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Global Financial Crisis: Prof. Dr. Atiur Rahman

Prof. Dr. Atiur Rahman Prominent Economist Bangabandhu Chair Professor at Dhaka University Former Governor, Bangladesh Bank - The InCAP
Prof. Dr. Atiur Rahman, Bangabandhu Chair Professor at Dhaka University & Former Governor of Bangladesh Bank

Prof. Dr. Atiur Rahman
Prominent Economist
Bangabandhu Chair Professor at Dhaka University
Former Governor, Bangladesh Bank

In a conversation, a few questions have been asked to eminent economists and the former Governor of Bangladesh Bank, Prof. Dr. Atiur Rahman, regarding the pace of Bangladesh’s growth.

Let’s acknowledge the exclusive interview because every question has been answered with great intelligence and excellence.

What do you believe has been Bangladesh’s main source of growth? And how do you think Bangladesh will be able to sustain this growth in the coming years?

Prof. Dr. Atiur Rahman: There are three pillars for Bangladesh’s growth, which are agriculture, remittances from abroad, and exports. So these are the three pillars that are pushing Bangladesh economically forward. Although COVID, agriculture has been performing very well. In fact, during COVID, agriculture was not much affected in Bangladesh. So first, Bangladesh did pretty well in agriculture, so food security was never a threat for the people of Bangladesh, although now the whole world is really going through a roller coaster ride on the economic front.

Due to the Ukraine war, there has been some pressure on wheat and edible oil, which Bangladesh is importing, and as a result, the prices have gone up. Thus, we are facing imported inflation, which is a bit of a problem. We are importing these materials at a higher cost. For that matter, there has been pressure on our reserves as well, but we are trying to mitigate that with different approaches. Secondly, our remittance during the COVID was very high, with a record of over $24 plus billion in a year. But this year, we got remittances that were much below the actuals, which is very unfortunate. A lot of additional people have gone to the Middle East recently, so we thought there would be more remittances coming to

Bangladesh. This didn’t, however, happen during the last fiscal year. But my own understanding is that because of the confusion over the exchange rate, people of Bangladesh living abroad have been refraining from sending money back to Bangladesh through formal channels as the exchange rate on non‐formal channels is much higher.

I assume that more than 40% of the money is coming to Bangladesh through the informal channel, which is why the formal channel is being affected, and it does not reflect in the official figures. So, in my opinion, the government should act quickly to provide all citizens with a market‐based single exchange rate with, perhaps, some incentives continued within a band as has been the practice. Third, in the export sector, our country’s exports are mostly 85% of daily garments, which have been doing pretty well despite the global economic turmoil.

We cater to small segments or people with low income, so our export has not suffered as much. Over the last few months, exports have really increased in the US market and the European market. But now that Europe is in a recession, there is a danger that our exports to Europe might decrease. So this is one source of concern, but exports are still doing well as of today. And, this will continue to do well, I hope.

What has been the most concerning issue regarding Bangladesh’s economy, and how is it being dealt with to provide stability?

Bangladesh’s economy has, after a long time, lost the gains we made in terms of the current account balance that we used to maintain. Now we are experiencing a huge trade deficit following covid‐19 and the war in Ukraine. Presently, we spend much more on imports than we do on exports. So that is now a huge trade deficit. And that gap is also contributing to the current account deficit (the current account deficit is the difference between import expenditures and export revenue, as well as remittances and other multilateral loans).

So there is a gap that has formed between total earnings and total expenditure, which is probably pushing our reserves to decline. So Bangladesh then had to take an IMF loan. And the staff-level agreement has been reached, through which we are all set to get the $4.5 billion in seven installments from the IMF. This might be good news for international investors who now understand that the Bangladesh economy will be watched by the IMF, and a lot of reforms might take place because of that surveillance.

Of course, we, too, want these reforms for our own interests. The economy will then become stronger in the long run. So initially, there could be some pressure on the economy, and prices might go up for some items that have been heavily subsidized, which might dissatisfy some people in Bangladesh, but these are short-term problems. In

the long term, the economy will stabilize with a growth rate of nearly 7 percent as both the agriculture and manufacturing sectors still remain buoyant. This is a good growth rate, given the specter of a growing global recession. But it’s not the growth rate that I worry about so much; it’s the quality of the growth.

If the growth comes from the bottom of the pyramid, that is, from agriculture and small and medium‐sized businesses, then it is a welcome development. The Bangladesh manufacturing sector is doing very well, with 38% of the GDP coming from the manufacturing sector, where a huge number of women are employed. So if we can encourage agriculture and small and medium enterprises to get growth in the economy from them, then the Bangladesh economy will still be very stable. Recently, the central bank of Bangladesh has introduced an additional low‐cost refinance for agriculture of Taka five thousand for value‐added agriculture.

This will further encourage inclusive growth in rural Bangladesh. So, when economic growth comes from a variety of sources rather than just a few, the vulnerability to a downturn will be reduced.

