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The Roadmap to Accelerated Growth

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Analyzing the 7TH Five Year Plan- Four Years In

The Bangladesh economy is about to embark upon the last leg of the Seventh Five Year Plan of the country as we are about to start the national budget preparation for fiscal year 2020, the last year of the Plan. The Seventh Plan was the strategic direction the country embarked upon from 2016 onwards and the detailed plan charted the trajectory of all aspects of the economy in order to achieve the development goals of the nation. Almost 80% of the time allotted for the goals and targets covered, we as a nation are at the point where we must look back and assess our performance to date- measure and analyze the surplus and shortfalls, identify and assess the mistakes and pitfalls and uphold and laud the achievements – before we set the budget for the upcoming fiscal year 2020 and start the planning process for the Eight Five Year Plan (2021-2025).

The upcoming fiscal year is also a politically and historically important financial year for the country and its development for two major reasons- Firstly, 2020 is the penultimate year before the 50th anniversary of the Independence of Bangladesh and end of Perspective Plan 2021, and secondly, it also marks a decade remaining for the achievements of the Sustainable Development Goals (SDGs) 2030. The Perspective Plan summarizes it quite aptly and with conviction:

“….the Government’s Vision 2021 is an articulation of where this nation needs to be in 2021 – the year which marks the 50th anniversary of Bangladesh’s independence. That milestone, ten years away from 2011, will be a high point in Bangladesh’s war against chronic poverty and the struggle to attain middle income country status, from its beginning as a low income country. This “Perspective Plan of Bangladesh (2010-2021): Making Vision 2021 a Reality” is a strategic articulation of the development vision, mission, and goals of the Government in achieving a prosperous Bangladesh grounded in political and economic freedoms a reality in 2021.” (General Economics Division, April 2012).

The Perspective Plan sets the macro and major targets the country set to be achieved in terms of economic and social development by the bicentennial year. Therefore, a brief overview of how Bangladesh fared in terms of the said major economic and social targets will also be discussed in this analysis. As for the Sustainable Development Goals (SDGs) 2030, Bangladesh is one of the countries who have ratified and pledged to achieve the targets and goals set out in SDGs by 2030 and hence fiscal year 2020 marks the beginning of the decadal deadline that remains.
In light of all the above, the fiscal year 2020 is a strategically and historically important year for the country and hence this research article will focus on the following points:

I. The macroeconomic targets set in the Perspective Plan 2021 and the Seventh Five Year Plan (7FYP) in terms of the real economy, fiscal side, social sectors and external economic performance will be compared with the actual performance and discussed, focusing mainly on the 7FYP time frame FY2016-FY2020. The actual performance therefore will be compared from FY2016-2018 and some indictors/forecast of what might be by/ what has already been stated for FY2019.

II. Drawing from the discussions, the policy direction of the country in the upcoming fiscal year and some for the foreseeable future will be discussed and the major economic targets to be achieved in light of the Seventh Plan will be highlighted.

III. How has the country fared in terms of targets set in the Perspective Plan- Vision 2021, a short description of the major goals, particularly for human development and the performance of the economy to date?

IV. The Sustainable Development Goals for Bangladesh will be discussed briefly and some of the major indicators for the country and performance till date will be stated to provide a snapshot of where the country stands at present. This will also help highlight the major direction the country’s development strategy must take in order for achievement of the SDGs by 2030.
V. Finally, major policy recommendations and direction of the country will be summarized with particular emphasis on the upcoming fiscal year while also providing major indications for the upcoming development strategic plans the government maybe charting out.

Macroeconomic Performance and Policy Direction Seventh Five Year Plan (7FYP) Targets and Actual performance

“..The Perspective Plan provides the road map for accelerated growth and lays down broad approaches for eradication of poverty, inequality, and human deprivation. Specific strategies and the task of implementation will be articulated through the two five-year plans: Sixth Five Year Plan (2011-2015) and the Seventh Five Year Plan (2016-2020)…”

(General Economics Division, April 2012)

The Seventh Five Year Plan stated the broad development goal tagline for Bangladesh from 2016-2020, in the plan document – ‘Accelerating Growth, Empowering Citizens’. The Sixth Five Year Plan( 6FYP) drew to a close having propelled the country into an accelerated pace of socioeconomic transformation, having some hits and misses as per the target indicators, in a highly gloomy Global Economy in recession. The growth momentum remained quite stable and has been maintained and even surpassed in the 7FYP years, 2016-2018 as shown in Chart-1 below.
The economic growth targets, both nominal GDP at current market rates and real GDP growth targets have been surpassed as set out in the plan for 3 consecutive years from FY2016 till FY2018 and is set out to once again surpass targets by the closing of the current fiscal year of 2019. The achievements in economic growth is also quite evident in the GDP per capita PPP in current US dollars for the economy which has accelerated substantially as per IMF forecasts till 2019, which marks over 200% growth over the four-year period 2016 to 2019. Since Bangladesh has performed as a ‘development outlier’, as evident in the regional comparison shown in Chart-2 below. The 7th Plan in fact predicted the sustainability of the growth trajectory as stated, “….The 7th FYP has been formulated with full recognition that the ‘outlier’ phenomenon is not merely a blip on the development path but rather a sustainable occurrence chartering a new development trajectory. Lauded as a ‘Development Surprise’ by prominent international media, Bangladesh has emerged as a shining example for countries throughout the world as it continues to defy traditional, linear development models and innovate a novel, alternative pathway for socioeconomic progress.” ( Seventh Five Year Plan of Bangladesh)

