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http://www.thefinancialexpress-bd.com/2015/07/14/100374
resilient. They offset the country's wide trade deficit and allow the current account to fluctuate chronically around
the balance.
Our economy is vulnerable to the climate change that causes frequent natural disasters. Poverty also remains a
concern despite significant progress in human development and a decade of resilient and strong growth. Weak public
finances, especially low fiscal revenues regionally, hamper anti-poverty policy and public investments in
infrastructure that are badly needed, thus hindering economic development. Looking forward and despite several
vulnerabilities, Bangladesh has the potential to raise its growth notably thanks to a fast-rising middle class, provided
the business environment and political stability improves, which is a big challenge for the country.
Bangladesh presents a more favourable and short-term political risks due to much improved external liquidity
fuelled by record-high foreign exchange reserves. These have been sharply built up mainly as a result of robust
garment exports in an adverse climate and good flow of workers' remittances from the Gulf. Until a satisfying
outcome is found, the short-term outlook is, however, clouded by risks related to the political crisis.
Medium-long term political risk remains high in Bangladesh, although the country manages to maintain
macroeconomic stability. One major explanatory factor lies in the long history of political instability and violence
that heightened last year. The general election boycott by the opposition on January 5, 2014 has led to political
uncertainty that risks renewed social unrest and business disruption. The spread of Islamism and terrorism coupled
with ethnic tensions are the other risks that should be taken into consideration.
The domestic investment is another indicator of country risk. An economist suggested four different investment
regimes in Bangladesh. The first regime (1979-80 to 1989-90) is characterised by a low level of investment-GDP
ratio with an annual average of 16.5 per cent. This regime generated large fluctuations in GDP growth rates and the
annual average GDP growth rate was only 3.5 per cent. The second regime (1990-91 to 2004-05) saw a steady rise
in the investment-GDP ratio with an annual average of 21 per cent. This regime yielded an annual average GDP
growth rate of 5.0 per cent. The third regime (2005-06 to 2008-09) experienced a higher but virtually flat
investment-GDP ratio of 26.2 per cent and a resultant rise in the annual average GDP growth rate to 6.2 per cent.
Finally, the fourth regime is the current one (2009-10 to 2013-14) with a rise in the annual average investment-GDP
ratio to 28.2 per cent, with a annual average GDP growth rate of 6.3 per cent.
Capital flight from Bangladesh to other countries is another indication of how unsafe the land is for illegal and even
legal money. It is also a negative indicator for overseas investors.
GOOD GOVERNANCE: Good governance is one of the major concerns of overseas investors. The World Bank has
indentified six dimensions of governance: (1) Voice and accountability (VA) - capturing perceptions of the extent to
which a country's citizens are able to participate in selecting their government, as well as freedom of expression,
freedom of association, and a free media, (2) Political stability and absence of violence/terrorism (PV)-that lend
credence to the likelihood that the government will be destabilised or overthrown by unconstitutional or violent
means, including politically-motivated violence and terrorism, (3) Government effectiveness (GE) - perceptions of
the quality of public services, the quality of civil service and the degree of its independence from political pressure,
the quality of policy formulation and implementation, and the credibility of the government's commitment to
implementing such policies, (4) Regulatory Quality (RQ)-the ability of the government to formulate and implement
sound policies and regulations that permit and promote private sector development, (5) Rule of Law (RL) -the
perception of the extent to which agents abide by the rules of society, the quality of contract enforcement and
property rights and have confidence in the police and the courts, and (6) Control of Corruption (CC) - the perception
of the extent to which public power is exercised for private gain, including both petty and major corruption. These
six indicators are poor in the regional and global context.
Despite all these odds, the Organisation for Economic Cooperation and Development (OECD) upgraded
Bangladesh's country risk classification to five from six on June 26 in 2015. Bangladesh graduated from the low
income status to lower middle income nation (LMIC) meeting the World Bank's requirements comfortably. A
country is categorised a low income one, if its GNI is less than $1,045. It is a lower middle income country, if the
GNI is $1,046-$4,125. The higher middle income status requires the GNI of $4,126-$12,735 and the higher income
country requires a GNI of more than $12,735.
A recent decision of the government bars companies with full foreign ownership from obtaining any fresh licence
for freight forwarding (FF) business in a bid to favour the local companies. Only joint venture and local companies
will be able to obtain any new licence for freight forwarding from the current fiscal year (FY) 2015-16, customs
rules say. The new move that restricts the fully-owned foreign companies in the business is suicidal in view of the
government's efforts to attract foreign direct investment (FDI). Overseas investors usually invest in a country
following successful operations of small trading companies. The amendments will give a wrong message to the
foreign investors.
The writer is a Legal Economist.
shah@banglachemical.com