Despite the doldrums of the world economy, the future for Bangladesh remains bright, believes economist Forrest E Cookson.
“I am quite optimistic about the future because I think that the garment sector is very strong and it will expand quite rapidly,” the American analyst, who has lived in Bangladesh for over 30 years, said in an interview with bdnews24.com’s talk show ‘Inside Out’.
“So I am very optimistic that the competitiveness of the economy, the strength of the export earners, the remittances and the garment sector will carry the economy very well for the next five to 10 years.”
The full video of the interview is available on bdnews24.com and its Facebook and YouTube pages.
Cookson does, however, acknowledge that the economy is facing some challenges, but believes the brunt of the issue is external to the country. As such, the short-term economic outlook is largely dependent on how other countries handle the current global recession.
“There will be a year or so of some difficulty,” he said. “But export growth is very contingent upon the advanced economies running their affairs properly. If the advanced economies go into a deep and long recession, that is very bad for Bangladesh. And there's not a lot that one can do about that.”
The global recession in 1933 and 1934 smashed the political and economic systems of every country around the world, especially the poor ones because the world economy was not functioning properly, said the executive director of the Research & Development Centre, a Dhaka-based think-tank.
For the moment, Bangladesh will have to hope that the US Federal Reserve, the European Central Bank, the Bank of Japan, the Chinese central bank and others will manage their economies responsibly so that growth can continue, Cookson said.
“So under those conditions, Bangladesh should do very well. We have an economy that's open, we have an extremely powerful entrepreneurial urge and people, and we have, whether by design or accident, we have very weak taxation system and very weak regulatory systems. So weak taxes and weak regulation is good for the economy, not bad.”
Asked whether Bangladesh’s historically low tax-to-GDP ratio did not concern him, he said.
“The desire to collect a lot more taxes probably hurts the economy more than it helps it. Why would you want to take Tk 100 and give it to the government to spend instead of letting people use it for what they want? Why would you do that? You think the government is spending the money well? I don't I can't think of a single Bangladeshi who believes the government spends well. The weak tax position is actually an advantage for the country, not a disadvantage.”
Cookson argued that the tax-to-GDP ratio isn’t a proper indicator of economic development, saying that the understanding largely comes from American or British bureaucrats who are looking at the high tax-to-GDP ratios in their own countries.
“There are a lot of people in the United States and in the European countries who argue that taxes are high because we are transferring money from rich people to poor people. Now, that may be a good thing to do when your per capita income is $70,000, $60,000, $50,000. But that may not be the right thing to do when your per capita income is a couple of thousand dollars, $2,500.”
“I don't think Bangladesh is in a condition where it should slow down growth in order to help poor people. These are very harsh words, but if you want to be a rich country, you have to grow. If you grow, you have to invest. And you have to let the private sector do its thing. If you tax the money away from the private sector, then they won't do it.”
The world is currently facing the consequences of governments pouring money into their economies since the 2008 global recession, he said.
“It seems to me that in the last 10-15 years, all the central banks in the world pumped out an enormous amount of money. Now, this is coming back to bite us.”
“The first round of this biting was the impact of the inflation that started a few years ago. The Ukraine war was a sort of supplement to that, but the real issue was how much money had been pumped out during the period of the financial sector crisis in 2007-2008. So the consequences of flooding all this money are bound to be inflationary. And how to manage that, I think we do not know.”
He noted that prices in Bangladesh had actually started rising six months before the Ukraine war, spurred on by inflation in the advanced economies.
Cookson, who helped develop and implement the free market-oriented changes to Bangladesh Bank in the 1990s, warned that the progress made due to those reforms was being rolled back and could slow down the private sector and the economy.
Speaking on the major ideas implemented during those reforms, he said, “Starting in the early 90s, Bangladesh Bank began to free up the interest rates, both for deposits and for lending. And it took some time, but by the end of the 90s, the rates were basically market determined. And this was very successful. The imposition of the 9 percent cap maybe five years ago basically went backwards and undid the shift to market-determined interest rates.”
“If the 1990s reforms worked, they were taken away a few years ago. And now they may or may not be restored. So, in a way, we have returned to where we were in 1990.”