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Doubts over poverty cuts

Mirza Azizul Islam's book on macroeconomic issues launched

Staff Correspondent
The poverty rate in Bangladesh would have been 80 percent, not 26 percent, had it been calculated based on $2 a day income, a former finance adviser to a caretaker government said yesterday.
Citing a report of World Health Organisation, Akbar Ali Khan said the number of poor people in Bangladesh is higher than in the entire sub-Saharan African countries.
“Poverty is determined in Bangladesh on the basis of consumption bundle, which has changed a lot over the years," Khan said at a book-launching programme at The Daily
Star Centre in Dhaka.
The World Bank defines extreme poverty as living on less than $1.25 per day at purchasing power parity.
The book - Selected Macroeconomic Issues...Theory and Practice -- has been written by AB Mirza Azizul Islam, another former finance adviser to a caretaker government. The Daily Star published the book and hosted the launching programme.
Mustafizur Rahman, executive director of Centre for Policy Dialogue; MA Taslim, chairman of economics department at Dhaka University, and Zahid Hussain, lead economist at World Bank's Dhaka office,
spoke as designated discussants on the book.
Khan who chaired the launch said there are weaknesses in the poverty rate calculation system, but it is not discussed.
He said the government widely publicises the poverty reduction rate, but it does not say anything about the consumption bundle introduced in 1972.
The book of 159 pages contains 15 essays on complex economic issues - from growth and inequality to utilisation of foreign direct investment (FDI), globalisation, banking and governance issues.
Mustafizur Rahman of CPD said it is widely discussed that higher growth can reduce inequality, but it may not be true always. He cited the example of Tunisia that has six times higher per capita income than that of Bangladesh, but it faced a revolution due to rising inequality.
"Equalising growth is the key issue to address inequality," Rahman said, adding that disparity rises when returns on capital become higher than growth.
On the banking sector, he said the CPD has called upon the government to form a commission to address the growing problems in the sector.
He said the rising nonperforming loans (now around 11 percent of total outstanding loans) are enough to understand the situation in the banking sector.
Rahman said the book blends theories and practices so nicely that both students and teachers can benefit from it.
Prof MA Taslim said globalisation does not make sense without FDI, but Bangladesh lags behind East Asian countries in FDI inflow. The FDI to GDP ratio is only 0.9 percent in Bangladesh, while it is 1.1 percent and 1.4 percent in Pakistan and India respectively, and 3.2 percent in China.
The economist believes political
unrest or infrastructure constraints are not the only issues behind the poor FDI. He also said the FDI inflow will not increase unless domestic investors come forward.
About the private sector's borrowing from abroad, on which the book has a chapter, Taslim sees no problem if the central bank develops a right mechanism forthat.
WB's Zahid Hussain said the book correlates growth and inequality nicely. He said the author has rightly pointed out that inequality is inescapable, but it cannot get the topmost priority in the context of Bangladesh. "Poverty reduction should be given the priority, "he said.
The author of the book said inequality seems to be almost a byproduct of growth. But the relation is not monotonous, he said. “Solution to inequality lies on more and more government expenditure than tax,” Islam said.
In his book, he writes: “Inequality tends to increase within labour income as the demand for skilled labour and professionals required to accelerate growth outstrips the supply and consequently, the income gap between them and unskilled labour (whose supply is more abundant) goes up."
About the speakers' comments on missing political economy in the book, Islam agreed with them and said he has a plan to write on the issue in future.
Islam did MA in economics from Dhaka University, MA in development economics from Williams College, USA, and PhD in economics from Boston University, USA. He had begun his professional career in 1962 as a lecturer in the economics department of Dhaka University.
M Syeduzzaman, a former finance minister, was present in the audience, while Mahfuz Anam, editor and publisher of The Daily Star, delivered the welcome speech.