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Weak instts key hurdle to economic transformation

Warn top economists

  • Staff Correspondent
  • 8 December, 2021 12:00 AM
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Weak instts key hurdle to economic transformation

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Weak institutions are standing in the way of the country’s planned transition to a higher income country, according the top economists.

Although informal institutions have helped Bangladesh in its early stage of growth, but moving forward will require properly functioning and more efficient institutions, they said.

“At early stage of development, many countries have informal institutions, but for transition to higher income country, Bangladesh needs to create formal institutions which are functional and stronger,” commented noted economist Dr Selim Raihan.

He was speaking at a session of Bangladesh’s Economic Transformation at the second day of ongoing virtual international conference on 50 years of Bangladesh, organised by Centre for Policy Dialogue (CPD).

He cited weakness in banking sector, ineffectiveness of Anti Corruption Commission (ACC), revenue administration for the lowest tax-GDP ratio arising from lack of reforms to VAT. He also mentioned weak labour organizations as a major cause of institutional weakness.

Supporting Dr Raihan, another noted economist Ahsan H Mansur said strong institutions are very important for any economy as institutional weakness transfers to real economy, society and living of every individual.

“Bureaucrats are paid handsomely but their performance is very poor,” Mansur remarked, pointing fingers to inefficient bureaucrats as a major source of institutional weakness.

“Bangladesh has done well despite institutional weakness, but it won’t be able to continue to do so,” he added.

Dr Selim Raihan put much emphasis on strong political will for bringing about change in institutions to make them more functional.

He also mentioned “dominance of RMG or RMG model” supported by low-cost labour as a major hurdle of industrial diversification. He criticized the industrial policy as well alleging that the industrial policy is “narrowly focused on RMG,” which has created a blockage factor.

Prof Mustafizur Rahman, Distinguished Fellow of CPD, said Bangladesh is going to face challenges from two graduations—one from mid-income country and another from LDC group.

He suggested shifting to skill and productivity based competitiveness from the present market preference based competitiveness.

Otherwise, the country may get trapped in middle-income or upper middle-income country bracket for a long time like many other countries of the world and even its LDC graduation won’t be sustainable, he warned.

Mustafizur Rahman attached immense importance to quality education and creation of decent jobs in the country.

Bangladesh needs to look at East Asia, ASEAN and South Asian markets for enhancing its exports, which is largely untapped so far, he suggested.   

Besides, the apparel sector needs intra-RMG diversification for non-cotton items for tapping the export potentials in these trading areas. Bangladesh has to upgrade its technology as well, Prof Rahman said. 

Dr Naznin Ahmed, Country Economist, UNDP said LDC graduation, shifting to mid-income country and implementation of SDGs-- all are happening at a time.

“Innovation, homegrown technology will also be required beside skills. We already know what is going to happen. It may help in policy formulation,” she said.

About policy making, she suggested that the smooth LDC transition committee should be made an umbrella, adding that before going to bilateral trade pacts, the country needs to  increase negotiation power. “We need 360 degree preparation for negotiations.”

“It’s very much about our preparation for a graduated a country. Am I prepared for behaving like graduated country people?”

The economists said the next seven years are going to be very challenging for the next five to seven years although the benefit of cheap labour will continue for this period.

Acclaimed economist Prof Wahiduddin Mahmud moderated the session.