The former finance minister says debt burden is not so high, but urges caution about ECA financing
In a long interview with The Business Standard, former finance minister AMA Muhith has explained how project cost escalates, why parliamentary committees should be more active in overseeing public expenditures, and what internal challenges need to be addressed to allow the economy to keep its growth momentum. The first part of the interview was published on December 15. Here is the excerpt of the remaining part.
The Business Standard: We have been observing cost escalation in a lot of projects nowadays. For example, if a project's estimated cost is Tk4,000 crore at the beginning, it rises to Tk7,000-8,000 crore after one or two years.
AMA Muhith: The cost of every megaproject has escalated. One thing is that the preparation is weak, but that is constantly improving.
Let me tell you a story about preparation. One side of the preparation is the per-mile cost of construction. Now the per-mile cost of construction is pretty updated. Earlier, those were two or three years old, sometimes even more. Now the current cost is being used. I think if the project preparation improves, the implementation will be good.
TBS: What do you think about the anti-corruption measures now? And the prevalence of corruption?
Muhith: The measure we have taken is quite good. But its impact is low because the regime of corruption is very strong in Bangladesh. I thought it could be substantially changed by increasing the salary scale. It did not happen. Two-generational change is required here.
TBS: Now, how did the parliamentary committees, which oversee public expenditures, work during your time?
Muhith: The committees are much more active now than before, you see. I have seen them becoming more active gradually. Earlier, these committees very rarely met. Now they are more active.
But one thing, the ministers attend the meetings rarely. The ministers must be present at the committee meetings. It should be enforced. Otherwise, an effective decision is not possible.
It is possible if the committee meetings are more systematic. The committee meetings should not be related to the assembly meetings. The committee meetings should be independent of the assembly sessions. They should have their own calendar round the year. If there is such a calendar the ministers will be available.
TBS: There is a growing concern that the debt service may run into trouble. We are taking much more loans and at a very high price.
Muhith: No, it is not very high yet. There is a projection for debt service which we are following. The stage we were in was very good. It was around 20 to 24 percent of the gross domestic product (GDP). It has gone up quite substantially, because of the Rooppur project.
Rooppur has pushed it much higher. Now we have to be cautious. I have left a projection to 2030. I am sure it is in the thoughts of the finance ministry and they cannot avoid looking at it every now and then.
Our debt burden is on the rise and it is happening quickly. So, we should be a little bit careful about ECA (export credit agency) financing. The projects are prescribed to raise their finance, and usually, these are short term loans with a duration of three, four or five years. We should be cautious about these because our debt control is very good.
TBS: Was your projection for 2030? Did you leave a projection for our debt burden?
Muhith: Yes. I think the figure I mentioned in my projection is that we should stay somewhere up to $32 billion of debt.
TBS: By 2030?
Muhith: Yes, 2030.
TBS: We have observed much uproar about the slowdown that India has been experiencing. Their growth figure was over estimated by 2.5 percent. Do you think our growth figure should also be examined?
Muhith: Well, yes. Now it will happen. The Planning Commission does it. The former boss of the planning commission was always interested in higher projections. I was really not happy about it. I am quite happy that the Planning Commission will have a serious look at the projections.
TBS: We have a very specific question. Do you think that there should be a committee or something to ensure the credibility of our growth data?
Muhith: No, no. That is there. I think it is reviewed every five years. We are revising the growth data and economic position data every five years. If it can be done for another two or three times it will no longer be required to do so.
TBS: There have been many confusions and questions over the Bangladesh Bureau of Statistics (BBS) data…
Muhith: Our economy has been monetised at a very fast rate. Now, almost 60 percent of the economy is monetised. If it is 75 percent that would be quite comfortable. The money economy has been increasing continuously and review of five years' data shows that our debt amounts are not. Revenue-GDP ratio has not improved much. We think it is 15 percent but in reality, it is 11 percent.
TBS: There is a big difference between our growth projection and that of the international organisations like the IMF, the ADB, the World Bank and different rating agencies. Why is this so?
Muhith: No, there is not much difference. Earlier it was so. Now they are closer to each other. For example, this time we say 8 or something…
TBS: 8.13… 8.25 percent.
