Private investment has yet to pick up steam after the last national polls, as the relative political calm failed to remove investors' uncertainty, said Centre for Policy Dialogue (CPD) yesterday. "We expected that private investment would rise after the parliamentary election. However, investment has not increased despite political calm, economic stability and lower commodity prices in the global
market," said Debapriya Bhattacharya, distinguished fellow of CPD. "On one hand, investment remains sluggish and on the other, a large amount of capital is siphoned off, mainly through over-invoicing. The latest amount of capital flight is higher than the net foreign aid," he added. The private think-tank shared these views as it released its first reading on State of Bangladesh Economy for the first half of fiscal year 2014-2015 at CIRDAP. According to the CPD reading, reduced subsidy requirements for falling petroleum prices, increasing remittance inflows and foreign exchange reserves and stable exchange rate were good signs for the country's economy. But there were a number of challenges as well that included risk of revenue collection shortfall against target, sluggish export growth and rising default loan in banks, and sluggish investment scenario, the reading added. "Stagnation in private investment is the major concern. Uncertainty relating to investment has yet to be over for dearth of confidence," said CPD Executive Director Mustafizur Rahman. Advertisement The research organisation further said continued problems of electricity and gas supply to industries, land availability and transport infrastructure, sluggish progress of reform in financial, institutional and administrative sectors, and political uncertainty had caused the failure to pick up investment confidence. The pace of financial, institutional and administrative reforms had also slowed in recent times, CPD observed. "Lack of progress in reform acts as a major deterrent in accelerating economic growth," said Debapriya, adding, political uncertainty was another factor affecting investments. "We see that the space for political co-existence and freedom of expression are getting more squeezed since the beginning of the year. On the other side, fear of rising terrorist activities has also increased," he said. The CPD said the labour market got 20 lakh new entrants every year and creation of jobs for those new entrants would be difficult without acceleration of private investment and economic growth from the present cycle of 18-19 percent and 6 percent a year respectively. "Job creation has become important against the backdrop of falling outflow of migrant workers abroad," Debapriya observed. He said this workforce could not be absorbed in agriculture; so, non-farm sectors should be developed to provide jobs for them and steps should be taken to lure investments. The target of attaining 6.5 percent economic growth would be challenging without acceleration of investments, he added. According to CPD, to stimulate private sector investment and regain the growth momentum, a conducive political environment which generates confidence in entrepreneurs, and inclusive politics that ensures predictabilities and business-friendly environment, would be key determining factors as the economy enters into the second half of FY 2015. Debapriya termed Bangladesh's current economic growth of 6 percent a year "new normal or Bangla rate of growth" meaning that economy would attain average 6 percent growth automatically given the present level of infrastructure and other supports. "The main challenge is to scale up this Bangla rate of growth to super Bangla rate of 8-9 percent a year. Private investment is the single most important driver to accelerate the growth to attain that goal," said Debapriya, also former executive director of CPD. He said banking sector and capital market played a supportive role in boosting investment. However, banking sector, which has so far played a key role in investment financing, is struggling with rising default loans. "Problems afflicting the banking sector, in terms of rising non-performing loan and loans of questionable quality, are likely to have adverse implications for private sector investment performance," warned CPD. To boost investment, CPD favours keeping prices of electricity and gas unchanged. "The cost of production should be kept lower to increase private investment," Debapriya observed. The CPD said the government would not require spending Tk 3,000 crore allocated for fuel subsidy owing to falling petroleum prices in the international market. It further said total amount of subsidy requirements for electricity in FY 2015 could be around Tk 8,000-10,000 crore, adding that total allocated subsidy was sufficient to meet the current demand. So, the government should keep away from hiking prices to protect the interests of investors and consumers, CPD suggested.
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