The government should prioritise public spending on development projects while reducing the debt burden and focusing on enhancing capacity to repay the loans by increasing domestic resource mobilisation to rebound strong macroeconomic stability, experts have said.
“Our problem has been created by ourselves through imprudent fiscal management, bureaucracy, and interest and lending cap. At the same time, we are witnessing an absence of political leadership in fiscal management even during the ongoing economic crisis,” said Ahsan H Mansur, the executive director of the Policy Research Institute (PRI).
He made the observations while addressing a SANEM-World Bank Seminar, titled “Fiscal Challenges in South Asia”, organised by the South Asian Network on Economic Modeling (SANEM) at the BRAC Centre Inn in Dhaka on Sunday.
“The country is going under more economic pressure and the saddest thing is that the government, despite getting more than 15 months to restore the economy, has not taken any blueprint till today to tackle inflation, forex crunch and revenue collapse,” he said.
“We have a lower debt burden on the country compared to other nations but there is a lack of capacity to repay the loans due to inadequate domestic revenue mobilisation,” the renowned economist opined.
Bangladesh's debt-to-GDP ratio is expected to reach 35.6 per cent this year, up from 33.2 per cent in 2022, according to US-based credit rating agency Fitch Ratings.
“We need to come up with a short-term plan to tackle this current economic headwind so that the country’s reserves remain over $15 billion amid the political uncertainty ahead of the upcoming national election. After that, we should strengthen bilateral relationships with remaining untapped countries to increase our forex reserves,” Ahsan said.
“However, no matter which government comes to power, all fundamental issues, such as export diversification, ensuring quality in expenditure management in public projects and deteriorating revenue collection, should be reformed for the macroeconomic stability to return,” he added.
Echoing Ahsan’s concerns, Dhaka Chamber of Commerce and Industry President Md Sameer Sattar said, “Our main problem is low tax to GDP ratio and the traditional system of revenue collection is not up to the mark to expand our tax net.”
“The country’s 90 per cent of total revenue comes from Dhaka and Chittagong alone where their economic activities account for 48 per cent of total GDP,” he said.
“The government should expand and formalise the tax net while enhancing the tax practice culture as our purchasing capacity at the upazila level and economic activities, such as entrepreneurship outside these two business hubs, have increased significantly over the years,” he stressed.
Sameer also emphasised automation, changing the mindset to pay taxes, reducing human interaction between taxpayers and collectors, and hiring the best officials instead of prioritising opening tax offices.
Addressing the seminar, SANEM Executive Director Selim Raihan said that once Sri Lanka achieved the upper middle-income country status, but as they faced a brutal economic crisis in recent years because of some mistakes made by its government, they have fallen back to the middle-income status.
“So, Bangladesh should consider the ongoing challenges. Nothing can be improved without incorporating significant policy measures,” he said, adding, “We should take a break so that our economy does not become worse from the current stage within three to four months.”
“Our tax to GDP ratio is not only the lowest in the world but also is gradually declining every year. While achieving 15 per cent tax to GDP is in the Eighth Five-Year Plan, it’s not seeing progress due to evasion culture, political sitting both from political and business elites and the political economy,” he added.
Selim also said the country’s spending on education, health and social safety net is also lower compared to neighbouring nations and it indicates that the country’s investment in human capital is low.
Franziska Lieselotte Ohnsorge, the World Bank chief economist for South Asia, said, “Prioritising development projects and ensuring quality expending while involving the community with good governance is absolutely essential.”
He said, “The low tax base in Bangladesh is creating a deficit, but this does not necessarily mean that there is a need for more taxes. There is also room for spending control.
“The bigger constraint is how long spending restrictions can be sustained, and how long the quality of small public services can be sustained before the spending controls becomes more difficult.”
The economist continued, “The informal sector is a large part of the Bangladeshi economy, but it is difficult to be taxed because many of the businesses have so low productivity that the administrative cost of collecting taxes is greater than the revenue that can be generated.
“The tax administration should focus on taxing the right informal businesses, such as those that are large and profitable. It is also important to remove obstacles to letting informal businesses grow so that they can become big enough to be taxed.”
