Energy shortage continues to deter investment: WBStaff Correspondent
The shortages of power and gas continue to deter fresh investments and expansion of existing projects in Bangladesh, the World Bank said on Sunday.
‘Bangladesh needs to improve investment climate by addressing inadequate infrastructure and power shortage for achieving long-term expected growth rate as the country remained stuck in a cycle of low investment and lower- than-expected growth over the years,’ said Zahid Hussain, senior economist of World Bank Dhaka office.
At a press briefing on Bangladesh Economic Update, he warned that until these problems are addressed, the country would continue to face lower investment.
At the briefing, the bank’s lead country economist Sanjay Kathuria said that the investment rate of GDP would have to increase at least 32 per cent from 24 per cent to accelerate the growth to 8 per cent, the target set in sixth five-year plan by the government.
‘Overall investment including foreign direct investment is very low. It needs to go up by 6-8 percentage points of GDP to accelerate growth,’ he said.
He also suggested accelerating infrastructure development, mitigating power shortage, creating skilled manpower, utilizing concessional external financing and energizing the private sector for achieving targeted growth to make Bangladesh a middle income country.
‘Growth could not be ensured amid uncertain global environment, So the government should also take some reforms initiatives in fiscal and monetary policy including reducing subsidies and bank borrowing, increasing taxes and utilizing concessional external financing,’ he said.
However, the World Bank, the leading international lending agency, said that the GDP growth rate that Bangladesh achieved at 6.3 per cent in fiscal year 2011-2012 was healthy and impressive compared to the global economic volatilities and the average growth rate of 5.5 per cent in developing countries.
The 6.3 per cent GDP growth, preliminarily estimated by the Bangladesh Bureau of Statistics is higher than the developing country average growth rate at 5.5 per cent but lower than the South Asia average at 6.5 per cent.
‘Though the country achieved healthy GDP growth, private investment and national savings had declined and microeconomic vulnerability still remains which could derail the growth in near future,’ the report warned.
Zahid said that three major external risks may fuel macroeconomic vulnerability in coming days which are declining export growth due to Euro zone crisis, possible slow growth in remittance from gulf countries and possible higher price of petroleum products.
Inadequate infrastructure and shortage of power and energy are the two major internal risks which are needed to be addressed for increasing investment including foreign direct investment, he said.
Replying to a question on whitening black money, he said, ‘We do not know what scheme is coming exactly for whitening black money, but there should be a balance between reality and ideological aspects.
‘The government should not give any scheme which will encourage black money generation,’ the World Bank senior economist said.
As to allowing nine new banks, Sanjay Kathuria said that it would increase competition for deposits and challenge the supervisory capacity of Bangladesh Bank.
Inflationary pressures have worsened, particularly as an increase in non-food prices reached two decades high.
However, the food inflation is declining due to the government’s tightening monetary policy and bumper agriculture production which is a good news for people.
Further decline in inflation would follow if the recent tightening is not reversed, the World Bank says.
In her opening remark, World Bank country director Ellen Goldstein said that the country’s most recent economic growth was quite healthy by developing country standards.
‘There are several headwinds that could derail growth in the near future. Spillover effects of recession in the Euro zone and oil price increases are the two headwinds that pose the most serious downside risks to Bangladesh’s growth from external sources,’ she cautioned.
All Bangladesh can do is to prepare to face these risks by creating policy space, so that it can respond appropriately and in time as these risks materialise, she said.
World Bank’s sector director for poverty reduction and economic management in South Asia Region, Ernesto May and Communications Officer Mehrin A Mahbub were also present at the briefing.
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