Looking back at the economics of Finance Minister AMA Muhith
The role of the finance minister in any economy, especially a transitional one like ours, is quite challenging.
You always need to make counter-intuitive decisions with too many trade-offs to consider. Whether or not our Finance Minister AMA Muhith has proven himself a successful enough finance minister will unravel in due time. Nevertheless, I am sure people will remember him for his good nature, his simplicity, his tolerance, and his forward-looking ideas. He was possibly the best in his simplicity.
I was possibly the first from the private sector to visit Mr Muhith in his Finance Ministry office on January 19, 2009. All that we discussed and subsequently recorded through a letter were: Sovereign rating, demutualization of bourses, managing SOE losses, issuance of sovereign bonds, corporatization of the state owned banks and possible privatization through international stakeholders, and ensuring accountability in public financial management.
To judge his performance as the finance minister, we possibly need to see how our economy performed in the last decade. Was it good? Was it remarkable? The answer depends on who is answering the question. However, whatever might be the interpretation, economics is factual at its core.
In 2015, Bangladesh graduated to the World Bank’s “Lower Middle Income” status with its Gross National Income (GNI) reaching $1,046. On March 2018, Bangladesh received the nod from UN for graduating to developing country status for meeting all three graduation criteria -- GNI of $1,272 (required $1,230), Human Assets Index (HAI) of 72.8 (required greater than 66) and Economic Vulnerability Index (EVI) 25.2 (required 32 or below).
The country has to maintain the required threshold till 2024 for graduating to middle-income status. The future seems brighter than ever, and we have our finance minister to thank.
Mr Muhith is a prodigy of Bangladeshi civil service. Because of his career in civil service, he is well-respected, at least by his colleagues and peers. How did Bangladesh fair with Mr Muhith as the finance minister? Can all credit of country’s economic or policy success be attributed to him? Of course not.
However, the consistent nature of the country’s economic growth has remained sustained due to factors such as persistent rate of GDP growth, demographic dividend, and steady FDI inflows, mainly driven by the local and global private sectors. The rate of growth for 2019 is forecasted to remain at around 7.2%. Asian Development Bank (ADB) and the World Bank (WB) have projected the value to remain at around 7.5% and 7.1% respectively.
During FY2017-18, Bangladesh exported products worth $36.68 billion to 207 countries. Over the past decade, the country has experienced a sharp rise in the working age population resulting in creating a “demographic dividend” effect on the economy. According to BBS statistics, almost 70% of the population is below 30 years, with a median age of 24 years. The growing working population therefore presents scope for generating greater levels of national wealth.
The average household income and expenditure in Bangladesh has been rising over the past decade. More than 90% of the average income is spent on consumption. Growing per capita income is likely to result in a bulging middle and affluent class (MAC) population with higher levels of disposable income, which will enable households to spend more on consumables.
Over the past three years (2015-2017), the rate of inflation has been stable and below 6.5%. As of October 2018, inflation came down to 5.4%, due to a decline in food prices. However, non-food inflation is still on the rise. High import prices of natural gas, incremental price of oil, and depreciating domestic currency will contribute to higher utility and transport costs, possibly resulting in higher inflation in 2019.
Due to nationwide floods in 2017, food grain imports had to be increased for replenishing the food supply deficit. Additionally, increased oil prices coupled with capital machinery import for infrastructure projects contributed to higher import bills. Persistent BOP deficit has led to depreciation of local currency against the dollar.
According to a report by Economic Intelligence Unit, the graduate unemployment rate of Bangladesh stands at 47%, indicating a surplus of human resources available for utilization. Two-thirds of the total population belong to the working age group (aged 15 or older) and 63.5 million people among them are actively participating in the labour force. Additionally, 2.2 million people are entering the job market each year.
Foreign currency reserves stand at $31.9 billion (September 2018), which can cover 7.8 months of the country’s import bill. However, due to persistent BOP deficit and central bank’s foreign exchange activities (selling US dollars to prevent taka depreciation); the foreign currency reserve is on a downward trend.
From 2009 onwards, 7,000MW of electricity had been added to the national grid and the government’s Power System Master Plan (PSMP) targets to provide undisrupted power supply while increasing power generation capacity to 34,000MW by 2030.
As a low-cost sustainable power generation energy source, the government is planning to increase the number of coal-fired power plants, with 25 new coal-fired power plants scheduled to be operational by 2022, generating 23,692MW power for meeting rising energy demand.
Additionally, to meet the country’s growing needs for energy in the face of depleting gas reserves, Bangladesh has started importing LNG from August 2018. LNG is comparatively more expensive compared to domestically sourced natural gas, and average energy cost is expected to go up in 2019. The country’s first nuclear power plant, Rooppur Power Plant, is scheduled to become operational from 2023.
In terms of roads and highways, the government has upgraded the Dhaka-Chittagong highway into four-lanes connecting the port city of Chittagong with the capital. Inland container terminals are also being constructed as an additional route for cargo delivery though inland waterway. Additionally, a new Payra port is becoming operational.
However, we are also aware of all the plights of our economy during the last decade. The woes of NPLs in banking sector, failings of the capital market, the ever-increasing income inequality, and corruption in civil bureaucracy and within the political system, and lack of accountability in public financial management are hurting our economy more than we realize. If someone has to be accountable, Mr Muhith can’t shrug his shoulders.
Mamun Rashid is a leading economic analyst