Big informal sector reason for low employment generation: Biru Paksha Paul

Dr Biru Paksha Paul is an economist. He has served Bangladesh Bank as its chief economist, plus directed the research division – and acted as one of its core members designing monetary policy – at the central bank. Currently he is a professor of economics at the State University of New York at Corland. He received his PhD in economics, in 2007, from Binghamton University, USA.

Dr Paul is the lead author of Bangladesh Bank's special publication, "Vibrant Bangladesh: A Stable and Potential Economy." Based on his dissertation, he authored, "Essays on Indian Business Cycles and Inflation," while University Press Limited recently published his book titled, "Empowering Economic Growth for Bangladesh."

When The Business Standard interviewed him, he spoke frankly about several aspects of the country's economy. He stated that the accuracy of the data of the state-owned Bangladesh Bureau of Statistics, is of the poorest quality in the world. He also believes the Ministry of Finance is spoiling the central bank through unnecessary interference. Additionally, the economist advocated for the formation of a separate ministry to boost revenue collection.

Jahidul Islam talked to Dr Paul on behalf of The Business Standard (TBS).

TBS: Bangladesh achieved 8.15 percent GDP growth last fiscal year. The country has been maintaining this growth rate for the last couple of years – a rate higher than that of its neighbouring countries and others with the same economic capacity. What are the capabilities of Bangladesh as a result of this achievement?

Biru Paksha Paul: The biggest possibility for the country's growth involves three sectors — agriculture, industry and service. The sectors recently witnessed balanced growth, which is quite rare. For instance, India once had handsome growth riding on its industrial or manufacturing sector. The service sector contributed to GDP growth, and, even though the neighbouring country was skilled in technology, it failed to increase agricultural production – producing even less than Bangladesh.

The participation of Bangladesh's labour force is very high owing to the ready-made garments sector. Although the country lags behind regarding a quality labour market for women, it is still encouraging when measured by quantity.

TBS: Why has GDP growth been failing to generate employment?

Biru Paksha Paul: The huge size of the informal sector is the reason. The sector is eating up the new jobs. For example, one who goes for the money lending business after he fails his secondary exam. In the meantime, many youths – even with degrees in interest rate theories – remain jobless.

Informal lending will certainly hurt the banks – forcing the educated youths to remain jobless.

A huge informal sector is the weakest point of an economy. It also poses an enormous risk to the future development of a country. Workers of such sectors are not recognised. They also lack job-related education or training.

Our construction sector is experiencing massive growth. Jobless farmers in our country become construction workers – unlike anywhere in the world. One may not even get a job without a certificate in other countries. Here, construction workers work without training. Therefore, the quality of their work always suffers.

Another dark side of the informal sector is that the contribution of the workers remains outside of the GDP. This reflects on the GDP and is so bad for the economy. The unemployed become drivers after a brief period working as helpers. This is unprecedented and that is why road crashes claim 8,000 lives per year in the country.

TBS: Is this creating a crisis in the economy?

Biru Paksha Paul: Certainly. Corruption will correlate with the size of the informal sector. This is because such sectors do not bother about taxes and leave the pressure solely on the formal sector. Therefore, the tax-to-GDP ratio is substantially low in Bangladesh.

Growth in the informal sector hinders employment generation in formal sectors. Those informal sectors are decreasing the chances of educated people to get a job. Graduates are failing to secure jobs  – wrestling with the uneducated.

TBS: Employment is not being generated and new investments are not coming in line with the GDP growth rate. Thus, how reliable is GDP growth data?

Biru Paksha Paul: Doubts still remain over the data of the Bangladesh Bureau of Statistics. National data of a country and the corresponding World Bank data could differ slightly. However, the difference between data of the state-owned Bureau of Statistics and the World Bank on GDP growth is 1 percent. This needs to be addressed – why does the bureau have such huge discrepancies with international organizations including the International Monetary Fund and Asian Development Bank. The Bureau of Statistics certainly fails to provide quality data.

