Raising revenue to remain ‘key hurdle for next govt’

Increasing revenue generation capacity to maintain the current development momentum will be the biggest challenge for the next government, leading economists of the country have warned on Monday.

At the same time, they have called for more flexible and market-based interest rates and foreign exchange (forex) rates to make the country more shock-absorbent.

Their observations came at the closing of the two-daylong annual Research Almanac of Bangladesh Institute of Development Studies (BIDS) in the capital.

"In the future, the country will not be able to gain more with less investment," eminent economist Dr. Wahududdin Mahmud said in the programme.

"There will be no low-cost solution for health and education sectors. Therefore, we have to increase our public sector spending in these social sectors."

"And for that, we have to increase our revenue mobilisation as well as to plug the current loopholes in our tax and revenue generation system," he added.

Experts at the event also called for introducing more flexible foreign exchange rates and lending rates.

"Flexible exchange rates and flexible interest rates are supposed to work as shock-absorbents for the economy," said World Bank (WB) Lead Economist Dr. Zahid Hussain.

"In theory, we do have a flexible market-based exchange rate and interest rate system. But in practice, they are tightly managed."

"Although, we can afford to interfere in the foreign exchange market, allowing flexibility in such case is the way to go."

"And as far as the financial market is concerned, directions will not work," the WB lead economist observed.

"So, let interest rates be determined by the market forces, while ensuring that compliance to prudential macro regulation is done," he added.

These views were supported by other experts present at the event.

"We are entering a stage where this volatility in foreign exchange rate will continue," Dr. Wahiduddin Mahmud said.

"This is because the growth rate in garments export and remittance is already decreasing."

"For the first time, the reserve of Bangladesh Bank (BB) has to be reduced to maintain a stable exchange rate."

"So, the next government can think of going for completely market-based exchange rate, and let the exchange rate of US Dollar increase," he added.

The economist also called for making the government statistics more credible.

"International credit rating agencies like S&P are more and more having a closer look at these statistics. In such scenario, we need to make the statistics more credible," he opined.

Experts at the event also warned about any complacency regarding inflation.

"Currently, we do not have an issue with regulation. But the non-food inflation is close to six percent, and according to BB survey, inflationary expectations are above six percent," Dr. Hussain said.

"Complacency with respect to inflation creates the risk of muddling through policies and yielding to populist pressures," he observed.

Economists, at the event, also called for bringing an end to the patronised politics and rent-seeking culture.

"Up until now, all the governments that have come to power have been able to maintain the culture of patronised politics and poverty alleviation at the same time," Dr. Mahmud said.

"This is the paradox of Bangladesh's development. But development is not so easy. Somewhere this rent-seeking culture needs to be stopped."

He also blamed this patronised politics for ailment in the country's banking sector.

"Private banks were once quite well-regulated. But now, irregularities are gradually crippling them."

Professor Mahmud also noted that in recent times, a plethora of projects are being passed without proper financial analysis.

"A large number of projects have received the nod of Executive Committee of the National Economic Council (ECNEC) in recent times. But how these projects will be financed was not thoroughly analysed," he concluded.

Speakers at the event also called for increased investment in human capital to reap the benefit of demographic dividend.

"Demographic dividend is not a permanent thing. This is a window of opportunity for less than fifty years, and we have already passed twenty years of it," said Professor M A Taslim of Department of Economics, University of Dhaka.

"If we cannot adequately equip this young population with adequate skills, they will become demographic curse or burden."

"Educational institutions are becoming factories of producing unemployable people. There is clearly a disconnection between the institutions and industries," he added.

Experts at the event also observed that Bangladesh can reap benefit from the ongoing trade war between China and US.

"Bangladesh has ample opportunities for benefitting from the ongoing trade war between US and China," said BB Former Governor Dr. Mohammed Farashuddin.

"A number of Chinese businesses are now looking to relocate them to Bangladesh. They are especially interested in the leather sector here. But they are shying away because of high price of land in the country."

Dr. Farashuddin also warned that aging will soon become a concern for Bangladesh.

"Aging is becoming a big factor for Bangladesh. The number of aged population will reach fifty million by 2030," he noted.

Chairman of Policy Research Institute of Bangladesh (PRI) Dr. Zaidi Sattar said Bangladesh has to rationalise its tariff structure and make export more lucrative.

"We have to give the same incentives and facilities to other export items that we have given to garments," he further said.

"In the future, the focus will be on mega projects. In such case, the major problem will not be financing, rather their implementation," said Member of Planning Commission Professor Dr. Shamsul Alam.

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