Topic 5: Investment

Topic 6: Fiscal Policy

 Budget FY2022 addresses pandemic priorities only partially

Dr Fahmida Khatun
Published on The Daily Star, 06 June 2021

In the year of Bangladesh's golden jubilee, the finance minister has presented the 50th
budget of Bangladesh for fiscal year (FY) 2022. This is probably the most challenging
budget in the history of Bangladesh. This is also the second budget since the Covid-
19 pandemic erupted in Bangladesh in March 2020. The budget comes at a time when
the country is also being swept away by the second wave of the pandemic. Thus,
before the economy could move towards the recovery phase it has fallen into health,
economic and social risks afresh. Hence this budget has been prepared in the context
of an unprecedented situation as the economy is mired in multiple challenges which
Bangladesh has never observed in the past.

A well-formulated budget and its effective implementation would be an important

mechanism to mitigate these challenges. To what extent the budget for FY2022 is
going to do so is examined here by looking into a few important aspects in the context
of the ongoing pandemic.

Allocation for priority sectors and their utilisation capacity

The budget for FY2022 has made allocative priorities in a business-as-usual manner
where the impact of the Covid-19 pandemic has not been taken into consideration. In
terms of sectoral allocation, the priority sectors during the pandemic are clearly health,
social safety net and employment generation. However, resources are not sufficient
for these sectors. To start with, though allocation for health sector as a share of the
total budget has increased from 5.15 percent in FY2021 to 5.42 percent in FY2022, in
terms of its share in GDP there is no change. It is 0.95 percent of GDP in FY2022, as
it was in FY2021. The logic behind low allocation for the health sector at a critical time
is mentioned to be the inability of the health ministry to utilise its allocation. In fact,
actual expenditure as a percentage of revised budget allocation has worsened
significantly over the past decade. Besides, utilisation of non-development budget has
been consistently higher than development budget utilisation for the last several years.

The other important sector, social safety net (SSN) programmes have undergone a
few changes which are not encouraging. The overall SSN budget as a percentage of
total budget increased from 17.75 percent in FY2021 to 17.83 percent in FY2022. SSN
budget as a percentage of GDP saw an insignificant increase—from 3.10 percent in
FY2021 to 3.11 percent in FY2022 budget. A major component of the SSN budget is
pension for the retired government employees and their families. Hence, the share of
SSN budget excluding pension declined from 2.35 percent of GDP in FY2021 to 2.34
percent of GDP in FY2022 budget. Allocation for pension has increased from Tka
23,000 crore in FY2021 to taka 26,690 crore in budget for FY2022. This increase is
16 percent which is higher than the rate of increase of overall social protection.

Surprisingly, SSN budget excluding pension as a percentage of budget decreased

from 13.49 percent in FY2021 to 13.41 percent in FY2022 budget. There are also
some deductions in allocation for a number of programmes. For example, allocation
has been reduced for programmes protecting livelihoods, such as Work For Money
and Skills and Employment Programme in Bangladesh. Allocation for three types of
education stipends have been reduced in FY2022. Also, allocation for several
programmes which address the needs of the marginalised, vulnerable, and left behind
communities has been slashed in the FY2022 budget. As it is, there is insufficient
allocation for SSN, the lowering of allocations for these programmes is not reasonable.
These should be reinstated urgently.

Low investment on human capital is not only reflected through low health budget, but
also low allocation for the education sector. Total allocation for education sector in
FY2022 budget increased by only 8.68 percent compared to FY2021. However, the
revised education budget as a share of GDP decreased to 2.08 percent in FY2022
from 2.14 percent in FY2021. In the 8FYP, education budget as a share of GDP is
targeted to reach 3.5 percent by 2025, and 4 percent in 2031. At the current rate, the
education budget as a share of GDP may reach only up to 2.15 percent in 2025 and
2.26 percent in 2031. For making up the learning losses during the pandemic and
reducing the resultant learning inequality, resources for online educational
infrastructure and capacity development of teachers should have been allocated.

Investment and employment

The estimated growth of GDP for FY2021 is 6.1 percent. In anticipation of a back to
normal scenario, the GDP growth target for FY2022 has been set at 7.2 percent. To
achieve this growth, a lot of investment will be needed. Private investment is expected
to be the major driver of this investment. In FY2022, public investment-GDP ratio is
projected to be 8.1 percent compared to 8.2 percent in FY21. And private investment
is estimated to be 25 percent of GDP in FY2022. This implies that an additional Taka
117,000 crore will be needed to achieve this growth. Given that private investment has
been stagnant at about 23 percent of GDP for the last couple of years, how private
investment will improve in a pandemic year is unclear.

Of course, one can expect that the private sector would be encouraged to invest since
the government has offered several incentives through tax exemptions and reductions.
However, higher investment is not only a function of low tax. Several factors, such as
less bureaucratic hassles, infrastructural facilities, corruption free environment and
skilled human resources are also important preconditions for higher investment.

If businesses pick up in FY2022 it will help create employment which is crucial for
recovery from the fallout of the pandemic. At the same time, a number of ministries
which have direct link to employment generation need to have more allocation and
speed in their ADP implementation. For example, the Ministry of Industries, the
Ministry of Labour, the Ministry of Youth and Sports, and the Ministry of Expatriates'
and Overseas Employment received lower allocation in FY2022 compared to FY2021.
The implementation rate of their ADP allocation is only 44.7 percent during the first 10
months of FY2021.

Support to the poor and low-income group

While businesses, particularly the large ones, have been provided with so much
support through fiscal measures, the government forgot about the poor and low-
income groups. The pandemic has created new poor and eroded incomes of the
informal sector employees. Moreover, the threshold of tax-free income of the small
earners has not been raised. This could help the people in the low-income group as
they would have more disposable income. The government could also earn indirect
tax through their purchases.

Besides, the cottage, micro and small businesses should be provided more support
as they have used all their savings by now and many could not avail the loan under
the stimulus packages. Structural problems in accessing finance from commercial
banks are one of the reasons. But their apprehension for not being able to pay back
the instalment also deterred them from taking bank loans. There is no indication of any
second stimulus package for them.
Trickle down approach

The policymakers seem to believe that if the large businesses flourish it will
automatically benefit the poor, low income and middle-income groups. Sure, private
businesses will create employment for many, but it does not guarantee reduction of
inequality. It is the government which has to intervene and take targeted measures to
reduce inequality of all forms. Budgetary measures are one such mechanism for
government intervention. The government can incentivise some sections through
fiscal measures such as tax cut, tax exemptions, tax holiday and subsidies. Through
progressive taxation and redistributive measures, the government can also extend
some respite to those who have less or no resources.

The budget for FY2022 aimed to protect lives and livelihoods. But this has not been
supported by mindful measures and adequate resource allocation.

Dr Fahmida Khatun is the Executive Director at the Centre for Policy Dialogue.
Views expressed in this article are personal.
 A budget that forgot new poor exists

Published on The Daily Star, 05 June 2021

Says the CPD in its analysis of the proposed outlay for fiscal 2021-22.

Expectations were high that the proposed budget for fiscal 2021-22 would address the
hardships of the sizeable population of new poor created by the pandemic.

But it failed on that count, said the Centre for Policy Dialogue yesterday.

"We have not seen any measure that will have any direct impact on the new poor,"
said Mustafizur Rahman, a distinguished fellow of the CPD, at a media briefing to
disclose the think-tank's analysis of the Tk 603,680 crore budget announced by
Finance Minister AHM Mustafa Kamal on Thursday.

About 20.5 percent of the population was already living in poverty and the pandemic
added another 1.60 crore to the group, according to an estimate of the CPD in April.

In the same month, another survey by the Power and Participation Research Centre
and the Brac Institute of Governance and Development showed that the ongoing
economic shock pushed 2.45 crore people into poverty even before the second wave
of the pandemic hit.

