The global impact on our economy is not the only reason for Bangladesh’s current situation, a weak financial sector is also to be blamed, according to Dr Debapriya Bhattacharya, a distinguished fellow at the Centre for Policy Dialogue (CPD).
The lack of proper reforms in Bangladesh's financial sector is to be blamed, he added.
“While the growth of the economy is high, it seems that we are a country with a ‘poor’ government which is struggling to find fiscal resources to deal with the situation.”
He made all these statements during a press briefing titled “Overcoming the Current Economic Challenges – Towards a Transitional Policy Understanding” held virtually on Thursday (August 11).
At the beginning of his briefing, Debapriya said: “In the budget speech for the current fiscal year, the Finance Minister mentioned six challenges. Four of them intensified in the first two months of the fiscal year causing the economy to go downhill after that.”
“Many claim the situation is due to global reasons. I partially agree with them, but to say that it is the only reason would be a misinterpretation. The current fiscal framework and spending capacity of the government are not helpful for high economic growth.”
So, he has proposed some transitional policy understanding to overcome this situation. He said there is a need for a policy package for stabilization and consolidation of the economy with a short-term outlook (2-3 years) by discussing with the opposition party, political allies of the government, civil society and economic experts at various levels for participatory policy compromise.
According to him, a weak fiscal account is the ‘real villain’.
Analyzing the current crisis and future challenges of the economy, Dr Debapriya said that the government is blaming the volatile global economy for the challenges it is facing, but weakness in the financial sector and lack of reforms have reduced the shock absorption capacity of the economy.
According to Debapriya’s transitional policy package, he explained that there are three domains of a transitional package:
A. Stabilization macro-economy – realigning supply and demand side factors.
B. Sustain production and employment in a subdued growth situation.
C. Protect vulnerable groups who are disproportionately affected.
In his keynote presentation, he informed: “Our revenue share in GDP did not go up more than 10%.”
Share of income and asset tax in total revenue stagnated at around 30%.
The budget deficit was increasingly being funded by borrowing from banks. In April and May 2022, the credit growth of the government was higher than that of the private sector.
Debt Service Liability (DSL) of public debt went up 17.06% for domestic and 16.9% for foreign and the total debt hit 33.96% of the GDP.
DSL as a percentage of revenue expenditure is gradually going up almost 20% in FY23.
Cash transfer and subsidies are less than 1% of GDP (FY 22) and less than 6.5% of total public expenditure.
Power Development Board (PDB) accounts for about 41.60% of the subsidy and cash loan budget.
Bangladesh Petroleum Corporation (BPC) has not taken any subsidies since 2016.
Annual allocation to health and education sectors as a percentage of GDP and public expenditure is half and equal to 20 mega projects, respectively.
Allocations for different social protection allowances are decreasing as a share of per capita income (less than 3.54%).
He suggests removing the subsidy on electricity capacity charge and increasing subsidies on fuel, fertilizer and electricity generation.
He said that the government is now looking for more financial sources and to reduce subsidies. However, if the government had the financial capacity, the people would not have had to raise the price of fuel at such a high rate.
Debapriya informed that subsidy allocation for fertilizer increased by 33.3% in FY23 over FY22. Subsidy allocation for electricity increased by 50.0% in FY23 over FY22.
Additionally, the government attempted to reduce the subsidy burden in the fuel sector by hiking its prices by about 50% on August 5.
The government paid Tk16,785 crore in capacity charges to power plants in the first nine months of the last fiscal year (FY22) for a 22,118MW daily power generation capacity.
On July 18, the government shut down all diesel-fired power plants due to depleting fuel stocks, meaning 1,000-1,500MW remains unutilized daily but payment for the capacity continues.