Skills, innovation, productivity key to avoiding middle-income trap

Economists and policymakers have identified the lack of skills and innovation, and low productivity as the major challenges towards achieving higher economic growth and avoiding the middle-income trap.

They have recommended strong policy changes to ensure proper allocation for education, stabilise the financial sector, boost competitiveness through tariff rationalisation, and provide equal opportunities for all export sectors.

The recommendations came at a seminar titled "Avoiding a Middle-Income Trap in Bangladesh: Lessons from Korea" organised by the World Bank on Tuesday in the capital.

At the seminar, State Minister for Planning Shamsul Alam said Bangladesh needs to overcome new challenges to achieve the development goals of the government, becoming an upper middle-income country by 2031 and a high-income country by 2041.

The state minister said after achieving the middle-income status, many countries failed to maintain higher growth to achieve the high-income status.

He said declining competitiveness may create a middle-income trap and overcoming the trap requires innovation, skilled human power and higher productivity.

The state minister also said the role of consistent and planned government policy is important in achieving sustained growth to boost industrialisation, open market access, increase income and reduce inequality.

"The government has a sharp policy to sustain economic growth. We have to redesign policies that can help support the private sector to be competitive in the world market," he said.

Speaking at the event, Korean Ambassador to Bangladesh Park Young-sik advised Bangladesh to strengthen its manufacturing sector to become a high-income country. He emphasised on the use of skilled manpower and technology in this regard.

Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue, said the economy enjoyed higher growth and lower inflation for a long time. The situation is not in favour now and the journey towards upper middle-income status has become very tough.

She said the issues regarding innovation, technology, productivity and overall macroeconomic policy are crucial to smoothen the journey.

Dr Zaidi Sattar, chairman of the Policy Research Institute, also stressed the change in policies to avoid the middle-income trap.

He said Korea reduced the simple average tariff rate of all products from 23.7% in 1983 to 8% in 1994, in just 11 years. Bangladesh should adopt a policy to come out from a high tariff-dependent economy.

Fazlul Hoque, managing director of Plummy Fashions Ltd, said domestic industries are facing a serious lack of skilled manpower which led the private sector to employ a huge number of foreign staff causing a $6-$8 billion outward remittances per year.

Hoon Sahib Soh, practice manager for macroeconomics at the World Bank, who presented the keynote at the event, said Korea had increased the use of technology in the industrial sector to avoid the middle-income trap.

Govt can't be solely blamed for rising inflation: State minister

The government cannot be held solely responsible for the surging inflation leading to the spike in essential commodities' prices, said State Minister for Planning Shamsul Alam at the event.

"The Bangladesh Bank has taken measures to address the situation by increasing policy rates. Initiatives have also been taken to curb excessive demand. In this situation, the government cannot be blamed for the additional cost burden placed on consumers," he said.

"Due to the rise in prices in the global market, the domestic market has experienced an increase as well," he added.

The state minister expressed optimism that inflation rates, especially those related to food products and overall inflation, would stabilise within the next three months.

The state minister also hoped that the overall inflation may stabilise at around 6% within a year.