The World Bank also said Bangladesh's poverty rate jumped to 30 percent due to the
pandemic.

The Bangladesh Bureau of Statistics does not have the latest data on poverty; its most
recent one dates back to 2019, when the poverty rate was estimated to be 20.5
percent.

"We have discussed a lot about the new poor and marginalised poor due to Covid-19
but their issues were not addressed in the budget," Rahman said at the briefing held
at the capital's Lakeshore Hotel.

The government has allocated Tk 107,610 crore for social protection schemes for the
upcoming fiscal year, which is up 12 percent but lower than the average 17 percent
growth of allocation between fiscals 2009-10 and 2021-22.

Of the amount, the government has set aside Tk 26,690 crore -- one-fourth of the sum
-- to provide pension to retired government employees. This is an increase of 16
percent from fiscal 2020-21, and higher than the rise in allocation for social safety net
schemes.

Besides, the allocation has been cut for programmes protecting livelihoods such as
the Work for Money and the Skills and Employment Programme in the incoming fiscal
year, according to the CPD.

The allocation has also been cut for several programmes that address the needs of
the marginalised, vulnerable and left-behind communities.

This means the new poor will be largely deprived of getting benefits from the
programmes.

"The philosophy of the budget is to reduce the inequality of income, consumption and
wealth between the poor and the rich. But measures for bringing down inequality is
not visible. The government should have widened the allocation for social safety net
programmes," Rahman said.

The government should have increased the amount of allocation in public spending
and investment for creating more employment amid the pandemic, the CPD said.

For instance, the proposed budget for fiscal 2021-22 is 17.5 per cent of the total GDP.

In India, the ratio of public expenditure to the GDP is 26 percent. It is 30 percent in

both Nepal and Bhutan and 28 percent in Vietnam.

But, the actual implementation rate, the ratio of public expenditure to the GDP, in
Bangladesh usually decreases to 16 percent, whereas the average ratio in the South
Asian nations is 25 percent of the GDP, he said.

The budget document does not have much to offer in terms of concrete measures and
innovative policies to combat the Covid-induced challenges, the CPD said.

The tax exemption, value-added tax and duty benefits proposed in the budget are
expected to stimulate private investment, create jobs and indirectly benefit the
economy, Rahman said.

"But private investment cannot be stimulated through tax benefits only. It also depends
on the ease of doing business and competition in the market. So, the tax benefit can
be termed as a necessary condition not sufficient," he added.
Khondaker Golam Moazzem, research director of the CPD, went on to call for a
second stimulus package for the cottage, micro, small and medium enterprises
(CMSMEs) as only reducing tax is not enough to resolve the existing problems of those
businesses.

The government should allocate an additional fund of Tk 30,000 crore for the CMSMEs
to take the total allocation to Tk 50,000 crore for revival of the affected CMSME units,
which will help generate employment.

The higher allocation for mega projects in the incoming year was unnecessary in the
face of rising poverty, he said.

For instance, the highest allocation was given to the Rooppur nuclear power plant,
raising a question to this end, he said.

"The country does not require additional electricity due to the surplus production at
this moment. But the situation is quite different for commoners. In the absence of help
from the government, they cannot live their lives smoothly."

For instance, the people of Koyra have been struggling to build an embankment to
save themselves from tidal surges, Moazzem added.

Given the magnitude of negative impact on various sectors due to Covid-19, the CPD
had emphasised the need for a medium-term strategy for economic recovery.

"The budget for fiscal 2021-22 has no indication of this," said Fahmida Khatun,
executive director of the CPD.

In his budget speech in the parliament, Kamal mentioned that health, agriculture and
employment generation have been given priority while allocating resources for the
annual development programme.

However, actual allocation does not reflect this as these promises have not been
supported by adequate resources, the CPD said.

"This puts under risk the fulfilment of the promise made in the 50th budget to move
towards a resilient future by giving priority to lives and livelihoods," Khatun said.

There was no specific mention of an allocation for purchasing vaccines, which is highly
important for the nation to get out of the pandemic woes, said Towfiqul Islam Khan,
senior research fellow of the CPD.
The government had kept aside Tk 32,731 crore for the health sector in the upcoming
fiscal year, which is an increase of 12 percent year-on-year.

The allocation for the health sector as a share of GDP stands at 0.95 per cent, which
has almost remained the same as this fiscal year's. The ratio is 0.83 percent in fiscal
2020-21.

"Surprisingly, even the pandemic was not reason enough for the government to
prioritise the healthcare sector," Fahmida Khatun said while presenting the keynote
paper at the event.

The education sector had been hit hard by the pandemic since March last year when
the coronavirus began putting down its roots in Bangladesh.

The government has kept aside Tk 71,953 crore for the proposed budget, an increase
of 8.68 per cent year-on-year.

The share of the education budget as a percentage of GDP decreased to 2.08 percent
from 2.14 percent this fiscal year, she said.

The government should have increased the allocation to a large extent such that
educational institutions can carry out classes through the online platform, Khatun
added.
 ECO502
Topic 7: Monetary Policy
Monetary policy: Growth and Development Issues
Dr. Salehuddin Ahmed
Former Governor, Bangladesh Bank (Central Bank).
Professor, School of Business, BRAC UNIVERSITY

This paper deals with various aspects of monetary policy in general and some major
challenges of central bank with special reference to Bangladesh. The emphasis is on
monetary policy options for sustaining growth and equitable development.
Bangladesh is basically a “Small Open Economy”, like many others around the globe. But it
has got a huge population with a small land area, which has given rise to some unique
external and internal challenges. In fact, Bangladesh is termed as “test case of development”,
whose experiences will be quite useful for other developing countries.
1. Policy debate in a market economy
Many proponents of market economy criticize the role of the government and public policy
on two grounds:
a) Government is unnecessary, anything government can do, the private sector can do
better;
b) The incentive structures in public institutions and the actions of public policies
generally decrease societal welfare, or inhibit productive economic activity by taking
resources away from one group and giving them to another, often less deserving
group.
However, the renewed interest in public policy and changing role of government has now
come to the forefront because of the following factors:
a) Market failure
b) Special interest groups establish market impediments; unearned income by
middlemen.
c) Rent seeking, corruption by private sector result in waste of resources and
efforts.

