Lower ADP, Sluggish Private Investment and Macroeconomic Challenges

NGO News Report :: Lower ADP, Sluggish Private Investment and Macroeconomic Challenges. ADP Implementation Status in July-May Period Trend in Private Investment as % of GDP. The Unnayan Onneshan (UO), an independent multidisciplinary think tank, in its June issue of Bangladesh Economic Update 2016 reveals that the low implementation status of public investment coupled with continued sluggish private investment may cause the current state of jobless growth to intensify.

Expressing its concern over the poor implementation of ADP during July-May period of the FY 2015-16, the UO shows that only 62 percent of ADP has been implemented during this period whereas for FY 2014-15, FY 2013-14, FY 2012-13 and FY 2011-12, the implementation status was 67 percent, 66 percent, 67 percent, and 70 percent respectively.

The think tank points out that during July-May of FY 2015-16, 75 percent of total ADP allocation for roads and highways division has been implemented compared to 76 percent for the corresponding period of the previous fiscal year. However, only 46 percent of the total allocation of ADP for bridges division has been implemented during July-May of FY 2015-16 compared to 44 percent during July-May of FY 2014-15.

Referring to the lower status of ADP implementation in social sectors during the first eleven months of FY 2015-16 compared to that in the corresponding period of the previous fiscal year, the Unnayan Onneshan demonstrates that ADP implementation status has stood at 41 percent for health, 60 percent for education, and 68 percent for social security and welfare during July-May of FY 2015-16 compared to 56 percent, 64 percent, and 67 percent in July-May of FY 2014-15 for health, education, and social security and welfare respectively.

Pointing out the poor quality of public investment in infrastructure development, the research organisation presumes that the construction of major infrastructure development projects is not likely to be completed by the planned timeline.

As regards the progress in construction of Padma Bridge, the UO finds the target of cumulative completion of 35 percent of work was revised at 20 percent in FY 2014-15 and the cumulative completion target of 45 percent was revised at 39 percent in FY 2015-16, which questions the effectiveness and proper utilization of public investment.

Along the same line, against the target of completing 12 percent of construction of Dhaka elevated expressway in FY 2014-15 only 5 percent was completed, whereas the target of completing 40 percent of the construction in FY 2015-16 was revised at only 10 percent implying unfeasibility of the target of finishing the construction by FY 2018-19.

Taking account of slow implementation against the planned duration of the infrastructure development projects, the UO comments that increase in allocation implies rising cost induced economic rent which has made the public investments inefficient. For instance, Bangladesh spends Tk. 59 crore (proposed) to build one kilometer of 4-lane highways whereas China and India spend Tk. 13 crore and Tk. 10 crore respectively.

Pointing to the fact that allocation of development expenditure for health assumes a declining trend in recent years increasing out-of-pocket expenditure in the sector, the think tanks shows that development expenditure on health stood at 9.7 percent of the total development expenditure in FY 2009-10 compared to 8.7 percent in FY 2010-11, 7.5 percent in FY 2011-12, 6.8 percent in FY 2012-13, 5.3 percent in FY 2013-14, 5.3 percent in FY 2014-15, 5.4 percent in FY 2015-16 and 5.5 percent in FY 2016-17.

As regards the allocation of development expenditure for education, the UO shows that development expenditure on education stood at 13 percent of the total development expenditure in FY 2009-10 compared to 12.8 percent in FY 2010-11, 12.4 percent in FY 2011-12, 13.1 percent in FY 2012-13, 13.5 percent in FY 2013-14, 15.4 percent in FY 2014-15, 12.3 percent in FY 2015-16 and 15.3 percent in FY 2016-17. Low allocation and slow implementation will create skill shortages in addition to deteriorating quality of education, adds the research organisation.

Referring to the declining allocation of development expenditure for social security and welfare, the UO evinces that development expenditure on social security and welfare stood at 5.4 percent of the total development expenditure in FY 2009-10, whereas the allocation was 5.3 percent in FY 2010-11, 5.3 percent in FY 2011-12, 4.5 percent in FY 2012-13, 4.7 percent in FY 2013-14, 4.5 percent in FY 2014-15, 3.8 percent in FY 2015-16 and 3.4 percent in FY 2016-17 .

The Unnayan Onneshan points out that private investment has been remaining stagnant and has stood at 22.07 percent of GDP in FY 2014-15 and 21.78 percent in FY 2015-16, while increase in public investment from 6.82 percent in FY 2014-15 to 7.6 percent in FY 2015-16 has not succeed to create much needed crowding in for private investment.
Observing the declining trend in national savings, the research organisation finds that total national savings stood at 29.23 percent of GDP in FY 2013-14, 29.02 percent in FY 2014-15, and 30.08 percent in FY 2015-16, and warns that such trend may induce national output to decline.

In addition, lack of adequate capital formation due to large scale illicit capital outflows every year causes national savings and investment not to rise significantly. Statistics suggest that during the period of 2004 to 2013, illicit capital outflow amounted to USD 5587.67 million every year on average. In 2010, the amount of illicit capital flow was USD 5409.24 million whereas the amount increased to USD 5921.33 million in 2011, USD 7225.14 million in 2012 and USD 9665.80 million in 2013.

Taking account of the unsatisfactory quality of public investment in physical and social infrastructure and current state of sluggish private investment due to infrastructure shortage and lack of business confidence, the research organisation emphasises that the government must focus on stimulating private investment and ensuring effective utilisation of public investment in addition to channeling adequate resources into social sectors that give particular impetus to the improvement in human development.