17

CHAPTER III

PLAN SIZE SECTORAL ALLOCATION AND PROJECTIONS

3.1 Introduction

3.1.1 The Fifth Five Year Plan aims to put Bangladesh on a path of self-sustaining growth for the improvement of socio-economic condition of the people. Acceleration of GDP growth will allow the economy to break through the continuing poverty syndrome. While there has been substantial improvement in recent years in macroeconomic management, the Plan recognises the need for massive investment, with private sector playing the major role for rapid growth and efficiency.

3.1.2 Total outlay of the Fifth Plan is projected to be Tk.1,959.52 billion. Of this, the major share (56 per cent) is anticipated from the private sector (Tk.1,100.58 billion), exceeding its share in all the previous Plans. Table 3.1 shows the sizes of the successive Plans and relative shares of the public and private sectors.

Table 3.1 Plan Sizes and Relative Shares of Public and Private Sectors

(in million Taka)

Plans

At Respective Base Year Prices

At 1996/97 Prices

 

Plan Size

Public Sector

Private Sector

Plan Size

Public Sector

Private Sector

First Five Year Plan

(1973-78)

44,550

(100.00)

39,520

(88.71)

5,030

(11.29)

569,448

505,153

64,295

Two Year Plan

(1978-80)

38,610

(100.00)

32,610

(84.46)

6,000

(15.54)

156,121

131,860

24,261

Second Five Year Plan

(1980-85)

172,000

(100.00)

111,000

(64.53)

61,000

(35.47)

554,562

357,886

196,676

Third Five Year Plan

(1985-90)

386,000

(100.00)

250,000

(64.77)

136,000

(35.23)

749,958

485,724

264,234

Fourth Five Year Plan

(1990-95)

620,000

(100.00)

347,000

(55.97)

273,000

(44.03)

784,040

438,809

345,231

Two Year Plan Holiday (1995-97)

508,760

(100.00)

217,160

(42.68)

291,600

(57.32)

515,700

220,100

295,600

Fifth Five Year Plan

(1997-2002)

1959,521

(100.00)

858,939

(43.83)

1100,582

(56.17)

1959,521

858,939

 

1100,582

 

Note : a. Plan sizes and shares of the public and private sectors at respective base year prices are adjusted to 1996/97 (Fifth Plan base year) price level by using BBS investment deflator.

b. Figures in the parentheses are sectoral shares in percentages. Percentage shares of the public and private sectors at 1996/97 prices are same as at respective base year prices, because of the use of uniform investment deflator for both the public and private sectors.

3.1.3 Public sector investment comprises of investment components of the Annual Development Programme (ADP), capital expenditure components of the revenue budget and own investment of the parastatals. During the Fifth Plan, public investment will mainly be directed for expansion of public utilities like power and gas, development of physical infrastructures like roads and embankments, expansion of social infrastructures like health and education, alleviation of poverty and strengthening of public administration for efficient response to the need of market economy. However, some public investment in productive enterprises will be necessary where private sector may not be forthcoming to a desirable extent.

3.1.4 Private sector will be the main agent of growth during the Fifth Plan. Commitment to a free market economy, privatisation of public enterprises, deregulation and liberalisation of public control, reforms and structural adjustments will create an enabling environment for expansion of the private sector. Private sector will be encouraged through proper incentives and facilities to establish an export-led industrial base. For this, foreign direct investment (FDI) will act as the lever for inflow of new technology, management skill and market promotion. Priority will be given to the creation of a transparent and conducive environment where a dynamic private sector can flourish. Private investment is projected to be Tk.1,100.58 billion in the Plan. This is, however, an indicative figure but will guide public policies during the Plan period. Given the GDP growth rate of 7 per cent and estimated incremental capital value added ratios(ICVRs), total investment has been estimated at Tk.1,867.49 billion. Within the resource envelope, a feasible quantum of public investment has been worked out to be Tk.766.91 billion and private investment followed residually. It gives the minimum level of investment which the private sector can undertake. Chapter VI elucidates the fiscal, monetary and industrial policies which will be necessary to bring forth a higher level of private investment. With the accelerated growth, savings is expected to rise faster, particularly at the household level. To transform such savings into investment, the government will step in to mobilise household savings for private investment through minimisation of investment risk. The Plan envisages mobilisation of private savings also through issuing various kinds of bonds. It is envisaged that the surplus funds so generated in the public sector will be transferred to specialised banks or development financing institutions for financing private investment, particularly in those thrust sectors where private investment may be shy.

