Macroeconomic instability needs to be addressed fast: Analyst

 Bangladesh is facing challenges of macroeconomic stability and it needs to be addressed fast at a time when the country wants to restore the Covid-damaged GDP growth, said an economic analyst.

“There should not be any conflict between macroeconomic stability and GDP growth acceleration for the medium to long term. Macroeconomic stability is necessary to achieve sustained GDP growth as Bangladesh already learnt the lesson from its pre-Covid growth acceleration experience,” said Dr Sadiq Ahmed, vice-chairman of the Policy Research Institute, in his keynote paper at the Bangladesh Institute of Development Studies (BIDS) Conference that began at a Dhaka hotel on Thursday.

The economist was of the opinion that about 6 per cent economic growth for the upcoming fiscal year would be remarkable for Bangladesh considering the global and local perspectives and suggested to compromise at some levels of economic growth to ensure macroeconomic stability.

He suggested that the best way forward would be to redirect the exchange rate, and monetary and fiscal policies for economic stabilisation while structural reforms should also get focus on the growth agenda.

A combination of flexible management of exchange rate, tightening of credit growth and judicious use of tax and expenditure measures can be adopted, he suggested.

About restoring the growth momentum, Sadiq Ahmed said the medium-term growth agenda requires substantial reforms outside fiscal policy which relates to the improvement of the investment climate through the reduction in the cost of doing business, improvement of trade logistics, and improvement of energy and transport services, investment in Road Transport and Highways Division and development skills.

“Within the fiscal policy, the implementation of the 8th Five Year Plan is essential to restore the growth momentum to the Perspective Plan 2041 growth path, he said.

Tax-to-GDP ratio lowest in the world 

Sadiq Ahmed suggested taking the tax-to-GDP ratio to 12 per cent of GDP by FY 2025 from 8 per cent of GDP in FY 2020.

Speaking as the chief guest, Planning Minister MA Mannan at the conference said the tax-to-GDP ratio of the country is now 7.5 per cent, which is the lowest among all the countries in the world.

“It is worsening. Increasing the tax ratio is not possible overnight,” he said.

State Minister for Planning Prof Shamsul Alam commented that the GDP growth rate will exceed 7 per cent this time. “Bangladesh is doing well in all indicators including private sector loans, investment and Foreign Direct Investment,” he added.

Import dependency raises inflation 

Bangladesh Bank Governor Abdur Rouf Talukder said Bangladesh is among the few countries which provided stimulus to check Covid-induced loss and the country was one of the top 5 Covid-combatting countries.

The inflation increased due to dependence on imports and an increase in the cost of production. The government is currently trying to reduce imports and increase production, said the central bank governor.

No import restriction

“There are no import restrictions. Anyone can import by opening a LC at the right price. Imports are not being controlled in any way. There are 30-35 luxury goods, which are not essential, are discouraged to import right now. Duty has been increased on some goods and in some cases LC margin is also increased,” he added.

A LC was opened for importing a Mercedes Benz car at 20 thousand dollars which is actually priced at one lakh dollar. The remaining amount has been sent through Hundi. Again, various imported products have been overinvoiced (increased import price) by 20 to 200 per cent. An astonishing 100 such LCs were closed in last July.

He also said that it is possible to stop trade-based money laundering if import can be controlled by showing the price of products in foreign trade as low or high.

Measures taken to check hundi

“We have huge potential of earning more remittance and the potential remains under-explored because of the prevalence of the hundi system. Policing is not the proper way to check hundi. We have taken various initiatives to boost the remittance,” the central bank chief also said.

The central bank has recently allowed mobile financial service (MFS) providers to bring inward remittance to increase the flow, he said.

As part of the move, sending money by the expatriates through the MFSs without any document and free of cost in a short time has been introduced and it will encourage the expatriates to send money through legal channels.

Not the right time to remove the interest rate cap

Abdur Rouf Talukder said the central bank will lift the interest rate cap on bank loans but this is not the right time to go for it. “We are waiting for a good time,” he added.

BIDS Director General Dr Binayak Sen said the three-day conference will feature 13 academic papers, five book discussions, and 12 keynote speeches from home and abroad.