Little letup in inflation upswing, economic woes before polls

Economists see little chance of inflationary pressure easing and economic activities picking up before the upcoming national elections because of government's policy inaction.

Pointing at the ongoing political unrest, they feels that the economy won't be able to perform well as it is dependent on political situation to a great extent.

At a press meet Tuesday in Dhaka they stressed that government revenue authority concentrates on domestic revenue mobilisation to tackle post-election challenges.

Execution of megaprojects with large amounts of loan may pose risk on the economy in future, they alerted.

Executive Director of the Policy Research Institute of Bangladesh (PRI) Dr Ahsan H Mansur and its Research Director Dr MA Razzaque made these remarks at the press briefing.

The PRI study Center on Domestic Resource Mobilization (CDRM) organised the briefing on the PRI premises on 'IMF and Bangladesh' to highlight what the Fund prescribes and what is incumbent on the government to go by.

"We have no such expectations before the national elections," Dr Mansur, who had once served at the International Monetary Fund or IMF, told the media.

He suggests implementation of unified and fully market-driven exchange rate after the situation cools off.

He also feels that the government should eliminate Bangladesh Bank's financing of budget deficit by increasing its reliance on market-based issuance of treasury bills and bonds.

"Domestic revenue mobilisation should be key priority to ease the pressure on economy," the economist suggests.

The PRI-CDRM has made some recommendations about achieving the IMF-set target on tax-GDP ratio, including focusing on personal tax collection, reducing indiscriminate tax exemptions etc.

One of the IMF conditions attached with a lending package is to increase the tax-to-GDP ratio, which is currently below 9.0 per cent, by 0.5 per cent annually.

To meet the IMF target and secure future loan payments, tax-revenue needs to increase by Tk 700 billion in the current fiscal year (FY) 2023-24.

Dr Mansur also stands for tightening the monetary policy, making the taka attractive and refraining from printing the currency.

"Exchange rate has to be addressed by leaving it to the market when the situation improves," he says.

Dr Razzaque said recent political situation added up to the macroeconomic instability, thus worsening the uncertainty.

Focusing on domestic revenue mobilisation in a fair way, he suggests widening the tax net covering growth centres rather than putting pressure on existing taxpayers.

He thinks the national board of revenue (NBR) could take help of third party or independent body to analyse gaps in its reform efforts.

Dr Mansur said the IMF remained benevolent to Bangladesh by way of relaxing its conditions against its credit support before election. However, it may not continue in the post-election period.

Dr Mansur, however, finds no threat on receiving second tranche of credit support of the IMF and ruled out any adverse impact on Bangladesh, in getting the support in this regard, following intervention from mighty countries.

"Such disruption comes in extreme case, like Sudan faced earlier, which might not happen to Bangladesh," he told the media, for an example.

He said labour issues are becoming bigger now for not having been addressed earlier for negligence.

Also, human rights are in question as many of the leaders of opposition parties are in jail.

Dr Razzaque said the best time of carrying out reform is when the economic condition remains sound, but Bangladesh has no option now to avert deepening economic crisis.

On market-based dollar rate, Dr Razzaque said any reform comes accompanied with some adverse effects to few sectors which the government has to deal with prudently through evaluation and fiscal support.

Dr Mansur further said the import contraction was necessary to ease pressure on forex reserves but further decline could lead to another problem.

He presumes that the reserve situation may get stuck between USD16 billion to 18 billion.

He suggests exploring credit support from the UAE, Saudi Arabia, India and China to manage budget deficit.

Periodic survey should be done to monitor whether marginal group of people are beneficiary of government support.

The former economist at the IMF said the Fund has revised its revenue-collection target downward observing the pre-election situation, but the revenue board still remained in shortfall against target.

He said the IMF may revise and lower the forex-reserves target to $ 17.5 billion by end of December and $19.5 billion by end of FY 24.

He, however, feels that addressing efficiency in financial sector is formidable now.

[email protected]