Every country maintains five filters to verify the accuracy of data on an international level. The United States and European countries are on the top of the accuracy list. Even India stands third. Bangladesh is at the bottom. No country has as poor-quality data as Bangladesh. It may sound awkward, but the truth is the bureau's data is of the lowest quality.

TBS: Why is this so?

Biru Paksha Paul: Bureaucracy is the cause. The Bangladesh Bank, Bangladesh Bureau of Statistics and Ministry of Planning are responsible for it. The Bureau of Statistics and Ministry of Planning have not undertaken any initiatives to improve the quality of the data.

TBS: Government investment is up and surpassed eight percent, from four percent, of the GDP in the last couple of years. In the meantime, private investment edged up only 2 percentage points. Why is private investment not revving up?

Biru Paksha Paul: Firstly, a hike in government investment is positive. The government's tendency towards funding mega-projects has increased. This is very positive. However, private investors are not crowding in owing to government investment. In some cases, they even fall back. Public investments must be of quality and in time to attract private investment. If the people are kept waiting for 10 years for the metro rail, underground rail construction will take 40 years. The Padma Bridge was to be constructed five years ago. The $2.4 billion-project hit $4 billion when the project time crossed 10 years. Government investments are of compromising quality and resources are being wasted, too. Private investors are losing interest owing to these reasons. Sometimes government-funded projects are not finished, not well-maintained, not well-monitored, or not well-orchestrated.

For example, there would be more movement and business if Dhaka flyovers could ease traffic congestion. Vehicles are trapped soon after using flyovers as the exit points remain clogged. We need to shake off flyover culture.

Flyovers are not easing the overall traffic flow; they even block traffic at some points. Blood will not circulate properly if the veins develop barriers at points.

Government investment grows in quantity, on paper and in expenditures; but not in quality. Private organisations are not responding to them equally. The traffic management system in Bangladesh is the worst – intensifying dust and pollution.

TBS: How is public investment crowding out private investment?

Biru Paksha Paul: The government is investing in places where private entrepreneurs can do businesses on their own. This is crowding out private investments. TeleTalk is an example. The government neither needs business nor investment in this sector.

TeleTalk is the most inefficient company among the telcos. The Bangladesh Petroleum Corporation should be dismissed. It should be disbanded.

No government in the current modern world fixes the oil price. This sector has private organizations. In particular, multinational companies should be tasked with this. The whole country should have a pipeline network. Bangladesh is very small in size.

Pipelines carry oil hundreds of thousands of miles away in other countries. The government has a pipeline construction project that is taking too much time. Some government bodies are creating dysfunction.

One billion-dollar investment could build a pipeline connecting Dhaka and Chattogram. This network could carry oil within a few minutes, even faster than air cargo.

TBS: There are also controversies over the multi-national corporations.

Biru Paksha Paul: Once someone would be labelled an agent if he or she advocated for multi-national corporations. Floating tenders at the international level can easily resolve the issue. Competent organisations will then get the contract. Why should companies owned or affiliated with lawmakers or ministers be the only ones to get the work?

Syndicates are deterring international companies in the country's real-estate sector. The government is supposed to eliminate the syndicates who spoil market competitiveness. There would be no issue if foreign companies built the Padma Bridge. Customers would get quality products and services if the oil supply and real-estate sectors were built by foreign companies.

The real-estate sector in the country is doing comparatively well. Why should the government invest here? The government is doing housing projects in Uttara — wasting public money and crowding out private investors.

TBS: The government has set annual GDP growth at 8.2% in the current fiscal year. The World Bank, however, projects a 7.2% GDP growth rate. Projections of other organisations, including the International Monetary Fund and Asian Development Bank, fall below the government target. How will it be possible to meet the government-set GDP growth target?

Biru Paksha Paul: Analysing revenue collection and export growth, I do not see how it will be possible to meet the government target. Import tendencies of raw materials and capital equipment suggest that the manufacturing sector will not see much growth this year. Although agriculture is in a favorable position, its contribution to the GDP has dropped significantly. A major portion of the GDP comes from service sectors whose growth remains below six percent.It will be commendable for Bangladesh if the growth reaches seven to 7.5 percent.