3.2 Investment Profile

3.2.1 Sluggish growth of the economy in the past may be attributed largely to the low rate of investment obtaining in the country. Severe natural calamities and adverse international environment also contributed to this unsatisfactory performance. GDP growth rate staggered around 4 per cent over the last twenty years. The level of investment was generally low from the mid 1970s to 1980s, fluctuating from year to year. However, the investment rate started rising steadily from the beginning of 1990s. The investment/GDP ratio, which declined to 11.5 per cent in 1990/91 from 12.9 per cent in 1988/89, increased to 17 per cent in 1995/96. Various reform programmes undertaken to encourage the private sector, as parts of the Structural Adjustment Programme, started to pay off in the early 1990s leading to a rise in the level of investment.

3.2.2 The Fifth Plan aims at raising the GDP growth rate to a level that will take Bangladesh to the threshold of take-off in the shortest possible time and allow an efficient and effective pursuit of poverty alleviation programme through generation of high level of productive employment opportunities. It projects GDP growth at an average annual compound rate of 7 per cent but the growth of the economy will be accelerated over the years. In the first year, the rate is estimated at 6 per cent and in the terminal year at 8.3 per cent. Higher growth rate will be brought about through higher rate of investment and greater efficiency by pursuing productivity enhancing policies and skill development. Even at this GDP growth rate, against an expected average population growth rate of about 1.37 per cent per annum, it will take about 10 years for an average poor person to cross the poverty line.

3.2.3 ICVRs for various years of the Fifth Plan reflect the gain in productivity. Estimated average ICVR for the Plan period is 2.85, reflecting the government's determination to reach a level of efficiency higher than now existing in the economy. Investment in this Plan represents addition to fixed capital stock(net of depreciation), and as such does not include wages and salaries. The Fifth Plan aims to achieve a higher efficiency in capital use with a suitable technology-mix, greater utilisation of existing capacity, higher labour productivity and improved management in a competitive market environment. GDP growth rates, ICVRs and investment rates are shown in Table 3.2. In the first year, investment/GDP ratio will be 18.21 per cent and in the terminal year 25.1 per cent.

Table 3.2 Investment Profile for Fifth Plan (at 1996/97 prices)

(in million Taka)

Year

GDP

GDP Growth Rate (%)

ICVR1

Investment

Investment as Percentage of GDP

1996/97

(Base Year)

1,402,580

5.70

2.90

243,686

17.37

1997/98

1,486,735

6.00

2.89

270,690

18.21

1998/99

1,580,399

6.30

2.87

308,430

19.52

1999/2000

1,687,866

6.80

2.85

365,592

21.66

2000/2001

1,816,144

7.60

2.84

428,973

23.62

2001/2002

1,967,191

8.32

2.83

493,806

25.10

Total/Average

(Fifth Plan)

-

7.00

2.85

1,867,491

-

1 ICVR has been estimated econometrically. The estimation period for the regression has been the post-flood years from 1988/89 to 1995/96. The regression gives an excellent fit with R2 higher than 0.9 and both t and F statistics are significant. ICVR so estimated was found to be 2.88. This estimate shows the level of capital productivity in the recent past.

3.3 Financing of Fifth Plan Outlay

3.3.1 Proposed investment will be financed through increased domestic savings, remittances of Bangladeshi workers abroad, FDI and official development assistance (ODA). In the public sector, ODA will decline as a percentage of GDP from 4.3 per cent in the first year of the Plan to 3.5 per cent in the terminal year. This is in conformity with the policy for achieving self-reliance within the shortest possible time. Proposed financing of the Plan outlay is shown in Table 3.3.

Table 3.3 Financing of Fifth Plan Outlay  ( at 1996/97 prices )

(in billion Taka)

Items

Total

Share (%)

Public

Share (%)

Private

Share (%)

Plan Size

1,959.52

100.00

858.94

100.00

1,100.58

100.00

Domestic Resource

1,519.76

77.56

527.72

61.44

992.04

90.14

External Resource

439.76

22.44

331.22

38.56

108.54

9.86

3.3.2 Domestic savings is projected to rise from 7.7 per cent of GDP in 1996/97 to 16.5 per cent in the terminal year of the Plan. National savings is estimated at about 15 per cent of GDP in the base year of the Plan. It is projected to rise to 20.14 per cent in the terminal year of the Plan. To this end, appropriate fiscal and monetary measures will be undertaken. Remittances of Bangladeshi workers abroad is projected to increase by 5 per cent annually over the Plan period. Annual phasing of the Plan outlay for the public and private sectors alongwith their sources of financing is shown in Tables 3.4 and 3.5.