In an interview with 抖阴精品 Business magazine, renowned economist Ahsan H Mansur, also serving as the Executive Director of the Policy Research Institute, a local think-tank, discussed the pressing economic issues faced by Bangladesh. Mansur emphasised the current shortage of dollars and the concerning levels of inflation, shedding light on the challenges in implementing the budget for FY24. He expressed concerns regarding the weakened state of the banking sector and the underperformance of the revenue board. Additionally, he provided insights into recent Moody鈥檚 credit rating, delivering a comprehensive review of the country鈥檚 overall economic trends. 抖阴精品 Special Correspondent Shakhawat Hossain documented these discussions in the following excerpt.
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The government has been facing a lot of challenges to implement the FY24 budget amid the lingering macroeconomic crises compounded with the growing shortage of dollars as well as power.
Containing the high inflation, generating more revenue, and financing the budget deficit from local and foreign sources are among them in the crucial financial year overlapping with the next general election to be held in December or January.
鈥楩inancing the budget deficit will be the most pressing one,鈥� said the PRI executive director.
The country鈥檚 banking sector was currently grappling with significant challenges, as non-performing loans continued to rise, cases of loan thefts emerged, capital flights intensified, and a lack of reforms over the past decade under the present political regime further weakened its position, he said.
He lamented that the government had not taken any significant moves to bring the plunderers of banks and the money smugglers to book.
The country鈥檚 insurance and non-bank financial entities were also in a bad position due to unbridled corruption, he said, adding that the share market had been bogged down since its collapse in 2012, rendering around 14 lakh new entrants into the market penniless.
He noted that the financial sector had no ability to provide the government with a loan of Tk 1.5 lakh crore, projected in the FY24 budget by finance minister AHM Mustafa Kamal to meet the budget deficit of around Tk 2.6 lakh crore.
He calculated that the growth of the domestic savings rate was 6.4 per cent while the overall asset of the country鈥檚 banking sector was around 15 lakh crore.
With the deposit growth rate, some Tk 1 lakh crore could be generated, but the amount would be insufficient to meet the government鈥檚 requirements.
He asked, 鈥業f the government takes away all the money, what will be left for the private sector?鈥�
The only option for the government amid such a tight situation was to borrow from the central bank, while such a move would be dangerous to tackle the persisting inflation that had already gone over the roof, he said.
He mentioned that borrowing from the central bank would significantly amplify the money multiplier, increasing it by at least five times. 鈥業nflation will go beyond control鈥�, he noted.
The overall inflation in May hit a new high in a decade at 9.94 per cent as the prices of daily essentials continued to spiral up in the month to torment the majority of people.
The country witnessed 10.92 per cent inflation in FY2010鈥�11, while inflation in May recorded by Bangladesh Bureau of Statistics surpassed the previous high of 9.5 per cent in August 2022.
Meanwhile, the Bangladesh Bank unveiled its latest monetary policy emphasising checking inflation.
Prime minister Sheikh Hanisa also directed for all-out efforts to bring down the inflation that, according to the seasoned economist, was a political admission to the problematic issue.
To him, the government narrative for high inflation due to price hikes of essentials in the global market amid the war in Ukraine was no longer valid since the price of those items came down significantly.
But the prices of rice, flour, sugar, and edible oils were not falling in the local market, he said, adding that the problem was elsewhere.
The devaluation of the local currency by around 24 per cent against the greenback and the supply shortage of goods had been identified as core reasons for the inflation.
Welcoming the latest monetary policy stance, he said the Bangladesh Bank had to implement it properly by reducing money supply while referring to a hike in the interest rate for straight ten months by the US Federal Reserve.
He hoped that the latest monetary policy would not be mere paperwork.
To meet the budget deficit, the government also projected to take a net loan of around $10 billion from foreign sources.
For this purpose, the government needed to mobilise around $12 billion to $13 billion as it would have to make repayment of more than $2 billion as a debt obligation.
In the present context of global economic uncertainty due to the war in Ukraine and the geopolitical tension, the generation of such an amount of foreign loan from the development partners was not less challenging.
Bangladesh never mobilised such an amount of foreign loan in a single year, he said, adding that there was a likelihood of a shortfall of at least $2 billion.
鈥業t can be $3 billion even,鈥� he said while elaborating on the predicament of the present government to tackle the present challenges.
The PRI executive director blamed the present political regime and its tendency of hiding the problems under the carpet for the current situation that limited its manoeuvring space.
He stated that the expenditure was increasing over the years, while the income from the revenue board was shrinking due to inadequate fiscal management space.
Payments for salary, interest, and subsidies comprising a major portion of the overall budget increased substantially and those became carbuncles as the government income had not increased, he said.
He said the country had not faced such macroeconomic pressure in the past decade due to its less connection with external trade, which was now crossing over $130 billion.
He recalled that the previous global financial crisis in 2008 had little impact on the country鈥檚 economy, thanks to the excellent performance of the readymade garment sector.
Besides, there was more fiscal space because of the mobilization of good revenue. The tax-GDP rate was around 11 per cent during that period.
The five-year plans reintroduced by the present government in 2011 aimed at increasing the tax-GDP ratio to 14 per cent.
But the government failed miserably to achieve the target, he said.
The tax-GDP ratio fell to 7.5 per cent in recent years, while the country鈥檚 capital account became negative for the first time in the past two decades.
Ahsan H Mansur blamed the government for not implementing any major reform in the tax administration for the falling revenue mobilization growth in terms of GDP growth.
He lamented that chewing tobacco sellers became the top taxpayers in the country amid the high growth of millionaires overnight.
Criticising the present tax policy, he said it was helping the rich to become richer.
The revenue board was not collecting actual taxes from the capital gains out of land sale, one of the most scarce assets in the populous country, he said, explaining that many bought a piece of land in the capital from the state-owned city developer at Tk 2 lakh in the past.
They were selling the same land at Tk 20 crore now. But the government could not tax them despite the huge amount of capital gains. Many of them even were sending the capital gains abroad, he said.
He said the flawed tax policy and corruption committed by politicians, businessmen, and bureaucrats were behind the growing inequality in the country.
It was also one of the major reasons for lower-than-expected foreign direct investment in the country.
Income inequality in the country stood at a Gini coefficient of 0.4999 in 2022, according to the Household Income and Expenditure Survey 2022 released by the Bangladesh Bureau of Statistics in April.
The overall income inequality was widening in the country as it was a Gini coefficient of 0.482 in 2016 and 0.458 in 2010. A smaller Gini Coefficient signifies a less unequal distribution of national wealth.
Net foreign direct investment in Bangladesh declined to $703 million in the October-December period of 2022 compared with $1,092 million in the same period of 2021, according to Bangladesh Bank data.
The country鈥檚 forex reserves also fell to below $30 billion from $48 billion in August 2021, hampering the import of necessary goods, including coal and capital machinery.
The power outages increased while the central bank was following a conservative policy on imports to safeguard forex reserves in line with its agreement with the International Monetary Fund on a $4.7 billion loan programme until May 2026.
Ahsan H Mansur said the forex reserves had to be maintained at a safe level for the sake of the country鈥檚 reputation abroad.
He said the dollar shortage had already tarnished the country鈥檚 image and influenced many international financial entities to suspend businesses in Bangladesh.
The matter had become exposed with the recent demotion of the country鈥檚 credit rating by the US rating agency Moody鈥檚.
According to the PRI executive director, Moody鈥檚 rating was not part of geopolitics as stated by BB governor Abdur Rauf Talukder in a recent remark.
He said those who earned money illegally in the country were resorting to capital flight, mostly to Western countries for the prospect of a better future for the next generation.