Bangladesh, Bhutan and Sri Lanka finance ministers identify aims at IMF meeting

Bangladesh

Economic growth in Bangladesh for the fiscal year 2016 has exceeded expectations, reflecting a decade averaging healthy growth of nearly 6% per year. With it has come human development, something the country's government has pursued with visible dedication. Poverty has fallen by nearly 30% in that time, which has simultaneously seen increased life expectancy, literacy and per capita food intake, according to the World Bank.  

“Our highest priority has been poverty elimination,” says Abul Maal A Muhith, Bangladesh’s finance minister. “Our target for the elimination of poverty is not 2030, but 2024. Poverty is the state target and we are not relenting as we become a middle-income country. Once you reduce the proportion of poor people, you increase demand and it is an impetus for growth.”

Bangladesh’s goal of becoming a middle-income country by 2021 will require increasing annual GDP growth to between 7.5% and 8% per year, as well as increasing inward private investment and productive employment opportunities, maintaining macroeconomic stability, strengthening revenue mobilisation and improving urban development. Currently, at least 45 million people in the country of 157 million live below the poverty line.

Infrastructure remains one of the country’s biggest challenges. Bangladesh is among the most densely populated countries in the world, and suffers from an infrastructure bottleneck and energy shortage due to a historical over-reliance on gas. The Awami League government, in power since 2009, has made fixing this a key priority.

“FDI is very much a necessity because of our infrastructure deficiency. Our policy is to develop infrastructure through public-private partnerships,” says Mr Muhith. “When we came to office, the energy supply in the country was only 3000 megawatts [MW]. We developed a crash programme over three years and took the energy generation capacity to 11,000MW.” An additional 18,000MW is planned for instalment in the next three years based on coal deposits in Bangladesh’s coastal areas.

In October, China signed investment deals with Bangladesh worth $13.6bn, with $5bn dedicated to power infrastructure and $6bn to railways. China is now by far the biggest investor in the country, followed by India, Japan, the World Bank and the Asian Development Bank.

The Bangladeshi government’s efforts to increase FDI are also evident in its construction of special economic zones and a liberalised FDI regime, allowing 100% foreign ownership in most sectors. “A shortage of energy means a shortage of investment, and we have invested quite sufficiently and made deals with private parties so that the infrastructure bottleneck has been temporarily removed,” says Mr Muhith. “But a lot of work has to be done for the future.”       

Bhutan

The tiny landlocked country of Bhutan, sandwiched in the mountains between China and India, does not use traditional economic metrics to calculate its progress. Bhutan emphasises 'gross national happiness', which is its measurement of collective nationwide happiness in accordance with the country’s Buddhist spiritual values rather than Western material development as measured by GDP. In line with this, the country of roughly 750,000 people is cultivating its tourism industry to foster growth while simultaneously ensuring its cultural and environmental preservation.

“Gross national happiness and the happiness index actually evolves for all of our national policies,” says Bhutan’s finance minister Lyonpo Namgay Dorji. “For instance, tourism has actually grown in leaps and bounds. But the policy is also structured in such a way that we actually have more or less controlled tourism in order to preserve our culture, values and traditions.”

New FDI policies do, however, include incentives for tourism FDI, according to Mr Dorji. “There are several exemptions, especially in construction of tourism infrastructure – for instance, with hotels. So taxes are exempted, as there is a need to attract investors to build resorts and wellness centres,” he says.

The Asian Development Bank believes Bhutan’s service sector should be helped by robust wholesale trade in the construction materials and increased government spending. Bhutan is on track to hit its 6.1% economic growth forecast for 2017, down from 6.4% in 2016.

While tourism is a focus area, hydropower is the country's greatest source of revenue. “We have three ongoing hydropower projects under construction, roughly about 2000 megawatts,” says Mr Dorji. “The government has planned to achieve 10,000 megawatts by 2020.”

Three additional hydropower projects are planned, and all six are either intergovernmental or joint-venture projects with Bhutan’s biggest investor, India. When asked if neighbouring China had any prospective projects with the country, Mr Dorji says: “We have no economic or social associations with China. I think Bhutan is such a small place that China is not interested.”

One of Bhutan’s biggest challenges is its connectivity – the country only began building paved roads in 1961. “In terms of land connectivity, we’re widening the roads, and in terms of air connectivity, we just had one airline initially but now we have two,” says Mr Dorji. “We are also working on connectivity in terms of telecommunications. We have one government-owned and one private telecoms provider, and they’re trying to step up. So besides small policy decisions to facilitate connectivity, there are the main important national government decisions that we have taken to encourage investment.”

Sri Lanka

In 2016, Sri Lanka was ranked the most diversified island economy in fDi Magazine’s FDI Diversification Index. To improve its competitiveness in primary sectors such as financial services, transportation, business services and software and IT services, finance minister Ravi Karunanayake is aiming to increase funding for education.

“I have been instructed by our government, led by president Maithripala Sirisena, that we should invest at least 6% in education in the next two to three years,” says Mr Karunanayake. “We have progressively increased the contribution from 2.4% up to 4.2%, so we believe that this type of investment in primary, secondary, tertiary as well as vocational education will help us to strengthen the work force of Sri Lanka.”  

Following a brutal 30-year civil war, which ended in 2009 and left the economy devastated, Sri Lanka has embraced a series of reforms to achieve 'substantial growth' averaging about 6.4% a year between 2010 and 2015, according to the IMF. June 2016 saw the IMF approve a three-year, $1.5bn loan for the country under the Extended Fund Facility to support its economic reform efforts. These included raising tax revenues, improving public finance management and more competitiveness.

While much of Sri Lanka’s recent growth has come as a result of its 'peace dividend' and it has overcome most of the human development challenges characteristic of a low-income country, it must now focus on structural changes toward greater diversification and productivity increases.

“Sri Lanka is very well located and, as a result, is a natural attraction for China, which feels Sri Lanka is a part of the Silk Route,” says Mr Karunanayake. “And Japan looks at the re-connectivity between the Far East and India to the Middle East and beyond, so as a result, we have become pivotal. We want to make our foreign policy ‘friends of all, enemies with none’, and to diversify our exports and be a global beacon of investment.”

Mr Karunanayake’s proposed 2017 budget measures aim to boost revenues while providing some public and industrial concessions. He also stresses the importance of enhancing trade, FDI and public services, saying: “We believe today’s investment is tomorrow’s revenue, and we will be investing in infrastructure such as roads, water, health and education.”

Harnessing revenues and continuing to diversify exports and inward FDI will help contribute towards the government’s priority policies of developing rural economies and creating a strong middle class. “The economy was handed over to us from a corrupt regime,” says Mr Karunanayake. “We managed to bring a sense of stability and direction. The fiscal deficit is aimed at 3.5% of GDP by 2020, and we are working towards that. We embraced our relationship with the IMF in order to ensure that a sense of discipline exists with us. And I guess we are projecting something the others have not expected of us.”