Over the years, Bangladesh has achieved considerable economic progress despite many odds. The economy, however, has now reached a point where continued progress will require course corrections, as alluded by the title of this write up, which is also the subtitle of a bestselling business book.

The imperatives for such policy changes had already been there, only to be heightened by the Covid-related economic slowdown and now by the global economic impact of the Russia-Ukraine war. 

The extent of the fallout of the Russia-Ukraine war will depend much on how long the war will continue. Our external balance of payments is already under increasing strain due to the soaring price of imported crude oil. The impact of price speculation in global edible oil markets has clearly upset the domestic market leading to erratic moves by the government to keep the price within a limit. For two other essential import items, namely wheat and fertilisers, uncertainty has arisen not only from the global price hikes but also from doubts about the very availability of these items in the global markets. How far the domestic consumers, and farmers in the case of fertilisers, can be protected from the increased import prices will depend on the amounts of subsidies the government can afford to provide through its various distribution channels.

It thus comes down to the space for manoeuvre within the government's budgetary allocations. That space has unfortunately shrunk due to the increasing burden of servicing public debt, which is now eating up an increasingly large chunk of the revenue earnings. The government has resorted to increased deficit financing, both through domestic and foreign borrowings, for managing the Covid crisis, and more so, for funding the mega-projects.  

But the main underlying reason for the looming budgetary problem is the low revenue earnings, that has remained obstinately low and stagnant as a proportion of GDP for the last three decades of so. Our tax-GDP ratio, which is one of the lowest among our comparator countries, has remained the Achilles' heel of our budgetary management, only to be more openly exposed by the fallout of the pandemic and the impact of the ongoing global economic turbulence. 

Although the post-Covid export recovery has been a saving grace, it has not been enough to prevent the opening up of a gaping hole in the trade balance, and even in the overall external balance. The Bangladesh Bank cannot possibly continue to defend the taka-dollar exchange rate even though the level of foreign exchange reserve may still look comfortable. We need to have adequate cushion against the impact of repayment of loans incurred for the mega-projects, given that the significant amounts of debt servicing will begin within the next medium-term period. As for the more immediate future, while taka gets devalued, it is likely to add fuel to the fire of imported inflation. This in turn will require more social safety net protection and other support measures for the poor, while the low-middle class families will also likely to come under distress. 

There is an apprehension in Bangladesh about a looming spectre of a Sri Lankan-type situation of external bankruptcy. That possibility seems unlikely given the current levels of macro-financial parameters in Bangladesh. But there are lessons to be learnt. Merely avoiding external bankruptcy, which is more of an African and South American phenomenon, should not be the yardstick of how well we are managing our externally-financed projects. It goes without saying that we need to manage these projects far more efficiently, in terms of reducing cost and time overruns, in preventing resource leakages and in setting priorities. The huge costs incurred in infrastructure projects should not be justified by their prestige value, but by their capacity to attract future private investments. In particular, investments in export-oriented industries can take care of the stress on the balance of payments created by future debt repayment obligations. 

While our immediate policy focus needs to be on redressing the impact of the price hikes of essentials in the domestic markets, this may also be an opportune moment for rethinking our longer term development strategy. It is a sobering thought that, while rapid growth episodes for a

decade or so is quite common among developing countries, sustained growth over a much longer period, as happened, say, in South Korea, is extremely rare. Agriculture apart, the laudable economic progress achieved so far in Bangladesh has been mainly driven by the replication of economic activities based on low-wage and semi-skilled labour along with low-productivity technology, as in the case of readymade garment industry, manpower export and the scaling up of small and micro-enterprises. In order to go into the next growth trajectory, the economy needs to shift from replication to a deepening of skills and technology, associated with higher productivity and wages. A lot of homework has also yet to be done about how to negotiate our way into an increasingly turbulent global economy, particularly as we graduate out of the LDC status. Economic growth in future will also be more costly given the need for making industrialisation and urbanisation more compatible with environmental sustainability.

In the social sector development indicators, we have achieved even more remarkable progress, but the achievements so far have come from the adoption of low-cost solutions, such as reducing child mortality through diarrhoea treatment by oral saline and through successful immunisation campaigns. The enrolment rates have rapidly increased at all levels of education, but only at the cost of lowering quality. Further progress in the social sector indicators will depend not only on more social public spending, the level of which has remained extremely low even by the standards of low-income countries, but also on substantial improvement in the quality of public service delivery. The existing educational system, with its deteriorating standards, is simply incapable of meeting the human capital needs of our envisaged development goals.

While delineating an entire development strategy is beyond the scope of this write up, I shall leave you pondering on a question rarely discussed in the development discourses: What made post-World War ll Germany and Japan emerge again as economic powerhouses within a decade or two after having their physical infrastructure thoroughly ravaged by the War? Although the post-War US support towards economic rehabilitation was a factor, a reasonable guess is that the major role was played by the existence of a highly skilled labour force.

The author has retired as Professor of Economics at the University of Dhaka.