Improving fiscal transparency in Bangladesh

Bangladesh economy often comes under criticism for poor fiscal management that deals with taxation and public spending. The discussion on the country’s fiscal issue is not a new phenomenon. No government since independence has managed to show dynamism in the area of fiscal management.

For the failure of collecting revenue as expected, the state coffer suffers a lot when it comes to spending with limited revenue earnings. Fiscal deficit in Bangladesh is growing as a result of inadequate revenue earnings. Many studies suggest that Bangladesh has the lowest tax to GDP ratio in South Asia.

Over the last one decade, Bangladesh’s GDP grew around 6.5 per cent annually on average. Annual tax collection growth was recorded at 11 per cent on an average. Besides, national budget hardly showed its prudence in respect of allocation in right sectors. The country’s national budget and taxation system, widely known as fiscal issue, need to ensure transparency.

The transparency in the respect of fiscal affairs in Bangladesh is not up to the mark or is not internally standard. The fiscal issue helps to boost employment levels and economic development, maintain economic growth rate, raise the standard of living, maintains equality at price levels and balance of payments. Fiscal policy is an essential tool at the disposable of government to influence a nation’s economic growth based on Keynesian economics. It is used in coordination with monetary policy that mainly controls money supply.

Recently the US Department of State came up with the US Fiscal Transparency Report 2022 highlighting Bangladesh’s fiscal state. The Fiscal Transparency Report (FTR) is a tool to identify shortages and support needed for modifications. The Office of Macroeconomic Affairs (OMA) of United State’s Bureau of Economic and Business Affairs prepares FTR annually in consultation with State’s Bureau of Energy Resources and the US Agency for International Development (USAID). The FTR gives emphasize on budget documents among fiscal issues that needs to be shared with the people. According to the report, Bangladesh maintains little transparency regarding budget documents.

Although Bangladesh made significant progress in some areas, the country is still way behind the minimum standards. The FTR study was done from January to December 2021 in 141 countries whereas only 72 countries met minimum requirements on fiscal fronts. Other South Asian nations, except Bangladesh, have fulfilled the minimum standards in fiscal transparency in 2022 report. India, Nepal and Sri Lanka were able to show minimum standards in fiscal transparency leaving behind Afghanistan, Pakistan, Maldives and Myanmar.

Bangladesh had a decent performance in 2021 publishing its end-of-year report within a reasonable period. Besides, another indicator had been fulfilled during review period. Executive budget proposal was made accessible to the public and information on debt obligations were made available for public. The FTR report criticized government accounts prepared by the audit institution – office of the Comptroller and Auditor General of Bangladesh. Substantive findings were rarely seen in the report of the audit institution and were not made publicly available- the FTR report reads.

While preparing the government accounts, international standards was totally ignored. Nevertheless, according to Open Budget Survey (OBS) in 2019, the global average of public participation rate was 14. Bangladesh scored lower than global average. In 2017, Bangladesh made same score like 2019 indicating that there was no improvement.

The purpose of Open Budget Survey is to engage the public in budget processes. If we analyse budget documents in Bangladesh from 2006 to 2019 it will be oserved that pre-budget statement, citizens budget, in-year reports, mid-year review, year-end report, audit report were not available to the public. Only executive’s budget proposal and enacted budget were accessible to the public during the period. According to Open Budget Survey (OBS) 2021, Bangladesh scored 39 (indicating weak) whereas India 61, Nepal 44, Pakistan 39, Sri Lanka 57. The score in OBS of 61 or above indicates adequate. In respect of transparency issues in national budget , Bangladesh lags far behind compared to other South Asian Nations.

The OBS report 2021 revealed that Bangladesh and Sri Lanka scored 30 out of 100, India 37, Nepal 39, Pakistan 46, Afghanistan 43 in budget transparency when global average score is 45. A score below 60 means that the budget is not transparent. The score 61-80 means substantial information available and the score 81-100 means extensive information available. A country’s budget transparency score is made in three categories: public participation, legislative or parliamentary oversight and audit authority oversight.  In 2021 OBS report, Bangladesh scored 13 out of 100 in terms of people’s participation in budget-making process, India 09, Nepal 24, Pakistan 09, Sri Lanka 19.

The US Department of State came up with four recommendations for improving Bangladesh’s fiscal transparency. The recommendations- (1) Preparing budget documents according to internationally accepted principles (2) Ensuring the supreme audit institution meets international standards of independence and has sufficient resources (3) Publishing timely audit reports that contain substantive findings, recommendations, and narratives (4) Making basic information about natural resource extraction awards publicly and consistently available.

Currently, Bangladesh economy is under pressure centering many challenging issues lying ahead. The challenges- rise in fuel prices, Russia-Ukraine war, climate change vulnerability, implementation of SDGs, graduation from LDC category, Covid-19 pandemic. With a view to addressing upcoming challenges, the need for fiscal transparency has become timely demand. To bring prevailing tax policy under reform is also time-befitting issue for increasing tax to GDP ratio. The eighth Five Year Plan (FYP) aims to see 12.3 per cent tax to GDP ratio in 2025. Around 74 lakh people have tax identification numbers (TINs). Of them only 23 lakh submit tax return every year on an average. The people under tax net enjoy facilities in the name of tax holidays, tax exemptions and tax waivers resulting in losing revenue earnings. Ultimately the state coffer suffers a lot while taking expenditure decision for public.

In South Asia region, Bangladesh’s fiscal deficit is significant ranging from around 5.5 per cent to above 6.0 per cent of GDP. The national budget for FY 2022-23 was passed in the parliament keeping 5.5 per cent budget deficit. The reason of growing budget deficit is insignificant revenue earnings seen at state coffer. Budget deficit in current fiscal year stood Tk 2,44,913 crore or 5.5 per cent of GDP that would be financed from domestic and foreign forces. The government is in a race to seek budgetary support from multilateral development agencies. Already, International Monetary Fund (IMF), the World Bank (WB), the Asian Development Bank ( ADB) are carrying out study on budget support for Bangladesh. According to newspaper report, the ADB, in the meantime, approved $ 500 million for Bangladesh as budgetary support for addressing budget deficit. There is a possibility of passing difficult time during repayment of foreign loans starting from 2024. Besides, Bangladesh may face multiple economic problems in the days ahead for running Russia-Ukraine war. If Bangladesh fails to achieve high scores in fiscal transparency, the country will not be able to overcome economic challenges arising any time in future. There is alternative but to seeing public participation in all affairs related to fiscal transparency. It is possible to lessen fiscal deficit through improving fiscal transparency scores in Bangladesh. The success of programs taken in Second Perspective plan 2021-2041 depend on fiscal management that requires efficiency.

The writer is an economic affairs analyst. He can be reached at: [email protected]