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Fiscal situation worsens amid poor revenue, high public borrowings

Dr Bhattacharya tells media, suggests a slew of measures


FE REPORT | Friday, 12 August 2022



Economist Dr Debapriya Bhattacharya on Thursday said the country's fiscal situation worsened especially over the past two months due to poor revenue growth and high public borrowings.
Terming the fiscal account as the number one 'villain' of the economy, the distinguished fellow of the Centre for Policy Dialogue (CPD) said Bangladesh is now struggling with finding fiscal resources to deal with the current economic challenges.
He was exchanging views virtually with the media on "Overcoming the Current Economic Challenges: Towards a Transitional Policy Understanding".
He pointed out that the revenue-GDP ratio did not increase more than 10 per cent while the share of income and asset taxes in total revenue remained stagnant at around 30 per cent. The budget deficit is increasingly being funded by bank borrowings.
Dr Bhattacharya said the domestic economic problems are not only for external reasons, but there has been an absence of reforms in the fiscal arena for years.
He said the low-income groups are bearing the same level of tax burden like that of the high-income groups.
The finance minister during his latest budget speech mentioned six challenges, including higher inflation. "Almost all six challenges now have aggravated further over the last couple of months," he said.
A transitional policy understanding is necessary and that has to be developed through a participatory and consultative process, suggested the economist.
He also stressed that the target of understanding should be stabilising macro-economy, continuing production and employment, and protecting the vulnerable group of people. "[The government] should listen to all. The government may abide by those or not."
On subsidies and cash transfers, Dr Bhattacharya said the Bangladesh Power Development Board eats up more than 41 per cent of the total subsidies and cash transfers.
He also stressed on liberalising the interest rate with a band to protect the real value of savings and facilitate a moderate credit growth.
"The people are incurring losses on savings as the real interest rate is negative," he said, adding: "Make exchange rate market-based further and do away with multiple premium rates for different types of foreign exchange earners."
He suggested reviewing the subsidy package to protect 'good subsidies' for agriculture (i.e. fertiliser and electricity) and liquid fuel (i.e. diesel and petrol), and remove all 'bad subsidies' (capacity charges).
Dr. Bhattacharya favoured effective use of budget support received from the global lenders like the World Bank and Asian Development Bank (ADB) to ensure additional contractual disbursement.
He also suggested holding negotiation with the International Monetary Fund (IMF) for a substantive balance of payment support.

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