1
2. Monetary Policy challenges:
There are some challenges of monetary policy (MP) faced by a developing country like
Bangladesh.
a. In recent decades’ evolution of MP centered around two approaches: The Keynesian
expansionary policies in the so-called “Golden Age” to “Orthodox” (contractionary)
policies of neoliberalism, sometimes promoted by IMF and the World Bank in the
form of stabilization and structural adjustment programs.
b. However, due to the present concern for better government, efforts to be made to
achieve a balance between expertise and democratic representativeness and
accountability. The major argument for more representativeness in monetary policy
making is that economic policy involves important choices that do not have just
technical answers and implications. There are a number of trade-offs (between
inflation and growth for instance) that are a matter of values, which are also
concerns of politicians.
3. Objectives of Monetary Policy
Monetary Policy (MP) deals with the measures of the central Bank (Bangladesh Bank) that
changes the relative prices (or yields) of financial instruments (money, bond, foreign
exchange etc.)
a. Objectives of Monetary Policy:
i. Price stability
ii. High levels of production and employment
iii. High level of economic growth.
b. Immediate targets of MP:
i. Reserve money management
ii. Broad money management
c. Policy Targets
i. Inflation target
ii. Growth target
d. Instruments of MP:
i. Bank Rate
ii. Cash Reserve Ratio (CRR)
iii. Statutory Liquidity Ratio (SLR)
iv. Open Market Operation (OMO)
v. Moral Suasion
2
4. Inflation Rate Issues
Estimation of historical changes in monetary policy (MP) stance and their subsequent
impact on the economy, raise the difficult question: how changes in MP affect inflation,
output, exchange and interest rates (Sargent and Sims, 2011)? The commitment to a nominal
anchor like inflation rate itself says nothing about what economic variables are best suited to
play that role. Should it be money supply, exchange rate, or CPI or combination of all? With
the emergence of floating exchange rate, many emerging economies including Bangladesh
have chosen inflation rate as a nominal anchor for MP.
In Bangladesh, the major issues are:
i. Inflation has accelerated led by food prices (reached double digit) and recently non-
food prices have also moved upward to double-digit.
ii Inflation is affected by global prices of food commodities and prices of fuel, raw
materials and intermediate goods (used for our manufacturing industries).
iii Growth of reserve money, broad money, credit to private sector and to the
government have been on the high side vis-à-vis growth and inflation rates. Government
borrowing from the banking sector and the Bangladesh Bank (which is alarmingly high) has
not only created “crowding out effect” for private sector investment, but also has created
inflationary pressure because government expenditures are not used for “real sectors”.
The Monetary Policy Statement (MPS) for January to June 2012 period, of the Bangladesh
Bank announced on 26 January 2012, has emphasized a restrained (contractionary) monetary
growth path to reduce inflation, achieve GDP growth rate of 6.5% and to improve liquidity in
the domestic money market and to ease pressure on foreign reserve. The MPS for July to
December 2012 continued with the same stance to reduce broad money and private sector
credit growth rate to achieve lower inflation rate.
The MP stance of BB to help reduce inflation, whatever the factors behind it, is not much
compatible with macroeconomic stability, sustained growth, and pro-poor outcomes. Rather
it may stifle growth, transfer income to the rich, and may contradict the processes for pro-
poor fiscal policy and development programs. Indonesian, Malaysian and Tanzanian data
have shown that monetary tightening has a larger adverse impact on small and medium
enterprises(SMEs) than it does on larger firms (Chowdhury, 2004).
Inflation targeting (IT) approach has been adopted by 24 central banks, starting from
New Zealand in 1990. However, keeping inflation low is neither optimal nor desirable. Some
countries take 5% as the threshold level of inflation. Better approach than IT is balancing the
stabilization and development functions of central banks.
3
5. Exchange Rate Issues
Management of exchange rate is an important objective of a Central Bank. The current policy
imperatives of BB are to reduce deficits in current account and balance of payments and
prevent adverse impact of depreciation of the currency.
a. Some Major Issues:
i. Foreign exchange reserve Management.
ii. Maintain external value of money (control appreciation or depreciation of
money)
iii. High import expenditures put up pressure on foreign reserve.
iv. Impact on inflation due to higher remittances.
v. Avoid procyclicality.
b. Probable measures to stabilize foreign exchange (FOREX) market:
i. Increase FOREX Reserve: Diversify exports, increase remittance, increase foreign
direct investment (FDI). Increase investment income from forex reserve of BB.
ii. Role of BB in the forex market: Buy and Sell forex by BB,
stabilization/sterilization measures to combat inflation?
iii. BB has to take pragmatic policies through continuous monitoring of REER, NEER,
NDA, and NFA.
iv. BB has to keep a close watch on exchange rate movement of currencies of
Bangladesh’s close competitors in the export market to assess Bangladesh’s
competitiveness.
v. Take IMF Balance of Payment (BOP) support? Government and BB have to
consider carefully the impact of IMF support because of conditionalities attached to
it.
6. Frederic Mishkin (2007) in his article, “Will Monetary Policy become more of a
science” argues that central banks should have strong commitment to “nominal anchors
and there should be “independence of central banks”. If the central bank is not
independent (truly autonomous), noises(shocks) within the country coming from the
government and private’s sectors will make the tasks of taking objective decisions and
implementing these professionally by central bank, very difficult. However, in some
cases actions of central banks do not reflect broader views of society which can give rise
to some disruptions in functioning of the economy. Joseph Stiglistz (1998) therefore,
argues for achieving a balance between representativeness and independence of public
regulatory bodies including the central bank.
4
7. Moving towards different approaches for Emerging countries
a. Emerging (developing) countries including Bangladesh have to move towards
very different approaches to MP for the following reasons:
i. These countries have less developed institutions and less autonomy of central
banks.
ii. Goods and services markets of these countries are often more exposed to
international influences than those of the developed countries.
iii. These countries are subject to more volatility for supply and demand shocks
(e.g. agriculture vulnerable to natural disasters, other sectors affected by
flood, drought).
iv. Political instability and lack of policy continuity make the country more
volatile.
v. Poor law and order situation, poor protection of property rights, weak
safeguards to domestic and foreign investment and corruption.
b. MP can contribute the success of pro-poor development strategy in from
different ways:
i. Supporting pro-poor fiscal policies.
ii. Avoiding excessively low, high or rapidly accelerating inflation.
iii. Helping to stabilize balance of payment (BOP) and the real exchange rate.
iv. Improving resource allocation by providing credit to priority sectors and
managing country’s capital controls (Domestic I, FDI, FPI, Capital Market
etc).
v. Promoting financial inclusion goals to bring financially excluded and
marginalized poor people under the operations of banks, non-bank
financial institutions (NBFIs), microfinance institutions (MFIs), and other
regulated innovative financial institutions.
vi. Corporate Social Responsibility(CSR): social sectors, environmental
preservation, loans for priority areas, transparency and accountability.
Therefore, a small open economy like Bangladesh should go beyond the conventional
notion and approach to monetary policy and adopt heterodox policy and it should be a
country specific and not a homogeneous one. The current monetary policy framework needs
go beyond monetary aggregates covering low inflation and stabilization to extend support to
“employment” and “sustainable pro-poor growth”.

5
 The introduction of non-conventional pro-poor monetary policy in a country like
Bangladesh will be a challenging task, not purely for scarcity of resources or lack of
institutional capacity but most importantly for the lack of political will.
8. Sargent and Wallace (1981) examined the relationship between fiscal and monetary
policies. The argued that these policies were closely linked. Thereby demonstrating how
Friedman’s argument that “inflation is always a monetary phenomenon” can be quite
misleading. Recently central bankers like Ben Bernanke (USA) and Mark Carney
(Canada) have been rethinking their devotion to slaying inflation and considering to put
more emphasis on employment and economic growth.
If political will is there, then in the words of Frederic Mishkin (2007): Monetary policy will
however never become as boring as dentistry. MP will always have elements of ‘art’ as well
as ‘science’. Even through ‘art’ will always be a key element in the conduct of MP, the more
it is informed by good science, and the more successful MP will be.
References:
1. Monetary Policy Statements (Six Monthly) of Bangladesh Bank.
www.bangladeshbank.org.bd
2. Chowdhury, A. (2004) “Thematic Summary Report: Monetary Policy”, UNDP Asia-
Pacific Regional Programme on the Macroeconomics of Poverty Reduction.
3. Mishkin, F.S., (2007) “Will Monetary Policy Become More Science?”. NBER
Working Paper.
4. Franknel, J.P., NBER Working Paper (2010) :”Monetary Policy in Emerging Markets:
A Survey”
5. Thomas J. Sargent and Christopher A. Sims, “Empirical Macroeconomics”, Royal
Swedish Academy of Sciences, 2011.
6. Thomas J. Sargent and Neil Wallace, “Some Unpleasant Monetarist Arithmatic”,
Federal Reserve Bank of Minneapolis, Quarterly Review, 1981.
7. Alfredo Saad Filho, “Economic Policies, MDGs and Poverty”, International Poverty
Centre, Training Module No.2, July 2007. Brasilia, Brazil.
8. Stiglitz, Joseph, “ Redefining the Role of the State”, Paper presented on the 10th
Anniversary of MITI Research Institute, Tokyo, Japan, March 1998.