Is human resource one of the factors that Bangladesh exports in large quantities? Is it not draining the skills and brains from the country?

Last year, about 900,000 new workers went abroad. That is why the expectation was that they would probably bring in more foreign money into the country. That has not been happening. This may be due to either low income by low‐skilled workers or the overwhelming presence of an informal market for the repartition of remittances. That is a huge earning area for the country, but we are absolutely losing out on the talented resources that other countries are utilizing.

Hence, there is a need for more attention to the skills development of the remitters and cracking down on the hundis or informal transfer of remittances. Also, there is an imperative for a market‐friendly exchange rate for all stakeholders.

Bangladesh has a huge, medium-growing industry. What steps is Bangladesh taking to reduce carbon emissions?

Carbon emissions in the country are still very high, but after the Rana Plaza disaster, the Bangladesh manufacturing sector has taken a lot of corrective measures with the help of the development partners. So, a lot of compliance measures have been taken in Bangladesh. And our manufacturing sector, particularly the textile manufacturing sector, has really moved away from conventional manufacturing methods toward more green processes.

Now there are thousands of units that are really sustainable and practice low-carbon emission processes. Although costs have gone up to a certain extent, Bangladesh can claim that they are producing or manufacturing items that are environmentally friendly. So, in the international market, it is well established that the country is looking to manufacture products that are green and environmentally friendly. There is a record that seven of the world’s ten platinum‐rated green factories are in Bangladesh, and hundreds have already converted to green factories, with thousands more on the way.

The initiatives are being pushed by the government as well as private organizations. So Bangladesh is moving pretty fast on this line. Again, Bangladesh has also been pushing for green energy. The Central Bank, where I was Governor, established a fund worth more than $500 million called the “Green Transformation Fund,” which was used by the government to transition from high to low carbon emissions. I only hope the international buyers take note of these climate‐friendly proactive initiatives by Bangladesh regulators and entrepreneurs and respond positively by offering just prices for these green products.

I am sure that not many central banks in the world may have taken such initiatives, but we have. Many building codes are being applied to transform these into green buildings. So fewer energy‐ and material-consuming buildings are coming up in Bangladesh, and again, the Central Bank of Bangladesh has created a small fund that is extended to small and medium enterprises like organic fertilizer producers, biogas producers, smaller ETPs, etc.

These are the green activities that Bangladesh is promoting, and the Central Bank is supporting them by providing the necessary funds. There is now a well-designed Sustainable Finance Police by the central bank in Bangladesh. So together, there is a lot of interest in green transformation in Bangladesh. This will have a long‐term positive impact on climate‐friendly development in Bangladesh, I hope.

During your tenure as the Governor of the Central Bank, what kind of initiatives were taken for social development?

Financial inclusion was the number one strategy that we took, which is still being continued. Financial inclusion means giving affordable funds for agriculture, for small and medium enterprises, for women’s entrepreneurship, and for green factories. So those are the socially responsible funding efforts we made that have contributed to the financial growth of society. But in addition, we have a very well-articulated corporate social responsibility (CSR) programe where we have asked the banks in the country to provide a part of the money for social activities like scholarships to marginalized students and economically backward children for education.

The banks are also participating in activities that have an impact on the environment, especially in the Sundarbans region, or provide protection to people after floods or disaster management after cyclones. So these are the activities we have pushed our financial institutions to undertake to remain responsible to the community from where they collect most of their deposits. So the Central Bank initiated these environmentally friendly initiatives, which fortunately have been continued by my successors.

Recently, they created a special 25,000‐crore Taka fund for small entrepreneurs in addition to another low‐cost fund of Taka five thousand crore just for the farmers. So these are all positive things that happened to make the growth process more inclusive in Bangladesh.

How do you think India and Bangladesh can strengthen their economic and social relationship?

Given this global financial crisis that is going on, shipping costs will remain very high. So given the present situation, the best option will be to do trade between the neighbors which will be more cost-effective. We only do 5% of intra‐regional trade, which is not adequate. The European Union does 50%, and ASEAN does about 30%. So why can’t we improve that? And for that matter, we need better infrastructure.

Fortunately, both Bangladesh and India are now improving connectivity through railways, highways, and bridges. For example, the Padma Bridge has opened a new way, and water connectivity has also improved in recent times. So, there are a lot of things that are happening, and I would suggest that this should continue because if we do trade between our neighbors, the logistics cost will be much less.

What more should we do?

Actually, digitize customs activities in ports so that customs time is reduced and the entire import‐export process is sped up. Even all land ports should be developed so that trade between the countries improves. There has already been huge progress in multimodal transport cooperation between the two countries for which the North‐Eastern states of India, including Tripura and Maghalaya are benefiting from the benefits of transshipment. Bangladesh is also benefiting from faster trade cooperation in the transport of our daily necessities from India as well as higher exports of our readymade garments to India. Indeed, our exports of apparel and agricultural processed goods to India have been expanding steadily recently, and this must continue.

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