TBS: What will quality be if the GDP growth rate rises?

Biru Paksha Paul: Quality is important – rather than obsessing over the GDP growth rate. However, government officials do not want to raise questions over quality. Already, no question is being raised over the quality of education.If we do not have quality education, from where will a skilled workforce generate? And how will productivity increase without skilled manpower?

Our potential growth is more than actual growth. Our growth could rise 1.5 percent more if we performed properly. Developing countries often underperform.     

TBS: What should the government do?

Biru Paksha Paul: We need to fix the transport sector to tap into potential. Governmental organizations should also be overhauled. Is it possible to boost private investment by forcefully reducing interest rates? Fixing the bank rates can never be a realistic solution. There are several theories in economics to fix interest rates.

TBS: Bangladesh stands at the bottom – with poor-performing countries – in revenue collection. What is your opinion on this?

Biru Paksha Paul: Poor revenue collection is the main example of institutional unprofessionalism. It might be wrong to term the finance ministry an unprofessional institution.       

The finance ministry is wrongly defined for a developing country like Bangladesh. The job description of the ministry is overcharged. For a fast-growing economy like Bangladesh, the finance ministry is tasked with more activities than in its job description.

The ministry is doing most of the tasks that are supposed to be performed by the central bank. The minister had said a lot about default loans. He was not supposed to talk about them. The Bangladesh Bank governor should have talked about them, but, he set the policy as the minister stated. Currently, the central bank has the weakest-ever leadership.The default loan volume was around Tk60,000 crore when Dr Atiur Rahman left the central bank. Then there was an initiative to realise the loans. Now the loan volume has, illogically, doubled.There are no worrying economic crises in the country at this moment and the GDP growth is ballooning. So, why have the number of defaulting loans increased? The Ministry of Finance is interfering in other issues, ignoring revenue collection — the ministry's main job.

TBS: Then, what should the government do to boost revenue collection?

Biru Paksha Paul: In the current situation, the government needs a separate ministry to collect revenue. At present, a secretary is leading the Internal Resources Division. A secretary is not a public figure and does not connect to the masses.

Local representatives will collect revenue through mass communication. The finance ministry is also overseeing investments, which is unnecessary. A separate ministry should be tasked with this. Investment is vital for GDP growth.

The finance ministry should focus on budget allocation, minimising the budget deficit and financing. The ministry is spoiling the central bank with unnecessary interference while it is struggling with its own issues.

The scenario has deteriorated to the point that the central bank could be dissolved and a sub-wing at the secretariat could take up its responsibilities.

TBS: What is the status of central banks in other countries?

Biru Paksha Paul: China has a separate ministry to collect revenue. The Chinese central bank enjoys power equal to that of a ministry. The power of our governors is below that of the cabinet secretary or senior secretary. They have to wait for commands from the secretaries.

The governor post deserves officials with a combination of talent, innovation and courage. In many countries, the brightest professors or researchers are appointed as governors. Former bureaucrats are appointed as governors in our country.

Though the retired bureaucrats are talented, both their power to innovate and tendencies to reform are so poor. They get used to living within a framework.

Undertaking many challenges of a growing economy, they cannot complete any of them properly. If a journalist strives to become a dancer, singer, footballer and social media icon – alongside journalism – he will not excel in anything. He will not even shine as a reporter.

The finance ministry is doing so many tasks, altogether, as there is no move toward decentralising power.

TBS: Let us talk about something positive now.

Biru Paksha Paul: The economy is maintaining a fair growth rate despite numerous organisational anarchies. The apparel sector survived the tragic Rana Plaza collapse tragedy and is doing well now. Financial activities are increasing as the political situation normalises.

Anti-militancy and anti-drug raids are ongoing. An anti-corruption drive has begun – even if on a small scale. Youths are becoming more tech-savvy. Bangladesh is moving forward, overcoming numerous hurdles, and it will keep moving.