6
 Topic 7: Monetary Policy

অভিমত
৩০ জুলাই ২০২০

লক্ষ্য আছে, সমাধান ননই

সাছলহউভিন আহছমদ, সাছেক গিননর, োাংলাছদশ েযাাংক

োাংলাছদশ েযাাংছকর ন াভিত মুদ্রানীভত সমছয়াপছ াগী হয়ভন। কছরানা ও েন্যার কারছে অর্ননীভতছত নতু ন নতু ন চ্যাছলঞ্জ এছসছে।
এসে চ্যাছলঞ্জ নমাকাভেলায় মুদ্রানীভতছত শুধু ভকেু লক্ষ্য নদওয়া হছয়ছে। ভকন্তু কীিাছে এসে লক্ষ্য অভজনত হছে, তা মুদ্রানীভতছত
ননই। নকাছনা সমাধাছনর কর্া েলা হয়ভন। এোছরর োছজট ন মন গতানুগভতক হছয়ছে, নতমভন মুদ্রানীভতও গতানুগভতক। অতীছতর
মছতা এই মুদ্রানীভতছক সম্প্রসারেশীল েলা হছয়ছে। ভকন্তু এই সম্প্রসারেশীল মুদ্রানীভত োস্তোয়ছনর নকাছনা কমনপভরকল্পনা ননই।
মুদ্রানীভতছত েলা হছয়ছে, মূলযস্ফীভত োড়ছে। নিাক্তা চ্াভহদাই নতা ননই, মূলযস্ফীভত হছে কীিাছে? আোর নেসরকাভর খাছত
ঋেপ্রোছহর লক্ষ্য ধরা হছয়ছে ১৪ দশভমক ৮ শতাাংশ। ভকন্তু কীিাছে হছে, তা েলা হয়ভন। এখন ৮ শতাাংছশর মছতা অভজনত
হছয়ছে। কীিাছে নেসরকাভর খাছতর ঋছের প্রোহ োড়াছনা হছে ভকাংো ঋেপ্রোহ োড়ছে ভক না, তা প ছন েক্ষ্ছের নকাছনা উছদযাছগর
কর্া মুদ্রানীভতছত েলা হয়ভন। েতনমান পভরভিভতছত নেসরকাভর খাছত ঋছের চ্াভহদা ননই। েযাাংকগুছলা দদনভিন কাছজর মছধযই
সীমােদ্ধ আছে। ঋছের সরেরাহ োড়াছত েযাাংকগুছলা কী করছে, এ ভনছয় এক মাস ভকাংো ভতন মাস পরপর প নছেক্ষ্ে করা উভচ্ত।
আোর সরকাভর ঋেপ্রোছহ ৪৪ দশভমক ৪ শতাাংশ লক্ষ্য ধরা হছয়ছে। এ লক্ষ্য অভজনত হছে, এছত নলাছকর আয় োড়ছে না। নরছপা
হার কভমছয় তারলয োড়াছনার নচ্ষ্টা করা হছে। ভকন্তু ঋছের চ্াভহদায় নতা ননই। শুধু টাছগনটভনিনর গতানুগভতক এই মুদ্রানীভত ভদছয়
নেভশ দূর এছগাছনা াছে না। মুদ্রানীভতর লক্ষ্য অজনছন োস্তেতার ভিভিছত একভট কমনপভরকল্পনা র্াকা উভচ্ত। মুদ্রানীভত এোর
এক েেছরর জন্য নদওয়া হছয়ছে। ভকন্তু নকাভিড–১৯ ও েন্যার কারছে দ্রুত পভরভিভত েদছল াছে। প্রভতভনয়ত নতু ন নতু ন চ্যাছলঞ্জ
আসছে। গতানুগভতক মুদ্রানীভত ভদছয় এসে চ্যাছলঞ্জ নমাকাভেলা করা াছে না। অতীছতর অভিজ্ঞতায় নদখা নগছে, মুদ্রানীভত
নদওয়া হছলও ন ন প্রজ্ঞাপন ভদছয় নানা ভসদ্ধান্ত কা নকর করা হয়। আোর মুদ্রানীভতছক পাশ কাভটছয় নহাছটছল েছস নতু ন ভসদ্ধান্ত
ননওয়ার টনাও ছটছে। এসেই ভদ হয়, তাহছল এক েেছরর জন্য মুদ্রানীভত ভদছয় কী লাি? সাভেনকিাছে ন াভিত মুদ্রানীভত
ভনছয় আভম সন্তুষ্ট হছত পারভে না। মানুি সমাধান চ্ায়। োস্তেভিভিক গতানুগভতক ধারার োইছর ভগছয় মুদ্রানীভত নদওয়া উভচ্ত।
 াছদর ঋে দরকার, তারা পাছে নতা
আেুল কাছসম খান, সাছেক সিাপভত, ঢাকা নচ্ম্বার

আভম অর্ননীভতভেদ না। তাই অর্ননীভতর ভনভরছখ ন াভিত মুদ্রানীভতর মূলযায়ন করা আমার পছক্ষ্ সম্ভে নয়। একজন েযেসায়ী
ভহছসছে আমাছদর চ্াওয়া, কছরানার এ সমছয় নোট ও মাঝাভর উছদযাক্তাছদর ভদছক নেভশ নজর ভদছত হছে। ন সে উছদযাক্তা ও
েযেসায়ী েযাাংক খাছতর আওতায় ননই, তাছদর কাছেও কম সুছদর ঋছের সুভেধা নপ ৌঁছে ভদছত হছে। কছরানায় সেছচ্ছয় নেভশ
ক্ষ্ভতগ্রস্ত ক্ষ্ুদ্র, নোট ও মাঝাভর উছদযাক্তারা। এর মছধয েড় একভট অাংশ আোর অনানুষ্ঠাভনক খাছতর সছে জভড়ত। এটাই সুছ াগ,
প্রছোদনার আওতায় অনানুষ্ঠাভনক খাছতর উছদযাক্তাছদরও আনুষ্ঠাভনক খাছত ভনছয় আসার। োাংলাছদশ েযাাংক নতু ন ন মুদ্রানীভত
ন ািো কছরছে, নসখাছন োজাছর টাকার নজাগান োড়াছনার কর্া েলা হছে। এর আছগ আমরা নদখলাম কছরানার ক্ষ্ভত নপািাছত
সরকার লাখ নকাভট টাকার প্রছোদনা ন ািো কছরছে। ভকন্তু এখন প নন্ত কত টাকার ঋে ভেতরে হছয়ছে? নোট ও মাঝাভর
উছদযাক্তারা কত ঋে নপছয়ছে? কর্া হছে, তই ঋছের নজাগান োড়াছনার কর্া েলা নহাক, নসই ঋে ভদ াছদর প্রছয়াজন
তাছদর হাছত দ্রুত ও সহছজ না নপ ৌঁোয়, তাহছল নকাছনা লাি হছে না। েযাাংকগুছলা ১০০ নকাভট টাকার ঋে একজনছকও ভদছত
পাছর, আোর ১০০ জনছকও ১ নকাভট টাকা কছর ভদছত পাছর। এর মছধয েযাাংছকর জন্য সহজ কাজ হছে, েড় একজন উছদযাক্তাছক
ধছর ১০০ নকাভট টাকা ঋে নদওয়া। ভকন্তু এখন সময় অভধক সাংখযক উছদযাক্তার হাছত টাকা নপ ছৌঁ ে নদওয়া। তা না হছল অছনক
উছদযাক্তা হাভরছয় াছেন। আমার মছন হয়, নীভত ো প্রছোদনা ন ািোর নচ্ছয় োস্তোয়নছক সেছচ্ছয় নেভশ গুরুত্ব নদওয়া দরকার।
েতনমান োস্তেতায় আমার মছন হয়, েযাাংক খাছত ঋে ভেতরছের নক্ষ্ছে োাংলাছদশ েযাাংছকর নজরদাভর োড়াছত হছে। প্রছয়াজছন
মাস ভিভিছত েযাাংছকর ঋেসাংক্রান্ত তর্য প নাছলাচ্না কছর নদখছত হছে নকান খাছত নকমন ঋে াছে। েতনমাছন সে নেভের
উছদযাক্তার কম সুছদ েযাাংকঋে দরকার। কছরানার ক্ষ্ভত কাভটছয় অর্ননীভত পুনরুদ্ধার করছত হছল অভধক সাংখযক েযেসায়ীছক
সহায়তা ভদছত হছে।
 Topic 7: Monetary Policy
Monetary Policy: time to be unconventional