However, the fact that the country is yet to achieve several of the other growth indicators and sustainability of same for the same period, sets quite an argument against economic growth indicators being true indicators of actual development achievements of the country with actual impact on quality of living and welfare of its citizens.

During the first four years of the Seventh Plan most of the major indicators of the real economy performance fluctuated in terms of monetary, external and mainly fiscal sector. In terms of monetary sector, we can see in Table 1 above, the CPI Inflation (%) remained below or equal to the Plan targets which is a positive sign and indicates prudent monetary management by the central bank. However, the external sector performed well in terms of exports but fell short in terms of stimulating substantial imports, especially from demand-side or the businesses or investors in the economy. It should be noted that FY18 marked the politically charged election year for the country in which the residing government of the last two terms won the elections by a landslide win again. It is safe to say that the economy and particularly in the form of demand-side indicators in terms of business and consumer confidence was affected quite significantly in the previous fiscal year and more so evident in the current fiscal year. Mostly the historically tumultuous political history of the country makes its citizens and investors extremely vary as to the direction in which elections might go, and what changes in government may indicate in terms of political economy influences. The lag and slowdown in the economy due to the elections were quite evident last fiscal year particularly from the perspective of the external and fiscal sector which was further shaken by the monetary sector facing some major shocks from the domestic side.

When looking at the fiscal sector, we can see the performance of the total tax revenue targets and actual performance, with forecasts for FY2019 in Table-1 above. We can see that the shortfall in tax collection has been accelerating substantially and adversely in the last three years with the cumulative shortfall each fiscal year increasing in nominal terms as shown in Chart 3 below.

A closer look at the composition of taxes as shown in Table 2 below, shows that the majority of the shortfall was from the domestic taxes, particularly income tax and VAT-Domestic. Income taxes were hard hit due to poor returns filed through personal income taxpayers as well as corporate tax payers. The corporate tax collection was particularly affected due to financial sector, namely the banking sector scams and defaults which greatly affected the overall profitability of the sector and consequently the revenue collection from same. As per VAT-domestic is concerned, this is the largest contributor to overall tax collection in the form of indirect taxes. A shortfall in this form of tax is an indication of poor consumption in the economy, which further indicates to a weak consumer and business confidence in the economy due to political instability of fear of it. The government has in recent years made some overtures to expand the VAT- domestic tax base and therefore poor performance in this segment indicates that it is mostly coming from the weakening or slowdown in the overall economic pace rather than simply a small tax base (which still persists!).

Surprisingly though, the import-based taxes have also declined significantly in the last 2-3 years with more than one-fourth of the shortfall in revenue collection coming from them. The main import-based taxes that have been lagging are custom duties and to some extent, VAT-import (VAT imposed at the import stage or on imports coming into the country). The import bill of the country is reflective of this through persistent declines in recent years in comparison to the previous years. The declines in imports is also due to weak business confidence in the economy as more and more businesses have refrained from importing- both raw materials and capital machinery, along with other goods- due to political instability which in the past has hampered major industrial sectors of the country. Since a majority of the industrial sectors require their imported inputs to be transported to their factories from the port, during politically haphazard times, the transportation costs hike up and this adversely affects the cost of doing business for the firms in these sectors. This time, while the political scenario was comparatively much calmer and there were relatively less closures and blockages to transportations and road channels, the fear of it owing to historical trends doused the business spirit of the industrial sections of the economy.
To summarize, while the country continues to grow in terms of GDP, it is high time we realize that the growth is strongly entrenched in fiscal stability and growth. Therefore, lagging in terms of revenue mobilization, in the very basic of terms, means that we still do not have sufficient funds to finance our own growth and development. In other words, it also means that we do not generate sufficient funds from our population and businesses to finance the welfare of our own population and hence that makes us quite vulnerable to global economic shifts and other exogenous shocks. Therefore, as the Seventh Plan seems to have failed to achieve the fiscal strength and stability in the country, the upcoming years (mainly the 8th Five Year Plan!) must strategize such that fiscal, mainly referring to revenue mobilization here, is one of the paramount priorities and aggressive and innovative measures are undertaken to achieve same. Additionally, the use of technology needs to be highlighted in all growth strategies and must be given its due importance in terms of easing the way for revenue collection and filing returns for tax payers- both individuals and corporates.

