Text of the Speech of ICC Bangladesh President Mahbubur Rahman

Hon’ble Chief Adviser of the Care-taker Government of Bangladesh
Dr. Fakhruddin Ahmed

Hon’ble Finance and Commerce Adviser Dr. A. B. Mirza Azizul Islam

Special Guest: Chief of Army Staff General Moeen U. Ahmed, ndc, psc,

Excellencies, My colleagues in the business community,

Members of the Media,

Distinguished Guests, Ladies and Gentlemen,

Assalamu Alaikum and a very good morning.

I am very happy to be amongst you this morning and express my sincere thanks to the organisers for giving me the opportunity to address this august gathering and share some of my thoughts on the country’s socio-economic conditions at this critical juncture. Thank you organisers, for having such a high-profile national inter-active meeting, for the first time, with the stakeholders of the economy. A consultative process between the govt. and the businesses at regular interval will be very much helpful for onward journey towards growth & development.

Bangladesh, like many other economies, had in the past experienced ups and downs in its performance depending on a number of factors, both natural and man made as well as internal and external. However, the economy has done relatively well during the last two decades compared to the situation that prevailed immediately after independence of the country. The country has achieved reasonable successes in areas of human development, population control, food security, poverty reduction and disaster management. It has weathered several external financial shocks, debt crises, kept the rate of inflation at a reasonable level and achieved an average economic growth rate of over 5 per cent in recent past and over 6.7 per cent in the last fiscal. However, against the backdrop of all these achievements, poverty level is still not satisfactory– over 40 per cent of the population being below the poverty line. Poor governance, inadequate infrastructure, systemic corruption and deteriorating law and order continued to be major deterrents to a private sector-led higher economic growth.

Ladies and Gentlemen,

Our economy is now passing through a difficult time with enormous challenges ahead. The spiraling price hike of essentials and increasing inflation are currently the biggest pressure on the economy. The unabated price rise has put under threat the impressive achievements made after January 11, 2007. The government should look into the matter immediately and continue to maintain a liberal import policy as a short term measure, particularly for food grain import to keep prices under control.

In particular, the prices of essentials during Ramadan, effect of flood and forthcoming Aman harvest will be very crucial for the national economy during the coming months. Any price hike of fertiliser, power and fuel including gas will be disastrous for the next crop and the economy. The government, therefore, will have to design its economic management more carefully.

No doubt, the present government took office with a strong popular support to hold a credible national election, improve law and order, fight corruption and strengthen governance. Almost 100% public acceptance of this government with full respect at the beginning is now perceived to be on the decline in the public mind mostly due to spiralling prices of food and essential commodities even though the government has limited option to intervene in a free market econonmy, except fiscal intervention and law and order situation, which of course it is doing. In addition, there is also a public perception that in a limited time-frame, coupled with resource constraints and administrative capacity, the government should not have undertaken too many agenda even at micro-level, losing focus on the priority issues.

The current reform measures are unlikely to yield immediate results. The benefits will come in mid- and long-term. But the steps now being taken would definitely contribute in forming a strong base for the future economy. The major actions so far taken by the government for separation of Judiciary, reconstitution of the Election Commission, Public Service Commission and Anti-Corruption Commission as well as in curbing corruption will have a positive impact in the long run.

The challenge for the government is, therefore, to win the confidence of the business community in particular and the public in general. Businessmen should be allowed to manage their affairs with ease and make their own investment decisions. On the basis of faced realities or perceievd ones, it is not that business want anti-corruption drive to stop, but they expect this to be done with due care and of course without creating a “panic” situation and thereby impacting the entire business activities of the country.

Dear colleagues and friends,

Overall weak revenue collection, despite increased income tax collection, and the higher levels of revenue expenditure have exposed fragility of the macro-economic framework in existence. Low ADP implementation, poor disbursement of foreign aid and higher levels of government borrowings were viewed as some of the major weaknesses in the economy.

