What is the impact of liberalization and SAPs in Bangladesh?

Bangladesh since its liberation in December 1971 followed the path of ‘inward looking’ or ‘import substitution’. The fall out of this policy was that the country suffered low growth rate and the industrial and manufacturing sector registered a modest growth.

The emphasis of industrial and trade policy was on development of traditional industries such as jute products, textiles, readymade cotton garments, etc. The share of agriculture in GDP during the first decade of independence was about 40 per cent which gradually declined to about 25 per cent in year 2000. The share of manufacturing remained stagnant over the period while the share of services in GDP increased to 52 per cent. The share of industry has risen to 24 per cent in year 2000 from 16 per cent in 1980.

The rise in services’ share cannot be seen as a healthy indicator of real progress for a least developed economy. Because of an increasing population, in such countries, what is needed is proportionate rise in employment opportunities, which only manufacturing sector can provide.

In fact, in the last 20-25 years, the share of manufacturing sector in the national income of the developed economies of the West has remained over 30 per cent. The substantial presence of manufacturing sector has strengthened the fundamentals of their economies.

Against the background of modest economic performance, Bangladesh decided to launch economic reforms and adopted the policy of SAPS in 1990. It followed the policy of ‘outward looking’ i.e. export-led growth. The impact J of economic reforms was that the exports increased by over three times: from j US$1.72 billion in 1991 to US$5.76 billion in year 2000.

Imports too rose but not as rapidly as exports. There was overall improvement in GDP growth rate j – rising from 3.3 percent in 1991 to 5.5 percent in year 2000. The liberalisation j of foreign trade regime helped to boost up the growth rate. Under the liberalisation, programme the quantitative restrictions (QRs) on imports has I been brought down. However, the major challenge is diversification of export j basket. Currently the 76 per cent of Bangladesh exports are of cotton garments 1 and knitwear.

By early 2005 the protection to exports of cotton garments and j apparel under the Multifibre Agreement (MFA) of WTO will end and that would expose the exports of Bangladeshi products to international competition. Bangladesh announced a new industrial policy in 1999 which emphasises 1 expansion of the industrial base with higher participation of private sector, including foreign investors.

The policy places considerable importance on j stimulating competitiveness, both in internal and external markets. The | diversification of the manufacturing base’, which is overwhelmingly dominated by textiles, chemicals, and food processing, remains a major challenge. The new areas of production – for diversification are – computer software, agro processing and food processing. Although the information and technology sector has promising potential, the country is not well equipped to face intense global competition.

The major constraints in building a sound industrial base are inefficient infrastructure, unstable macro-economic environment, inefficient markets, particularly capital (both debt and equity), least transparency in decision-making process at government level, etc.

The country needs rapid sectoral reforms, especially in financial sector which continues to be shallow and underdeveloped. The lack of efficient banking system is the biggest hurdle in the country’s developmental prowess. Besides, the capital market is also at nascent stage. A well-developed, long-term saving market has yet to emerge.

A well-developed capital market is the prerequisite to earn the benefit of financial globalization and Bangladesh is very much lacking in this area. The launching of liberalisation and SAPs has helped the economy to attract FDI. The amount of FDI inflows which was almost negligible until 1991 has gone up to US$280 million in 2000.

The FDI is mainly attracted in the field of exploration of energy (oil, gas and petroleum products) and development of physical infrastructure like ports, road, electricity, telecommunications, etc. So far the impact of liberalisation and SAPs on Bangladesh economy is positive in the sense that the growth rate has been accelerated and per capita income has increased. However, the distribution of national income on public goods is unsatisfactory.

The government expenditures on education, health, etc. are inadequate to transform social sector into an efficient sector, which is essential to attain sustainable development in the longer period. Although military expenditure apparently looks within the limit, there is need to reduce it to less than 1 per cent of the GNP; that would help to raise the allocation of resources on other developmental heads.