Bangladesh needs to raise tax revenue collection, double public investment

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A Z M Anas
Boosting tax collection will help Bangladesh double its public investment needed to foster higher growth as the country seeks to become a middle-income country in a decade, a senior World Bank (WB) economist said Tuesday.
Sanjay Kathuria, the bank's lead country economist, said the government should invest six to seven per cent of GDP (gross domestic product) to enable the economy grow faster, although the current level is less than half.
"Government investment helps crowd in private investment," Mr. Kathuria told the FE in an interview.
As investment is on the low side in Bangladesh, the bank's economist noted the only way to address the problem in a sustainable way is to increase tax collection, which is currently 9.0 per cent of GDP.
Bangladesh has around 2.3 million registered income tax payers, of whom only 0.75 million pay taxes, indicating that suspected revenue dodgers are very large in number.
High by historic proportions, the current budget's revenue target is slated to grow by 15.7 per cent relative to the last fiscal's estimated revenue collection.
He said Bangladesh needs to put a huge amount of money into building physical and social infrastructure like roads, power, health and education and higher tax collection will help implement those projects.
On the macro-economic front, the bank economist said Bangladesh has managed to weather the storm of global recession better than most other countries.
The reason why the country managed to do that is the "twin sides" of globalisation.
"On one side, you benefit from globalisation. On the other, when there are global shocks, you suffer from that," he said.
Fiscally, Bangladesh has the strongest economy in South Asia and the country does not need the kind of stimulus that the rich world have seen.
He also took a positive note of the present government's stimulus package and social safety net, terming it as the "right approach" as it moved to minimise the negative impact of the worst global recession in a generation.
In addition to Tk 34 billion provided for, under the stimulus package in its first phase, the government recently announced an extra Tk 10 billion to help exporters navigate the crisis in view of the negative growth in export shipment in July-October period.
He said the country's insulation from the global economy helped it stave off the negative impact of the crisis.
Although economic growth dipped slightly, Bangladesh grew at a healthy rate 5.9 per cent in fiscal 2009 at a time when much of the developed world experienced a sharp decline in growth.
Mr. Kathuria said although inflation is not coming up on the horizon, there is always a "threat."
He said the Bangladesh Bank has the "tool" and "will" to fend off inflation, even if the international price-spike gets out of its control.
The bank's lead economist cautioned about a prolonged liquidity overhang in the banking system creating further pressure on prices in a situation where international commodity prices are now on the rise.
Mr. Kathuria said lack of workers' skills and managerial talents remains one of the constraints to Bangladesh from attaining goal of a middle income country.
He said skill development is "a big agenda" for Bangladesh by 2021 as an estimated 2.0 million youths enter the job market each year and sectors like ready-made garment sector are also growing faster.
The government also does recognise the need for having enough semi-skilled and managerial talents within the country for its economy moving to a high growth trajectory, he noted.
He said skills could not be improved overnight as the process starts from the birth.