Published on The Daily Star, 26 January 2021

Dr. Salehuddin Ahmed
Former Governor, Bangladesh Bank
Professor, Graduate School of Management, BRAC University

Gone are the days of disagreement over aggregate demand management policy based on
Keynesian approach or a fixed target on quantity of money supply following the “monetarist
approach” (Friedman & others). In the wake of unprecedented time of Covid-19 pandemic, with
fluid situations of vulnerability and uncertainty, time has come for an unconventional approach
to the major public policies namely fiscal and monetary policies. More so, for Bangladesh, which
despite global experience of economic slowdown, has performed satisfactorily and aspires to
march forward tackling the present external and internal shocks in economy.

Monetary policy is an important tool to help accelerate economic development of Bangladesh.

Bangladesh Bank, in charge of monetary management through its monetary policy statement
(MPS) gives stance of the policy dealing with monetary targets, instruments and implementation.
Starting from January 2006, MPS is usually given for 6 months, January to June and July to
December of each year.

Exceptions are however made, rather in only few cases, where one year MPS was issued. The last
MPS was unveiled in July 2020 for the fiscal year (FY) 2020-21. This January, Bangladesh Bank
is in the process of review of the monetary policy and adjust or reformulate the policy statement
in view of the present situation and future need. First and foremost is to look into what happened
to some key variables. From November 2019 to November 2020, growth of credit to the
government sector and government controlled other public enterprises were around 26% and 14%
respectively whereas credit growth of the private sector during the same period was around 8%.
This is not a good sign given the fact that the private sector is the driving force for the real growth,
employment generation and income creation. The average inflation in November stood at about
5.6%, which basically is not demand driven, rather supply driven and also due to some effects of
international commodity prices. The share of classified loan is about 9%, wherein the classified
loan of the state owned banks, specialized and development financial institutions is quite high.

The Covid-19 recovery financial package consisting of 19 stimuli with a total of Tk. 113,117
crore (3.7% of our GDP) was a good step by the government, though in many countries such
packages were high above our share of GDP. But the implementation of the stimuli, which were
loan based and bank oriented, is slow and unsatisfactory. Especially, the micro, small and medium
enterprises hardly got the benefit, even disbursement to agricultural sector (crop production,
fishery, livestock and others) was not prompt and adequate. The foreign reserve has soared to
very high, about $23 billion, remittances were satisfactory and some RMG enterprises fared well,
but now the whole RMG is facing challenges. The export products have not shown good
performance, mainly because of the glut in international markets. This is the overall scenario of
the macroeconomic situation of the country.

Again this backdrop, our monetary policy has to be formulated and implemented with right
earnest. Bangladesh, like many other developing countries, is faced with a fluid situation and the
consequent uncertainties. Therefore, a country’s monetary policy, moving away from
conventional ‘accommodating’ or ‘contractionary’ policies towards a heterogeneous,
unconventional and implementable policy should be taken.

In challenging time, we need policies to face the challenges. We got a ‘routine’ budget. Monetary
policy for FY 2020-21, therefore in tandem, was accommodating, especially in the context of
stimulus packages of the government. The measures by Bangladesh Bank to solve the liquidity
crisis of the banks were the right ones. The bank rate was reduced from 5% to 4%, CRR was
reduced to 4%, repo rate was reduced from 5.25% to 4.75%, the reverse repo rate from 4.75% to
4% and the SLR was kept reasonably low at 13%. These along with some refinancing schemes
of Bangladesh Bank has resulted in improving the liquidity position of the banks. In fact, given
the fixation of deposit rate to 6% and lending rate to 9%, and increased savings rate have resulted
in the excess liquidity of the banks, which is not at all healthy situation. Time has come to reform
and revitalize the financial sector (comprising of banks, financial institutions and capital market)
and the role of banks in financial intermediation has to be made more proactive to the financially
excluded enterprises and introduction of more innovative financial products like hedging,
factoring and securitisation.

Let me give some of aspects which Bangladesh Bank should take into account for its future stance
and policies for the financial sector.
a) Monetary policy should be for six months not one year, mainly because rapid changes are
taking place on domestic and external fronts.
b) Setting inflation as a policy target should not be overemphasised, inflation and growth can
be achieved through the coordination of monetary and fiscal policies and other sectoral
policies like export policy, industrial policy, investment policy.
c) The policy rates should be revisited and excess liquidity in the banks should be taken care
of. In the absence of investment demand and lack of opportunities in expanding businesses,
Bangladesh Bank should take steps in liquidity management policies of the banks.
d) Time has come to look into the foreign exchange management of Bangladesh. The rate of
exchange of Bangladeshi taka and the operations of foreign exchange market should be
analysed and quick action to be taken by Bangladesh Bank. I am not advocating to align
fully NEER with REER, but the relationship between the two and the fundamental factors
to be taken into account to monitor movements of our NEER. The global situation with US
dollar, other hard currencies and the recent move by China to delink its currency Renminbi
from US dollar have created an atmosphere which Bangladesh cannot ignore.
e) Finally, Bangladesh bank should look into the impact of Covid-19 on the economy and
future challenges, remove injustice and inequality created because of misplaced priorities
for focus on growth only, facilitate employment generation and increase access to finance
by small businesses, farmers and marginal people.

Having said all the things above, I would like to point out some basic issues, which Bangladesh
Bank must consider for formulating its policies and guidelines including next monetary policy
and the subsequent ones, because the following issues cannot be resolved within a short period.
One important thing is the “transmission mechanism” of monetary policy, that is the effect of
macro policy on the micro level like households and business enterprises. There is one middle
level through which any macro policy passes, that is the “meso level” which consists of markets,
institutions like banks, financial institutions, merchant bankers and brokers for the capital market,
regulatory agencies like Bangladesh Bank, Bangladesh Energy Regulatory Commission,
Bangladesh Securities and Exchange Commission, promoting agencies like Board of Investment,
Export Promotion Bureau. Unless these institutions function properly, no monetary or fiscal
policy measures will be properly implemented for effective impact on the desired entities. What
we need is “structural” reforms. There are four major weaknesses in this regard, firstly, as pointed
out above, Bangladesh has problems with “institutions” (whatever definition is used). Secondly,
our goods and services markets are exposed to international influences, which have become more
acute due to globalization and then due to Covid-19 pandemic. Thirdly, volatility arising out of
domestic macroeconomic and political imperatives, greater incidence of default risk, corruption
and lack of accountability in the banks and financial institutions. Lastly, poor protection of small
and marginal borrowers, lending and deposit operations made under administrative guidance and
pressure groups working to create undue influence on the banks and even the central bank.

In conclusion, it is pertinent to point out that though the effects of monetary policy have some
lags to work, but it is an important policy to build confidence of the people in the financial sector
including the capital market. Bangladesh Bank policy should offer a road map for our rapid,
sustainable and inclusive development.
 (&2
Topic 8: Foreign Exchange

Exchange rate (ER) management is one of the central issues of macroeconomic policies.
Foreign exchange reserves now about $35 billion also plays an important role in
macroeconomic management.