We always hear that the donor agencies keep their pressure on, for further trade liberalisation. I would humbly like to point out that in comparison with other developing countries, Bangladesh — being an LDC — has substantially liberalised its economy at the cost of hardship of entrepreneurs and common people, even though under WTO umbrella Bangladesh could avail and follow more domestic support measures. During the past decade or so a number of Asian countries, through appropriate economic policy measures within the framework of WTO, have achieved remarkable progress, transforming themselves from largely agrarian, underdeveloped economies into a dynamic export powerhouse. The experience of these high-performing economies provide many useful lessons for countries like Bangladesh in identifying the right policies and strategies to adopt, while reversing or shunning what have proved to be wrong strategies.

Ladies and Gentlemen,

I would like to mention here that following IMF prescription meticulously, Bangladesh today has been experiencing double-digit inflation but the GDP growth did not follow suit. Time has come to review seriously whether IMF/World Bank guidelines and conditionalities have been doing some good in the growth and development of Bangladesh economy in the past. In this connection, we would urge upon the government not to sign the Policy Support Instrument (PSI) of IMF; which in a way would be compromising our sovereignty and allowing them just to act as a credit rating agency for Bangladesh at their terms.

Low disbursement of foreign aid has been a major concern for the economy in recent years. As a ready reference, in fiscal 2007 one –third of the donor committed assistance of US$2.28 billion have not been made available or disbursed putting our planned projection into uncertainty. On the other hand, an amount of US$710 million has been paid as interest out of the disbursed amount of US$1.57 billion leaving a net inflow of credit of US$860 mn during FY 2007. Therefore, we think Bangladesh should calculate very carefully the merit of such donor assistance.

I would also like to reiterate that WB/IMF suggested upward adjustment of fuel and electricity prices will be a boomerang for the economy as it will lead to a further pressure on inflation. Their suggestion to increase interest rate on agri-credit is going to harm food production and will make Bangladesh a net food importing country in the long-run, whereas, in the meantime, Bangladesh has already doubled its production; and reaching near self-sufficiency. They have made our ‘Golden Natural Fibre’ to go into oblivion instead of revitalising this industry, whereas our neighbour India is adding new looms every year to take-over our left out global market.

Dear friends,

The narrow export basket of Bangladesh is likely to face heightened competition as the EU restrictions on RMG export from China will be withdrawn from day 1 of 2008 while US restrictions from January 1, 2009. In this new competitive scenario, sustaining the current high export growth will be an uphill task in coming years. Therefore, adequate and special dispensation to our textile industry should be given to meet the demand of our garment exporters, thereby avoiding import of yarn and fabrics from our competitors.

In this connection, I would like to commend the government for streamlining the port operation to facilitate our foreign trade; which is one of the most important achievements of the government. However, we shall have to look for the future need of a modern and efficient port.

Notwithstanding a number of internal and external factors afflicting the country’s economy, impressive disbursement of term loans has led to a moderately high growth in the manufacturing sector. Robust export growth, buoyant inflow of remittance and improvement in port operation have signalled strengthened performance of the external sector. Invigorated capital market and increasingly competitive telecom penetration stood out as positive outcomes of the economy in FY2007.

The capital market in Bangladesh has been improving remarkably over the past few years. Investors’ confidence is on the rise and as a result the market is gaining momentum. With stronger monitoring mechanism against market manipulation in place, this is perhaps the most opportune time for further consolidation and strengthening of the equity market. Bringing in Pension Fund, Bonds and Securities, divestments of government stakes in various Multi-national companies into the capital market, besides introduction of buy-back of shares by the Sponsors of the non-performing listed companies to help build sustainable confidence of portfolio investors.

Dear colleagues,Another important aspect is the on-going process of globalisation and our preparation to face it. Few will contest the fact that globalisation has created many opportunities for dynamic economies; at the same time, more difficulties than opportunities for a country like Bangladesh with a limited capacity to accept the challenges. At present, we are still experiencing serious problems of duty-free market access ( as provided in WTO for LDCs) to the developed countries specially to the USA and even to our neighbouring India, which is exporting in terms of billions of dollars both formally and informally to Bangladesh.

Bangladesh is among 49 LDCs where more than half of the population lives on less than one dollar a day. The economies of LDCs are increasingly marginalised in the global trade as their share in global exports is mere 0.4 per cent. The total debt of the LDCs grew from 70 billion US Dollars to 135 billion dollars between mid-1980s and mid-1990s. Their cumulative debt almost equals their combined GDP and a fourth of their annual export earnings is spent on debt-servicing. Debt relief, increase flow of FDI to LDCs and unhindered duty-free access of LDCs exports to developed markets are among the key areas that can help reverse the present dire situation for the LDCs in their growth and development.

