This divergence increased many folds in 2015 when the richest 5 percent households were 121.26 times richer than the poorest 5 percent households. Such inequality is conflicting with the whole philosophy of our independence and the core spirit of our constitution that calls for a just society.
While efficiency is needed everywhere for our next trajectory of our growth, we also need to improve the efficiency of our bureaucracy and public services. Skills of public service providers need to be enhanced for better public service delivery. At this day and age, citizens should not even need to go to public offices to track their files and follow ups. It should also be hassle free and smooth. An application for a business or other license should be automatically processed and delivered within a certain period, say within a week or 10 days. Of course, there has been improvement in this regard. However, if we want to leap forward at a faster pace, business facilitation has to be enhanced. The private sector operates in a competitive environment—both nationally and globally. Removal of bureaucratic complexities, fast decision making and its implementation are essential for a dynamic private sector. Therefore, the public sector has to keep pace with the private sector.
Reforms in the public administration system with a view to ensure quality public services is long overdue. Performance and integrity should be the only criterion for promotion and incentives. Public servants serve under the government of the day. They have to be above political controversies and should discharge their duties without political bias. If sycophancy becomes the main criterion for their careers, professionalism is undermined. Not only the private sector, common citizens also expect better public services—be it delivery of social safety support or health care. Indeed, they need more cooperation from the government as many of them, particularly the vulnerable and poor people lack means of their own growth. In the next leap, the efficiency of public services will be a key factor to move forward more meaningfully.
On the whole, Bangladesh has to work for qualitative improvement of its progress in the next leap. Growth has to be transformed into development which captures not only the numbers but also the quality of progress in all aspects of life.
[This write-up is based on conversation with Centre for Policy Dialogue (CPD) Executive Director Dr Fahmida Khatun over phone.]
