Good governance is the way to ensure adequate infrastructure, energy, skilled manpower, political stability and investment-friendly climate to achieve high economic growth, International Chamber of Commerce-Bangladesh said in its bulletin.
Bangladesh needs at least 7-8 percent growth to become a middle-income country; and to achieve that growth investment to GDP ratio must be at 30 percent, according to the bulletin which was released yesterday.
In developing countries like Bangladesh, growth in private sector investment is crucial for achieving the targeted GDP growth, it said.
The private sector in Bangladesh has made tremendous contribution in achieving and maintaining 6 percent plus GDP growth in the last two decades.
“However, growth of private investment has become stagnant in the last couple of years, mainly because of the political instability, lack of good governance and inadequate development of infrastructure.”
Foreign direct investment (FDI) has also not been up to the required level although Bangladesh is offering one of the best incentive schemes, the chamber said.
A wide balance of payments surplus is making it difficult for the central bank to keep foreign exchange rate stable and reduce inflationary pressures, it said.
The central bank's buying spree of foreign currency means that the banks are flush with local currency, raising their tendency to lend to non-productive sectors and in turn increase inflation, ICCB observed.
Another cause of rise in surplus is increase in both long- and short-term foreign loans due to lower interest rates as well as decrease in net trade credit and trade deficit.
Commercial banks should actively consider lowering the interest rate to attract investment in basic industries and infrastructure, it said.
According to the World Bank, Bangladesh will have to spend $7.4 billion to $10 billion a year until 2020 to bring its power grids, roads and water supplies up to the standard needed to serve its growing population.
Bangladesh will have to give the highest priority to its transport sector for which the country needs to spend between $36 billion and $45 billion for expanding its communication network, ICCB commented.
The power sector will require an investment between $11 billion and $16.5 billion to take credible electricity to the poor in the country where about half of the population is still not connected to the national grid.
In addition, improving water supply and sanitation will need a flow of investment of $12 billion to $18 billion, solid waste management $2.1 billion to $4.2 billion, telecom $5 billion, and irrigation $7.7 billion to $11.6 billion until 2020, the chamber said.
Similarly, the Asian Development Bank observed that Bangladesh needs to grow rapidly through massive investment in infrastructure, skills development and trade logistics to have a middle income status by 2021, it said.