A. Why we keep foreign reserve (FR)?

1. Back up our currency
2. Pay for import bill
3. Pay for government expenditures abroad
4. Debt service payment and other payments by the government
5. A tool for monetary policy and exchange rate management
6. Used during disasters and sudden emergency needs
7. Source of investment fund
8. What is the optimal amount of foreign reserve (FR) required?

B. Strategies for Foreign Reserve Management:

1. Keep adequate liquidity of foreign currencies for using in business/trade and other
purposes.
2. Invest in prudent manner to get maximum return along with risk management.
3. Optimal mix of various currencies to be kept as foreign reserve, so that
revaluation loss and other losses are minimized.

C. Exchange Rate Management:

Bangladesh adopted “flexible exchange rate” or market based exchange rate system in
June 2003. Previously it was “fixed exchange rate” system. Bangladesh basically has a
managed floating exchange rate system.
1. Two concepts: Nominal effective exchange rate (NEER) which is determined by
demand and supply of foreign exchange. Another concept is Real effective
exchange rate (REER) calculated by taking inflation rates of Bangladesh and other
major trading partners, and exchange rate of relevant and involved currencies.
2. What we see in public media and published rate is the NEER. Bangladesh’s
exchange rate is not fully aligned with REER due to the following reasons:
a) Rate of devaluation if made of the basis of REER will not increase export
by the same rate.
 b) REER based rate may result in inflationary pressures difficult to handle.
c) In a globalized world, and in the face of external and internal uncertainties,
it is difficult to calculate a rational and correct exchange rate.

D. Exchange Rate Management:

1. Central Bank’s main role is to avoid/reduce volatility in exchange rate.
2. That is why three strategies are taken by the Central Bank:
a) Intervention: Sell foreign currency to banks when exchange rate goes high
or gives overdraft to banks. When exchange rate goes down, Central Bank
buys foreign currency from banks to stabilize price.
b) Sterilization: To neutralize the changes in domestic money supply due to
selling and buying of foreign currency by central banks, it resorts to repo
(to increase liquidity) or reverse repo (to reduce excess liquidity).
c) Net Open Positions (NOP) of foreign currency in all commercial banks,
which vary from bank to bank, are monitored by the central bank.

E. Policies and actions for improving foreign exchange rate and market:
Bangladesh Bank needs to take some measures like NEER and REER sterilization,
market efficiency etc.
Topic 8: Foreign Exchange
 ECO502
Topic 9: Sustainable Development

The Daily Star, 29th Anniversary Supplements, February 18, 2020

Sustainable development goals: Realities and illusions

Salehuddin Ahmed

The title of this article should not mislead you; the title is just to provoke you to think seriously and
act boldly. We have to keep in mind that the post 2015 global development agenda incorporates
actions which are basically normative and visionary, based on reality. But the results will come only
if the actions are implemented. The global treaty does not have instruments of enforcement. The
achievements depend on national and global actions.

We blame nature for environmental degradation and disasters.

William Shakespeare aptly said "… when we are sick in fortune, often
the surfeit (excess), of our own behaviour, we make guilty of our
disasters, the sun, the moon, and the stars." [Shakespeare, King
Lear, Act 1, Scene II]

The Club of Rome, a think tank based in Rome in 1965 started, in an

informal way, exploring the depletion of earth's resources and its
impact on socio-economic development of various countries. An
international team of researchers at the Massachusetts Institute of Technology (MIT) in USA
conducted a simulation study by computer. That led to publication of the book "The Limits to Growth"
in 1972. That was the first red flag raised and warnings issued on the dangers of neglecting
sustainable development approach. The warnings are still valid and the message of hope still worth
keeping in mind which stated that "Man can create a society in which he can live indefinitely on earth
if he imposes limits on himself and his production of material goods to achieve a state of global
equilibrium with population and production in carefully selected balance."

The question of sustainable development (SD) has become a catchword now-a-day. People have
become interested in the concept of SD and how it can be achieved. The World Commission on
Environment and Development (WCED) defined sustainable development (SD) as "development
that meets the needs of the present without compromising the ability of future generations to meet
their own needs" ("Our Common Future" 1987, p. 43). Bangladesh 7th FYP (P. xxxvi) Part-1 defines
SD as "… the needs of the present generation without compromising prospect of future generations."

The term SD means differently to different persons. There is the problem of conceptual clarity and
interpretation. Many people use SD interchangeably with "ecologically sustainable or
environmentally sound development." In contrast, some take SD as "sustained growth," "sustained
change" or simply "successful" development. WCED stated the critical objectives of SD as: reviving
growth; changing the quality of life; meeting essential needs for jobs, energy, water, and sanitation;
ensuring a sustainable level of population; conserving and enhancing the resource base; reorienting
technology and managing risk; and merging environment and economics in decision making
(WCED, 1987, p. 49).

Within the international perspective and concern for "process" dimension, two more objectives are
added: reorienting international economic relations, and making development more participatory.

The mainstream formulation of SD suffers from three major weaknesses in: establishing linkage
between poverty and environmental degradation; conceptualising the objectives of development,
sustainability and participation, and formulating strategy in the face of incomplete knowledge and
uncertainty.

Global development agenda

The international community, with the leading role of UN, sets up global goals in various fields to
contribute to global problem solving. UN adopted 8 Millennium Development Goals (MGDs) with 21
targets and sixty indicators in 2000 and the terminal year was set as 2015. Several countries are
evaluating their respective performances. The goals of MDGs were set to be achieved in the context
of complex relationship between the state and the market within the economy and also the
relationship with the other countries located in both North and South of the globe.
Bangladesh has attained satisfactory progress in achieving the MDGs. Experts found that
Bangladesh has some weaknesses in Goal 5—improving maternal health, specifically maternal
mortality rate; weaknesses in Goal 7—ensuring environmental sustainability and Goal 8—
developing a global partnership for development. Besides these, Bangladesh has some weakness
in employment generation (Goal-1, Target 1.B) and malnutrition (Goal-1, Target 1.C).

In September 2015, the General Assembly of the UN adopted the Sustainable Development Goals
(SDGs) that include 17 goals, 169 targets and 230 indicators. The motto of SDG is to "Transform
our World by 2030." This is a gigantic task. Given the global situation of cooperation and declining
trends in overseas development assistance (ODA), the tasks seem very ambitious with formidable
implementation challenges. A glaring example is the Paris Climate Agreement or Committee of
Partners (COP21) which was formulated in 2016. In this agreement all 193 countries were treated
as equal stakeholders, some are solely affected by carbon emissions, some solely produce carbon
emissions and some are both affected by and producers of carbon emissions. It may be pointed out
that three-fourth of carbon emissions come from only 12 countries. A nail in the coffin was placed
by USA in June 2017 when President Donald Trump announced the intention to withdraw from the
Paris Agreement. I think voters in USA now should demand a political realignment in favour of
solving climate issues. COP25 scheduled to be held in Madrid in December this year should follow
more pragmatic and problem-solving approaches.

Some fallacies

There are challenges both internal (within a country) and external (global) which should be
addressed to achieve the SDG goals. Before I touch on some areas for scientists, researchers and
academia, let me share two fallacies which are applicable for Bangladesh and many other countries.
Fallacy 1: Rapid growth will bring down poverty, increase the well-being of the people:

We can see, in Bangladesh, growth has resulted in increasing income inequality, lack of access of
the poor to quality and affordable health facilities, lack of quality education at low cost (for the poor).
The belief that growth first distribution later, is a wrong one. In fact, SDG Goal 1 (End of poverty in
all forms everywhere) and SDG Goal 10 (Reduce inequality within and among countries) are not
competing ones and no trade-off is necessary, these can be achieved together.

Fallacy 2: Participation of people in all phases of development activities is satisfactory:

The good governance of all public and private institutions must be established. Overall, democratic
practices and rule of law are prerequisites for our efforts to achieve SDG goals.