Muhith: Yes, not much difference.
TBS: In case of any slow-down in the economy this year – because of the prevailing situation world-wide, the banks are also squeezing the credit now, they do not want default loans – how much fiscal space do we have?
Muhith: No, there will be no slow-down. Because our margin for deficit financing is good. During my tenure, it did not go over 4.5 percent. We always took the capacity of five percent. Four or five percent difference that is the margin that we have in the next year. And it depends on this margin that our growth projection will not be much different in the next two or three years.
TBS: Why is the condition of the capital market so miserable?
Muhith: Right now, there is a good move in the capital market. A good number of bonds are being issued. The advantage of the bond is that there is no uncertainty. You are issuing a bond and anyone can buy your bond. So, this is a very reliable sort of market.
I am very happy that the market is seeing much development. Two-three banks, two-three institutions are releasing big bonds. These bonds are best for small investments.
I invested in the capital market of Pakistan in the '60s and suffered very substantially.
TBS: How much money did you invest in the '60s?
Muhith: I invested around Tk3,000.
TBS: Did you get something from that or all were lost?
Muhith: I got something.
TBS: Didn't you invest again?
Muhith: No, I did not invest much after that. Whatever investment I made was in a savings instrument, where you do not take any risk. I did not make any risky investment afterwards as I did in the '60s.
TBS: Is our capital market mature yet?
Muhith: No, no. It is not yet mature, but good. It is in the process of maturity. Now there are the laws.
TBS: Is it to save from manipulation?
Muhith: There are some manipulations, but there is no chance of busting.
TBS: We have the issue of LDC graduation ahead…
Muhith: LDC has been practically achieved. It is being formalised. We should take the middle-income status a little higher. So that it does not slip to the low middle-income status. I think this is happening. It happens if the growth goes on well.
I think despite the constraint of international development, particularly China and India's development, at least 3 years of good growth is assured for Bangladesh. It must happen.
TBS: There is no fear of slowdown?
Muhith: No, there is no fear of slowdown. The rate of progress, the rate of increment may be slower. We wanted 10 percent, but we will not be able to achieve 10 percent. It will be much below 10 percent. But 8 percent plus is a very good growth rate. None except China and India reached 10 percent.
TBS: There has been much ado about money market management and single digit interest rate for quite some time.
Muhith: The minister gave a target regarding the interest rate. But it has not been honoured by the banking sector. They did not bring it to one digit.
TBS: You gave many facilities for that…
Muhith: It is not possible to increase the facilities further.
TBS: How do you think the economy is doing?
Muhith: The economy is doing well. Very good… I mean there are many challenges. This is a momentum of growth. Though the international circumstances are not propitious. It was predicted to be propitious. But this is not happening.
Yet, I mean the units of economic calamities have not yet risen to world growth figures. Still, they are good for this year and next year. So, I think for the next three years, growth is not a difficult problem. Bangladesh will achieve growth, as it is happening now. It will be above 8 percent, it will go near 9 percent, but it will not reach 10 percent for the next three years. In three years, Bangladesh will certainly be a middle-income country. Let's see.
TBS: One thing is being said now that our growth is falling…We are now going through a slowdown. All the businessmen are saying the same. The second thing is there was a story today that revenue collection has been slow in the last 20 years. If the growth is high, why is the collection slow? Everybody is saying there is a problem in the growth figures.
Muhith: These can be reformed. These are internal affairs. Low revenue is a completely internal matter. There is no external matter regarding this. Our import has not decreased. Our import is still quite large, you see. These are things for us to manage and I think we should manage it. It means our growth is at the irresistible level, it will continue.
But we should be very cautious about the developments in China and in India. It affects all the countries of the world. And after all, India, because of its size, is one the top countries of the world in regards to gross national product, third or fourth, I think China is the first one, the USA second, and Japan the third one.
TBS: What is our major challenge internally?
Muhith: We will have to be very cautious about two countries – China and India. And you have to ensure that our market is not affected.
TBS: This is an international challenge; I mean external challenge. You were talking about internal challenges.
Muhith: We will have to manage whatever internal challenges are there. The external factor is not so substantial there.