Crisis, RMG image push economy to volatility: WBNazmul Ahsan . Washington DC
Impending political transition and damaged image of apparel industry are pushing the Bangladesh economy into a volatile phase, the World Bank said in its latest report on South Asian nations on Wednesday.
It said that the ongoing political uncertainty and infrastructure deficits would put negative impact on investment in the country.
The report styled ‘South Asia Economic Focus—A Wake-Up Call’ was released at the International Monetary Fund headquarters in Washington DC.
World Bank’s South Asia external affairs senior manager Alexander Ferguson and its South Asia region chief economist Martin Rama, among others, attended the programme.
Focusing on weakness of South Asian economies, the report said, ‘Global capital rebalancing has highlighted structural weakness and vulnerability in South Asia, acting as a wake-up call for policy makers.’
Highlighting the vulnerabilities of Bangladesh economy, the report said that Bangladesh’s near and medium-term macro-economic outlook hinged on internal stability and structural reforms.
‘Overall, the Bangladesh economy is moving into a more volatile phase. The risks stemming from the impending political transition have grown significantly, while new risks and challenges have gained prominence,’ reads the report.
‘Notable among the latter is the damaged image of Bangladesh’s only manufacturing mega-success story — garment manufacture,’ it says.
Focusing on worst industrial disasters in Bangladesh’s two garment factories, the report said that the revamping of the garment industry in the wake of the deadly factory accidents would be crucial to Bangladesh’s future economic growth.
It said the crisis within the garment industry placed the country’s vital foreign currency generator at a historic crossroads.
‘The sector could become a $36-$42 billion revenue-earner by 2020 if it can prevent a recurrence of the horrors seen in the Tazreen Fashions and Rana Plaza disasters and improve workers’ employment conditions,’ the report said, adding, ‘Continued neglect of workers’ rights and safety would prompt international buyers to cut their reliance on Bangladesh, or even abandon the country altogether.’
The fire at Tazreen Fashions in the outskirts of Dhaka on November 24, 2012 killed 112 workers and the collapse of Rana Plaza at Savar on April 24 killed over 1,100 people, mostly garment workers.
‘A succession of devastating factory accidents in the past 11 months, topped by the Rana Plaza building collapse in April that killed more than 1,100 workers, have received concerns over labour standards, wages, and compliance with safety regulations, and threaten the future growth of Bangladesh’s most important export industry, ready-made garments,’ reads the report.
On the political crisis, the report said, ‘Ongoing political uncertainty, frequent general strikes and associated hostilities, have added to the existing negative pressure caused by longstanding energy and infrastructure deficits that continue to dampen the investment climate.’
Pointing to Indian Rupee depreciation to about 62 per dollar in the recent time and similar large depreciations in Indonesian and Turkish currencies, the report said that the depreciations in the countries concerned were likely to toughen competition for Bangladesh in its major export destinations.
‘The impact will depend on the permanence of the currency depreciation, the impact of the policy response in these countries, the feedback effects on their inflation rates, and the impact on the cost of intermediate input and raw material imports to Bangladesh,’ the report said.
The report backed the structural reforms in macro-economic sector, which were largely dictated by the IMF. The steps taken by the governments and hailed by the report include new law on Value Added Tax being implemented, amendment to the Bank Companies Act and reforms being made in the state-controlled commercial banks.
The report said that increasing road traffic congestion, shortage of power, water and gas are some of the pressing challenges of the government in attaining higher economic output.
Several financial scams and resultant loan defaults in the state-owned commercial banks and their capital shortfall need urgent attention of the policymakers, said the report.
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