Tax, exchange rate, banking reforms imperative

The government should prioritise reforms in four areas – including tax regime, exchange rate management, bank sector and public spending management – in the national budget for the forthcoming financial year 2024-25, to address the on-going economic challenges.

Experts and economists made the recommendations at a pre-budget consultation titled “Fiscal Year 2024-24 Budget: Seeking Directions for Addressing Key Challenges,” organised by the Research and Policy Integration for Development (RAPID).

Speaking at the programme, held in the city’s National Press Club on Tuesday, economists said this is the right time for the government to go for reforms, overcoming the policy inertia.

The budget for FY25 was being formulated amidst a confluence of formidable economic challenges such as soaring inflation and tumbling foreign exchange reserves, they said, adding that the government should give utmost priority in controlling inflation in the budget for the upcoming FY as people have been suffering with the soaring living costs for the past two years.

RAPID Chairman Dr MA Razzaque presided over the event, while State Minister for Planning Md Shahiduzzaman Sarker and MP Md Nasser Shahrear Zahedee attended as chief guest and special guest respectively.

RAPID Executive Director Dr M Abu Yusuf presented the keynote, while National Board of Revenue ex-chairman Dr Muhammad Abdul Mazid, Dhaka Chamber of Commerce and Industry president Ashraf Ahmed, Prothom Alo Head of Online Shawkat Hossain Masum, and Economic Reporters Forum President Mohammad Refayet Ullah Mirdha participated as panel discussants.

Dr Eusuf in his presentation identified sluggish global growth, inflation, low tax-GDP ratio, forex crisis, high non-performing loans, increasing external debt and slow growth in employment opportunities as the key challenges for the economy of Bangladesh.

To address the challenges, he recommended preparing strategies to deal with sustainable transition from LDC status, tariff rationalisation, domestic resource mobilization and withdrawal of cash assistance or exploring alternatives.

Dr Yusuf also suggested generating more revenue from direct tax instead of indirect tax to reduce income inequality saying that Bangladesh's tax revenue collection, especially from direct taxes, was one of the lowest in the world.

He recommended stricter measures to deter loan defaults and recover outstanding loans, saying that the banking sector has been hit by crises like high NPL ratio, low efficiency, unhealthy competition, and liquidity shortage, eventually leading to the decision to merge.

Terming policy reform as an imperative, Abdur Razzaque said the current political stability, contrary to the anticipated uncertainties following the general elections on January 7, 2024, has presented an unparalleled opportunity for advancing comprehensive policy reforms.

The critical reform agenda encompasses such pivotal areas as enhancing domestic resource mobilisation, rationalising tariffs, managing exchange rates, and optimising public expenditure management.

The persisting macroeconomic uncertainties, coupled with the looming graduation from LDC status, necessitate earnest reform measures aimed at augmenting economic efficiency and competitiveness.

Razzaque identified enhancing domestic resource mobilisation, rationalising tariffs, managing exchange rates, and optimising public expenditure management as the critical reform agenda.

“The persisting macroeconomic uncertainties, coupled with the looming graduation from LDC status, necessitate earnest reform measures aimed at augmenting economic efficiency and competitiveness,” the economist pointed out.

State Minister for Planning Md Shahiduzzaman Sarker said, “The national budget is the reflection of the political commitment of the government and a document of responsibility to the people.

“Bangladesh’s economy has made significant improvement in the past one and a half decades but the country needs to achieve more.”

He added, “Once upon a time propels’ demand was food and clothes but those days are over. Now people demand for a higher living standard and this is the achievement of the government.

“Bangladesh has yet to adopt the open market economy in full form rather the government adopted a mixed economic policy to ensure the betterment of the people.”

Nasser Shahrear Zahedee blamed the NBR’s inefficiency in expanding its tax net up to rural areas, saying that the government agency has no infrastructure to communicate with people beyond district level.

He added that the people would be encouraged to pay tax if they get assurance that their money would not be misused.  Nasser also pointed out that controlling inflation should be the utmost priority in the budget for the upcoming financial year.

Abdul Mazid urged the government to involve parliamentary standing committees with the budgeting process so that they can put pressure on implementing the fiscal policy properly.

He also stressed in favour of making NBR transparent, and not to incentivise the people who evade tax and commit capital flights.