SDG Goal 8 (Promote inclusive and sustainable economic growth) and SDG Goal 16 (Promote
peaceful and inclusive societies) point out the importance of the above issues. However, we often
see, in many countries including Bangladesh, people are by-passed, not consulted and not even
considered in taking major decisions of reform and development programmes. If people do not have
confidence and trust in the government, even very pious and beneficial efforts of development can
spark agitation and protests by the people as evident in the recent public outcry in Paris (fuel tax),
in Hong Kong (extradition measure) and in Santiago, Chile (for hike in metro price).

Suggested areas to be addressed

The following areas are suggested for consideration by Bangladesh.

Inclusiveness: All people to be included in the planning, implementation, monitoring, and

evaluation stages of projects.

Financing: Financing is a major challenge. In Bangladesh an estimate states that additional fund
needed will be around USD 928 billion (2015-16 constant price). It will be difficult for raising such a
huge fund from internal sources of Bangladesh. Financial assistance from the developed countries
should come. It may be mentioned that the developed countries promised to contribute one percent
of their gross national income (GNI) as overseas development assistance (ODA). But their
commitment is far from the actual flow of ODA.

Localisation: Different districts, regions of Bangladesh have different problems; for example,
coastal zone problems are different from "haor" and "barind" and dry areas. Urban problems are
different than rural problems. The "Nature SDG Localisation Framework" is an example which the
government may incorporate in the 8th Five Year Plan of Bangladesh (2021-25).
Implementation: For major implementation cross section of stakeholders namely, government,
NGOs, civil society organisation (CSO), business, development partners and academia have to be
included. "Institutions" to be strengthened and competent people should be placed to run these.

International cooperation

A country has to address issues related to poverty reduction and hunger; ability to take advantage
of its openness and globalisation; acceleration of growth with equity; social security of the poor;
energy need of a growing economy; climate charge; financial architecture to cater to the needs of a
growing economy and financial inclusion. There may be several areas of global cooperation, which
include: (i) Partners in development: The developing countries with their own resources and
resources from a developed country or international agency may set up some projects in common
areas of interest like health, education, energy, and climate; (ii) Sharing good practices: Experiences
of one or more developing countries (graduated from LDCs) with other LDCs will also be helpful for
global cooperation; (iii) Capacity building: The countries of South can cooperate in increasing the
capacity of the respective countries to accelerate development process. These countries can also
cooperate with other developing countries outside LDCs and with other global partners for
increasing the efficiency of project formulation, implementation, monitoring and evaluation which will
help increase the absorbent capacity of using external resources fruitfully; and (iv) Strengthening of
networks: The institutions from different countries of South and North can strengthen their networks
to exchange information and experiences to promote development.

Areas for scientists and experts of Bangladesh

Scientists from science, bio-medical backgrounds, social science and experts from various fields
may take note of the following aspects for their research and actions: (i) Networks of professional
and experts will have to provide the policy makers with data/information and analysis on some
priority SDG goals which are to be addressed in Bangladesh immediately. Unfortunately, benchmark
data and quality periodic data are not available in Bangladesh for the majority of 169 targets some
of which are not even quantifiable. So, the challenge must be tackled primarily by the relevant
government agencies which can be complemented by special focus studies by scientists and
experts; (ii) Professional and experts should launch new research, action research and demonstrate
models to promote innovative knowledge and practices for fulfilling SDG goals; (iii) The
organisations and networks of organisations to which scientists, social scientists and experts are
affiliated with should come up with measures to solve national as well as global problems; and (iv)
The scientists and experts should come up with pragmatic design of projects and programmes as
well as implementation processes for achieving SDG goals in Bangladesh and in other countries.
Conclusion

I would like to mention that there are several challenges before Bangladesh. We have to reduce
percentage of poor from 25 percent now to much lower level by 2030. We have to reduce maternal
mortality, child mortality rates and increase enrolment to primary school to by 2030. The quality of
education in Bangladesh needs to be improved significantly. The poor in Bangladesh still suffer from
nutritional deficiency which can be improved by increasing entitlement capacity of the poor to have
balanced diet.

I shall not go into the various challenges and caveats we face, but will single out one of the most
important challenges that are "institutional challenge". Impact of various efforts for improving the
socio-economic conditions of the poor in the developing countries can be maximised through proper
management and implementation of development projects. Effective project management and
implementation are also crucial for sustainable development. Institutions, which encompass entities
at the local level, community level, national level, and project management units, are integral parts
of project management and implementation. However, despite strong statements and rhetoric from
politicians and policy makers about the essential role of institutions, and the realisation of its potential
contribution in development efforts; the issues of institutions have received relatively little attention
by policy makers, planners and implementers of development projects.

Nobel laureate Bengali poet Rabindranath Tagore about 89 years ago lamented in his poem about
the ill effects of environmental degradation on human beings, "My voice is choked, my flute is
tuneless. My world is dark, the air is poisonous, people who are responsible for these, cannot be
pardoned."

In conclusion I would like to say, time has come for everyone to act now so that the commitment of
SDG "Leaving no one behind" can be achieved throughout the world in the shortest possible time.

Dr Salehuddin Ahmed is a former governor of Bangladesh Bank and currently Professor at Brac
University.
 Sustainable Development Goals (SDGs)
1. No Poverty End poverty in all its forms everywhere.
End hunger, achieve food security and improved nutrition and
2. Zero Hunger
promote sustainable agriculture.
3. Good Health and
Ensure healthy lives and promote well-being for all at all ages.
Well-Being
Ensure inclusive and equitable quality education and promote
4. Quality Education
lifelong learning opportunities for all.
Ensure inclusive and equitable quality education and promote
5. Gender Equality
lifelong learning opportunities for all.
6. Clean Water and Ensure availability and sustainable management of water and
Sanitation sanitation for all.
7. Affordable and Ensure access to affordable, reliable, sustainable and modern
Clean Energy energy for all.
8. Decent Work and Promote sustained, inclusive and sustainable economic growth,
Economic Growth full and productive employment and decent work for all.
9. Industry, Innovation Build resilient infrastructure, promote inclusive and sustainable
and Infrastructure industrialization and foster innovation.
10. Reduced
Reduce inequality within and among countries.
Inequalities
11. Sustainable Cities Make cities and human settlements inclusive, safe, resilient and
and Communities sustainable.
12. Responsible
Consumption and Ensure sustainable consumption and production patterns.
Production
13. Climate Action Take urgent action to combat climate change and its impacts.
Conserve and sustainably use the oceans, seas and marine
14. Life Below Water
resources for sustainable development.
Protect, restore and promote sustainable use of terrestrial
ecosystems, sustainably manage forests, combat
15. Life on Land
desertification, and halt and reverse land degradation and halt
biodiversity loss.
16. Peace, Justice Promote peaceful and inclusive societies for sustainable
and Strong development, provide access to justice for all and build
Institutions effective, accountable and inclusive institutions at all levels.
17. Partnerships for Strengthen the means of implementation and revitalize the
the Goals global partnership for sustainable development.
 Topic 9

Global Economic Outlook 2021: Challenging growth prospects

Muhammad Mahmood | Sunday, 31 January 2021

The International Monetary Fund (IMF) in an update of its global economic outlook published a report
on Tuesday, January 26. The report upgraded its global growth forecast for 2021 to 5.5 per cent, a 0.3
percentage point higher than its October 2020 prediction, then moderating to 4.2 per cent in 2022. This
would mark the fastest year of global growth since 2010 snapback from financial crisis. The IMF also
expects global trade to rebound this year, recording 8.1 per cent growth after falling 9.6 per cent last
year.

