Absence of reforms may harm growth prospects

Staff Correspondent

4 November, 2019 12:00 AM printer

Inability to bring about structural and institutional reforms may harm the country’s growth prospect and eventually lead it to a structural slowdown, CPD says.

The private think tank made the observation while presenting its first analysis on economic state in the first quarter of the current fiscal year at a press conference on Sunday.

“If stressful situation continues in local economy, it won’t be possible for the country to utilize its potentials in future, which will finally lead to a structural slowdown,” commented Towfiqul Islam Khan, CPD’s senior research fellow.

“It won’t be possible to sustain the higher growth in the mid term that the country is now witnessing,” he added.

“Reforms are vital for economy of institutional development and enhancing accountability,” CPD’s distinguished fellow Dr Debapriya Bhattacharya said.

“Otherwise, base of 8th five-year plan will be weak and SDGs implementation will be fragile. There is fear of slowing down of the economy due to weakening of macroeconomic factors,” the noted economist pointed out. 

Lack of the reforms is holding back private investment, while the economic woes are impacting mid-term growth drivers like human capital and inclusive economic growth, CPD explained.

It listed revenue mobilisation, jittery banking sector, slugging capital market and negative balance in external trade as the key concerns for local economy now. 

Dr Debapriya said no progress is still seen even after three months of FY20 have elapsed, although the government had made a number of reforms commitment in its electoral manifesto.

He thinks that the people, who are beneficiary of a situation of little reforms, are actually putting a bar to the much-needed reforms.

“This vicious cycle of political economy must be broken for the sake of the country’s betterment,” he insisted.

Instead of reforms to increase the country’s competitiveness, the government is trying to run economy through fiscal incentives as a compensation for the inability to bring about reforms, he alleged.

“The tendency is creating a fiscal addiction in the economy,” he remarked.  

Devaluating taka against US dollar much earlier rather than providing cash incentives on exports or remittance would have paid off better, according to CPD.    

In face of falling revenues and potential budget deficit, problematic banking sector and share market, it would be tough to sustain for an economy based on incentives rather than reforms, it said. 

Like the last fiscal year, CPD estimated a Tk 87,000 crore revenue shortfall this year as well as new VAT law could not yield more revenues because of wider tax exemptions.

The deficit might trigger more bank borrowing by the government, which will also squeeze the scope of private sector credit.

Dr Debapriya complained of data unavailability in the country at present, which may lead the government to wrong planning.

He suggested shunning the “denial” tendency of the government.

The economist termed the recent GDP growth a string-cut kite which has not connection with ground reality and depict a “surreal” picture. “Private investment is hovering around 23 percent of GDP in recent years. Then how higher growth came without additional private investment,” he questioned, also mentioning negative trends in some key drivers.

“The legacy of higher growth of the country has been an enemy of inclusive growth,” he commented.

For sake of proper development planning, there should be an open discussion on what basis the growth estimates are made, he suggested.

CPD’s another distinguished fellow Prof Mustafizur Rahman and executive director Dr Fahmida Khatun, also spoke at the press conference.