Any student of macroeconomics would opine that the best way to finance this investment for future growth is by increasing domestic savings. However, the reality is that for a growth economy there would always be a lag time between the additional investment requirement and the growth of domestic savings. Our domestic savings have increased significantly in the last decade. However, this increase is not enough for capturing our future growth potentials. If we are not going to be able to generate sufficient investment, we are not going to be able to keep the growth momentum. As a matter of fact, this is quite a normal phenomenon in every growth economy where the opportunity for higher growth always require more investments than that can be generated by domestic savings. Thus, policy makers are forced to consider external sources for financing investments. Consideration of external sources, furthermore, brings in several dilemmas for the policy makers.

Financing investments through external sources can be done in various ways. The traditional way has been to take soft loans from various multilateral agencies like World Bank, IMF, ADB etc. These loans are quite cheap with long repayment terms and as such create very little impact on our foreign exchange reserves as well as on over-all macroeconomic stability. These loans are mostly available for poverty alleviation and infrastructure development. However, because of the nature of such borrowings, they carry little accountability. To add to that, there is perennial inefficiency and failure on the part of the Government machinery in development and implementation of projects. This is very much evident in the statistics showing poor utilization of our Annual Development Plan (ADP). As a result, only a tiny portion of these funds actually reaches the destination cause and the rest gets washed away in corruption and inefficiency. Also, as trends show over the years, volume and flow of funds from this source is gradually diminishing.

Alternatively, we can seek international commercial capital. International commercial capital can either be borrowed by the Government or by the private sector (may be initially by the government and then gradually by the private sector once the country is rated and their balance sheets improve). This capital is purely profit motivated and would be priced at global standards. Theoretically, that should not be an issue of concern as the Bangladesh economy have been showing strong performance for a sustainable period of time, which has not gone unnoticed by global investors. However, the critical issue is that as they are profit motivated and priced at global standards, this commercial capital would require certain level of governance and efficiency in project execution as well as ensuring proper returns. The concern for policy makers is that if the Government starts to borrow from the international capital market, the absence of governance and efficiency would lead to ill utilization of the fund. As a result, there would be a great deal of leakage, and the investment would not be able to generate sufficient return to repay the international investors. As these borrowings would not be as cheap and long term in nature as the loans given by the multilateral agencies, there would always be the potential for a big dent in the foreign exchange reserve and chronic macroeconomic instability.

This leads to the possibility of private sector to seek investments from the international capital market. But the private sector is not in much better shape than the public sector in terms of governance and efficiency. Very few of the local enterprises pay taxes. Most of them lack proper financial disclosure. They do not have adequate balance sheet strength to attract international capital. Not only that, they lack management ability to take their organizations to the next level and compete internationally. There is an unholy alliance between the politics and the business whereby the private sector expects that Government would always bail them out of any crisis and therefore, they can grow in an irresponsible manner without proper capacity building. In this environment of' protectionism', a big section of the private sector feels threatened by any proposal of Foreign Direct Investment and resists them strongly. The policy makers are very much aware of this issue and wary of permitting the private sector to deal with international capital. The example of Asian Crisis comes to their mind very often in this regard.

In view of the above dilemma, policy makers are presently opting for the safer option of borrowing from the multilateral agencies instead of going for international commercial capital in financing the economy's future growth. This seems very logical and justifiable for the Government-, keeping in mind of the potential political fall-out and threat to macroeconomic stability. However, one has to argue that it may be a justifiable option in the short term , but is a negative approach, as it does not directly address the real issue. The real issue is the lack of governance and the need for enhancing capacity across public and private sector. The policy makers need to adopt a positive approach in addressing these issues. By not getting prepared to face the international market, we are probably missing out on the opportunity to take our economy to a new trajectory of growth. This would have contributed significantly in bringing millions of our people out from below the poverty line.

When talking about addressing the issues of governance and efficiency, one has to be realistic in understanding the obstacles confronting the policy makers. One can easily be a utopian and throw prescriptions in front of the policymakers and when nothing happens, shift the blame to someone else. We must try to realize the political compulsions of a Government and remove them by creating broad based consensus across various political, economic and social interest groups. Policy makers must understand the concerns of the constituents of various interest groups and provide equitable solutions. This may sound unreal, but we have a history of building up such broad based consensus. In more than last two decades, we have established an almost unequivocal agreement across party line that market-based economy would be the future path of this country. Last three democratically elected Government pursued similar economic policies. If we have been able to achieve this, there is no reason why we cannot establish a broad consensus over governance and efficiency enhancement, especially when we talk of taking the country to the next frontier of growth possibilities.

Addressing the issue of governance and efficiency has become critical for our future economic growth. Without them we cannot establish the link with international capital markets. Again, without the international capital our economy would circle around mediocre growth and will not be able to take the full advantage that has been created by current momentum. Donor's support at current levels can keep us floating, but will not help to get to the next trajectory of growth which is to be driven by the private sector. Bangladesh's donors' ( or development partners, as it sounds better) at present is not willing to allow us to go to the international market to borrow commercially, as they feel, once given the access to the commercial borrowing, countries like Bangladesh will shy away from reforms. Same was the case with Vietnam and Pakistan. Vietnam has lobbied a lot to get access to international capital market. Ultimately they got it and the next story is known to most of our readers, it was growth and growth through market developments. We, therefore, also feel that to get into the next trajectory of growth or to finance accelerated growth , Bangladesh should start, selectively, attempting to tap the international capital market capitalizing on its improving economic fundamentals. Sooner that happens, greater the benefit that the economy can reap.