The Perspective Plan- Vision 2021 Economic and Human Development Targets and Actual performance

“…. the Perspective Plan targets annual real GDP growth rate to rise to 8.0 per cent by 2015, and further to 10.0 per cent by 2021, significantly improving living standards of the population by drastically reducing unemployment and poverty, riding on substantially higher output and export growth, while maintaining macroeconomic stability. Per capita annual income is projected to rise to about USD 2,000 (at constant 2013 dollars) by 2021, thus crossing the middle income threshold. To achieve and sustain the high rates of growth, gross domestic investment will reach 38% of GDP, with gross national savings at 39%, and headcount poverty dropping to only 13.5%.” (Perspective Plan- Vision 2021, GED, Planning Commission)
It is quite apparent that almost all of the goals set out in the Perspective Plan are yet to be achieved albeit that there are still two years to go. FY2019 ‘might’ be the first year that Bangladesh surpasses the 8% GDP growth rate according to the Finance Minister, the figures are yet to be computed or confirmed by the Bangladesh Bureau of Statistics. While the GDP per capita in constant USD has surpassed the USD 2000 mark, in a country which still reports a poverty rate of 24.5% which in other words means that nearly one-fourth of its population are below the poverty line, the per capita USD 2000 has not at all translated into welfare of the population or improvement in human development. Despite the two years remaining till the end of the Perspective Plan period, it is quite unrealistic not to mention irrationally ambitious to even plan the upcoming fiscal years with the aim of achieving these targets.

In terms of Human Development, the Perspective Plan mainly focused on attaining three major objectives of ensuring education for all, access to health and nutrition for the population and population planning. In this perspective, the government planned to:

(i) Remove deficiency in food and ensuring nutritional requirements for 85% of the population- Not achieved fully, in fact Bangladesh as a country has not achieved self-sufficiency in food production.

(ii) Ensuring minimum daily intake of 2,122 kilo calories of food- Not achieved as per Household Income and Expenditure Survey Preliminary Report 2016 and chances of achievement by 2021 seem quite low.

(iii) Eliminating contagious diseases and ensuring primary health care and sanitation- Not achieved as access to affordable, quality and timely healthcare is still a major obstacle for most of the population.

(iv) Increasing average longevity to 70 years- While we are close to this target, this does not necessarily indicate any qualitative improvement in the lives of the population of the country if it not matched by services required for the welfare of the elderly.

(v) Reducing under-five mortality to 45 per 1000 live births and maternal mortality into 100 in 100,000- This has been achieved and the role of non-government organizations has been extremely crucial for this, as they have majorly taken on the responsibility of raising awareness regarding pre-natal and post-natal care and also provided door-to-door services for same for years now.
(vi) Increasing net enrolment at the primary level to 100% by year 2010- This target has been achieved and lauded but now the focus after ensuring enrollment has now shifted to quality and of education as well as completion of each levels of education as stated in the Sustainable Development Goals.

(vii) Removing illiteracy by the year 2014- This is a controversial topic since if literacy is defined simply by the ability of individuals to sign their names and not necessarily basic numeracy and ability to read as such then removing illiteracy is not actually ensuring skill development of the population of the country.

(viii) Improving quality of education with emphasis on science and technology- This is a major hindrance in the skill development of youth and the work force of the nation and the quality of education has in fact deteriorated in recent years. The education system of the country, particularly primary and secondary level require a major upheaval and should be revised in line with the needs of the future global job market and the advent of the fourth industrial revolution.

Sustainable Development Goals (SDGs) for Bangladesh 2030 Targets and Performance
Bangladesh had performed very well in achievement of the Millennium Development Goals (MDGs) and the government is working hard to incorporate the Sustainable Development Goals they have ratified and pledged to fulfill by 2030. The upcoming fiscal year 2020 marks the beginning of the 10 years, at the end of which Bangladesh must achieve the SDG targets it has set for itself. Rather than discussing each goal and where Bangladesh stands in terms of some of the major targets, the following diagram summarizes the SDGs and achievements aptly and precisely:

Conclusion:
In conclusion, Bangladesh has made quite a bit of progress in terms of economic growth and macroeconomic indicators but the next decade must focus on human development.
The focus has to be on ensuring the welfare and healthy and skilled labor force and future possibilities for the youth of the country so we can capitalize on the ‘demographic dividend’ and ensure competitiveness as a nation in the technology and knowledge-based global economic arena we will be competing in.

Author: Tahera Ahsan, Economist, Policy Research Institute of Bangladesh (PRI) and can be reached at tahera_ahsan@hotmail.com. Research support and graphic work by Shadman Shakib, Economic Graduate from BRAC University and can be reached at shadmannnn@gmail.com

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