It further added that the upgrade for 2021 reflected an increase in government spending to offset the
worst effects of the pandemic and vaccination programmes that were being rolled out across richer
nations. IMF Chief Economist Gita Gopinath said at a press briefing on Tuesday, "Much depends on
the outcome of this race between a mutating virus and vaccines and the ability of policies to provide
effective support until the pandemic ends". She further added, "There remains tremendous uncertainty".

However, the strength of the projected economic recovery would vary significantly across countries,
with advanced economies generally expected to recover faster. This is because of their expansive
policy support and quicker access to vaccines relative to many developing countries.

The report also pointed out that that the projected growth this year followed a severe economic collapse
in 2020, which was the worst peacetime global economic contraction since the Great Depression, more
alarmingly close to 90 million people were likely to fall below the extreme poverty threshold during 2020-
21, reversing the trends of the past two decades.

It then adds that because of the partial nature of the rebound, over 150 countries are expected to have
per capita incomes below their 2019 levels in 2021. That number declines only modestly to around 110
countries in 2022. Also, the projected cumulative output loss is estimated at US$22 trillion over 2020-
25 relative to the pre-pandemic projected levels. The amount remains substantial.

The World Bank (WB) in its semi-annual report on the state of global economy published on January 5
painted a rather much less optimistic outlook for the global economy than that of the IMF. The report is
of the view that although global economic output is recovering from the collapse triggered by Covid-19,

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it will remain well below pre-pandemic trends for a prolonged period, wiping out limited gains in poverty
reduction and per capita income growth.

The WB report also indicates that in addition, the risk is that a rise in Covid-19 infections, continued
stagnant investment, or a major financial crisis produced by the escalation of debt could result in an
even worse outcome. It then adds on to say that at best the world faces a "slow and challenging
economic recovery".

After a contraction of 4.3 per cent in 2020, the WB expects global output to expand by 4 per cent in
2021, but that forecast is based on a number of assumptions such as "proper pandemic management
and effective vaccinations limiting the spread of Covid-19 in many countries". As the situation turns out
many of those assumptions are in the process of being shattered.

Furthermore, it is important to remember that the political fiction which developed into a campaign
against lockdowns to deal with the Covid-19, especially in the US and the UK has also contributed to
deteriorating the situation. There were demonstrations and demands from certain strong lobby groups
demanding to keep the economy open and the press gave full coverage of these demonstrations. So
much so that New York Times columnist Thomas Friedman wrote that the "cure cannot be worse than
the disease". Such a pronouncement has provided a cover to pursue the policy of "herd immunity" in
countries like the US and the UK with disastrous consequences for those two countries.

World Bank President David Malpass said, "Even in advanced countries there have been difficulties in
pushing ahead with vaccination programmes, and that is true in poor countries as well". The problem
is getting further compounded by the rising "vaccine nationalism".

Growth could be even lower if infection continues to rise and if vaccine rollouts experience logistical
problem as is the case now. The report warns global GDP may only expand 1.6 per cent this year.
Even the WB's most optimistic outlook of global economy growing by 5.3 per cent remains below pre-
pandemic projection and equivalent to US$4.7 trillion output loss.

Focusing on the South Asia region the WB report said that the Covid-19 pandemic had caused deep
output losses and contributed to a sharp rise in poverty and unemployment in the region. Output in the
region contracted by an estimated 6.7 per cent in 2020 reflects the effects of the pandemic and
nationwide lockdowns, particularly in Bangladesh and India.

The South Asia region is projected to grow by 3.3 per cent in 2021 and 3.8 per cent in 2022,
substantially weaker growth than during the decade leading up to the pandemic. Covid-19 is expected
to inflict long-term damage on growth prospects by depressing investment, eroding human capital,
undermining productivity and depleting policy buffers.
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The outlook is highly uncertain for the region and subject to a number of downside risks, including more
severe long lasting infection rates from the pandemic, financial and debt distress caused by an abrupt
tightening of financing conditions or widespread corporate bankruptcies, adverse effects of extreme
climate change, weaker than expected recoveries in key partner economies and worsening of policy
and security related uncertainty, the WB report further added.

As for Bangladesh in particular, the WB report concludes that Bangladesh has been one of the fastest
growing economies prior to the pandemic, the growth is estimated to be decelerated to 2 per cent in
2019-20 and forecasts the economy to grow by only 1.6 per cent for the current fiscal year. However,
it must be noted that the estimated and forecast growth figures of the WB significantly differ from those
provided by the government of Bangladesh for the same periods.

In economies like Bangladesh which rely on external sources of growth like manufacturing exports
(mainly RMG exports), the recovery is likely to be particularly modest. The report did indicate
Bangladesh's RMG exports will remain weak for the current year; so also remittances from overseas
countries.

WB President Malpas acknowledged that stimulus programmes in major economies were aggravating
social inequality and further added "Stimulus mechanisms are working to concentrate wealth at the top
rather than adding wealth from the bottom up". But this is in general the main global trend in almost all
economies; developed and developing. Also, a report published by the International Labour
Organisation (ILO) this month finds that the ultrarich have seen their wealth soar.

It is the mainstream economic policy planners' belief that subsidising with tax cuts and other incentive
measures and preferencing business and those at the top will see money trickle down to the bottom.
This is known as the "trickle down" effect which has dominated the economic policy direction since the
early 1950s and continuing. In fact, such a policy direction has got even more deeply entrenched since
the early 1980s with the dominance of neo-liberal economic doctrinaire view of the world.

John Kenneth Galbraith nicely summed up "trickle-down" economics as the belief "that if one feeds the
horse enough oats, some will pass through to the road to the sparrows". There are empirical evidence
now available which indicate for the past decade or so the proportion of national income devoted to
profits has been climbing while proportion going to wages has been falling in most developed as well
as developing countries.

The WB report ruled out any prospect for a return to "business as usual" and the pandemic was "tipping
millions into poverty'. The IMF report finds that even within countries the burden of the crisis has fallen

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unevenly across groups and has increased inequality. There is a general consensus now that rising
inequity as one of the pandemic's principal outcomes.

Workers with less education, youth, women and those informally employed have suffered
disproportionate income losses. The ILO report also agrees, "Job destruction has disproportionately
affected low paid and low skilled jobs".

According to the same ILO report at least 225 million full-time jobs disappeared worldwide during the
last year (2020) because of the coronavirus pandemic, losses four times worse than those from the
Global Financial Crisis (GFC) in 2008. It is estimated that close to 90 million individuals as mentioned
earlier, expected to add onto to the existing numbers in extreme poverty during 2020-21.

According to a report published by the South Asian Network on Economic Modelling (SANEM) the
upper poverty rate in Bangladesh almost doubled to 42 per cent in December 2020 from 21.6 per cent
in 2018 as a result of the Covid-19 pandemic. Also, the lower extreme poverty rate increased during
the same period from 9.4 per cent to 28.5 per cent (see FE, January 24).

More alarmingly, the latest Global Risk Report of the World Economic Forum warns that many young
people "entering the workforce in an employment ice age". The report further adds that youth
disillusionment will become "critical threat to the world in the short term" because of the current
generation's loss of faith in today's economic and political institutions.

The Covid-19 pandemic has triggered the deepest economic recession in nearly a century threatening
health, disrupting economic activity and massive job losses across the world. The pandemic has
seriously exacerbated the underlying economic problems in the global economy that have been building
up since the very early 1970s. Extensive fiscal support provided throughout 2020 may be needed
beyond to limit the aggregate income loss caused by the pandemic.

But such fiscal support is also pushing public debt levels to record highs but the cost of debt is at record
lows. Now there is a growing fear that such a debt overhang likely to enforce continuing low interest
rates and those low interest rates will encourage yet more debt finance. In such a situation of increased
debt accumulation can lead a series of debt crises, thus holding back growth. Therefore, the health and
economic crisis is likely to become a financial crisis also.

muhammad.mahmood47@gmail.com

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