Ladies and Gentlemen,

In fiscal 2008, it will be a major challenge for the country to rehabilitate the agriculture sector and restoration of rural economy through combination of various measures like allocation for development projects with priority to release rural projects. In this connection we welcome the government decision for re-allocating Tk 42 billion for post-flood rehabilitation programme. In addition, according to an estimate another Tk 70 billion would be required for the purpose. Immediate disbursement of Agricultural loan at easy term should be ensured to plant seedlings after the flood with no time lost to recoup flood loss to the crops.

The Government has set a growth target of 7.0 per cent for the coming fiscal. It is maintained that all the three major components of GDP, viz. Agriculture, Industry and Service sectors will have to enhance their contribution further to attain this optimistic growth target. Recent slowdown in the growth of gross capital formation and slow private investment, however, does not invoke much optimism in this regard. ADB and World Bank have expressed their fear that GDP may fall to 6.7 to 6.8 per cent from the earlier estimate of 7 percent due to flood, while inflation and budget deficit may go up. To achieve the targeted GDP growth an additional investement of Tk. 200 billion to Tk. 250 billion will be required.

In order to achieve increased domestic revenue collection immediate and careful attention is needed for the modernisation of NBR to enable it harness much needed revenue; while creating an enabling environment for the tax-payers.

Distinguished Guests,

Foreign Direct investments (FDIs) are on the decline in recent times. Whatever FDIs we are now having are in service sectors and largely confined to the telecom, banking and oil and gas exploration which are not contributing significantly to the real economy. FDIs so far neither contributed to any major technology transfer nor generated significant employment. On the contrary rather taking their profits in dollars earned by our expatriates & exporters.

The country is falling behind other developing countries in terms of attracting FDI. Diversifying the FDI basket is also emerging as a major challenge. BOI has been stating that investment proposals worth billions of dollars have been received. But how much of this, in reality, are good investment proposals?

I may now refer to the recent visit of the Japanese Prime Minister to India during which it was agreed that an industrial corridor linking Delhi and Mumbai will be built with Japanese assistance of US$90 billion. In Bangladesh, we have only been talking of having an economic corridor between Dhaka and Chittagong for the last couple of years!

Despite excess liquidity in banks, investment has not been upto the desired level. We, therefore, sought and still seek lower interest rate to encourage more investment in priority sectors to help establish much needed industrial base for the country.

Ladies and Gentlemen,

Our annual official remittance inflow from our expatriates is about US$6 billion, which has certainly provided a big cushion to the Balance of Payment (BoP) situation in FY07. Besides, our annual export earnings have already reached $12 billion and we are now targeting US$ 16 billion in the next two years.

If we can bring in unofficial remittance inflows into official channel, I strongly believe, our annual remittance inflow will exceed US$10 billion very soon. Additional export of manpower thru’ planned exploration of new markets as well as intensive and extensive negotiation with governments and employers of existing markets should be undertaken to augment remittance; there by making us more independent from external assistance. At the same time, streamlining the services to the workers going and coming from abroad-treating them as VIPs are also needed. Side by side, the commercial banks should be encouraged to provide loan at a low interest rate to the workers going abroad to meet their financial requirements.

Another most promising area is the IT sector for fetching the robust and expanding outsourcing business from the developed world. The just concluded visit of Mr.Craig R. Barrett, Chairman of Intel testifies that we have the competitive advantage for developing this new window for our export basket.

Ladies and Gentlemen,

Before I conclude, on behalf of the business community and on my own behalf, I would like to congratulate the Care-taker Government led by the Chief Adviser Dr. Fakhruddin Ahmed and actively aided by our Armed Forces led by General Moeen U. Ahmed for the positive actions initiated during the last seven months, which we hope, will have a long and lasting impact on the economy.

We are very happy to see that our Armed Forces have been giving unequivocal support to the care-taker government as ‘hands in gloves’ in holding a free, fair and credible election by December 2008; free of black money and muscle power.

Allah Hafez,

Mahbubur Rahman

President

ICC Bangladesh

Dhaka

September 5, 2007