With the interim government of Bangladesh in full swing, what do you think are the immediate initiatives required to bring the economy on the path to recovery?
Having led a global emerging markets business at a major investment bank and now as an academic looking at the determinants of cross-border investment, I take an outside-in and comparative perspective on the situation in Bangladesh.
In all cases, the economic challenge is two-fold: how can we unblock logjams and unlock trapped opportunities in existing industries so that they can spend and hire faster as soon as possible?
At the same time, how can we generate structural reforms so that the frontier of possible opportunities is expanded, the economy is more diversified, more inclusive and fairer?
The immediate requirement for Bangladesh, more than any specific policy, is to inject trust and confidence in the economic and governance system.
We need to try and get out of the trauma of the last few weeks and the scarring of the last few years as quickly as possible and rally around some positive goals for the future.
As a prerequisite, the interim government needs to ensure two things:
First, the chief adviser needs to pick “a Mandela moment” and be seen to rise above the politics of labels and reprisals and reach across divides.
Even as the most egregious atrocities are prosecuted and institutions are structurally depoliticized over time, the vast majority in public and private sectors should be allowed to focus on their jobs without the fear of prolonged witch hunts.
The American policy of “de-Baathification” after the fall of Saddam Hussein in Iraq contributed to an economic cardiac arrest and excessive hollowing out of state capabilities.
There may also be lessons here from the experience of the Fakhruddin government of 2008.
Second, the government needs to lead with demonstrable due process: due process in the way jobs are assigned, and due process in the way legal claims are prosecuted.
We cannot afford to make rookie mistakes or fail to follow professional best practice in recruitment. Nor can we be seen to repeat the abuses of police or court processes in the past.
The government needs to demonstrate a clean break from the past and focus as much on how decisions are taken, as on the decisions themselves.
Persistent inflation, dysfunction in the banking sector or chronic youth underemployment cannot be resolved with traditional tools of economics without a genuine regime-shift in governance processes.
In a month’s time or so, I’d like to be able to point to specific instances where trust has been restored so that individual economic exchanges are conducted with more confidence.
With forex reserves depleting at an alarming rate, how can the government replenish it and maintain the IMF’s minimum reserve condition for the upcoming loan tranches?
One of the most underappreciated resources of Bangladesh is its diaspora. Over the years, I have written about specific ways in which diaspora capital – financial, professional, intellectual or network capital – can be deployed as the avant-garde of foreign investment into developing countries.
Ultimately, the goal is to attract large-scale institutional investment to bolster the country’s external account and reserves. That investment can be crowded-in by members of the diaspora who can demonstrate skin in the game and help market the fundamental story.
I’d expect the IMF and other multilateral institutions to be sympathetic to possible relaxation of their conditions if – and this is a big ‘if’ – the government is able to present a comprehensive strategy for the economy and the external account.
Bangladesh must harness the goodwill and euphoria of the moment to truly galvanize its diaspora community in a systematic way. In addition, as I have directly experienced in Indonesia, Vietnam and of course Singapore over the years, there needs to be a serious emphasis on economic diplomacy.
We might need a ministerial-level Chief Economic Diplomat who can own key performance indicators for foreign investment and responsibility for ensuring top-class service levels.
As part of that economic lens in its external outlook, Bangladesh should also look east towards Asean and consider a digital trade agreement with Singapore, for example.
Bangladesh can also attract capital under the theme of sustainability, climate change and biodiversity. With a positive international reputation in the NGO sector, Bangladesh can be a leader in carbon and green finance.
While we’re at it, why not declare 2025 as “Invest in Bangladesh Year” and use that as the umbrella theme for improving our standards of governance and service delivery? We could activate a lot of energy around this!
Do you think the current monetary policy is adequate in controlling inflation?
As an honorary distinguished fellow of the Policy Research Institute, my view is probably biased but Dr Ahsan Mansur is an inspired appointment for governor of the Bangladesh Bank, particularly because he is ambidextrous when it comes to domestic and foreign issues.
For too long, the trifecta of interest rates, exchange rate and stock prices were administratively set at mutually inconsistent levels. There was also a seeming lack of awareness of global monetary conditions, whether it is the hyper-loose era of quantitative easing, or the hyper-quick series of interest rate increases since 2022 – and their implications for domestic monetary conditions.
In the last few years, Bangladesh has suffered a dramatic degradation of the purchasing power of its currency in both domestic and foreign terms.
If persistent inflation is the result of too much money chasing after too few goods, the government will have to tackle both the supply and demand sides of this equation.
Monetary policy alone may not be sufficient – it needs to be part of an overall, coherent economic policy including changes in governance and structural arrangements.
How can the Bangladesh Bank put brakes on rising non-performing loans? How can it implement good governance?
When it comes to banking reforms, what needs to be done has always been clear. There are successful templates from other countries for enhancing governance and quality of loan books.
It was always a political-economy problem: a problem of figuring out why it is that what needs to be done does not get done.
Given the overhang of misgovernance and web of linkages between “bad” and “good” parts of the system, Bangladesh Bank should be mindful of unintended consequences and take care in sequencing and pacing its reform agenda.
Do you think Bangladesh can reduce its external debts in the near future?
Apart from immediate liquidity needs, the size of external debt is not a matter of huge concern for Bangladesh.
What matters is what gets done with the money that is borrowed from international sources. Is the money being used to deepen the productive capacity of the country?
To that extent, even higher external capital may be desirable as part of an ambitious, exciting and externally-confident economy.
As I mentioned to CNBC recently, Bangladesh has been blessed with a potentially historic moment where a virtuous cycle of structural reforms and economic outcomes can propel each other.
Much depends on the interim government as climate-setters and our capacity to transform from a nation hijacked by its history to one that is powered by its dreams.
