Bangladesh's economy is currently dealing with three big issues - inflation, the current account deficit and external debt said Zaidi Sattar, chairman of the Policy Research Institute (PRI).
Currency depreciation significantly affected imported goods, and an equal percentage increase in tariffs in the form of imported inflation ultimately put pressure on consumers, PRI's research found.
According to the research, Bangladesh will not be able to sustain a high current account deficit for three to five years.
Currently, interest on the nation's debt accounts for up to 20% of all government revenue and 14% of all public spending.
Experts were speaking at the “Realizing Development Aspirations with Domestic Resource Mobilization Amidst Macroeconomic Challenges.”
The program's chief guest, Mashiur Rahman, the prime minister's economic adviser, stated that although the public debt to GDP ratio has not yet reached worrying levels, it may do so in the future since it may put a further burden on the economy.
The government is taking a lot of precautions in terms of public debt and borrowing, he said.
He also added: “However, even if you are cautious, it may not be possible to maintain it sometimes and I don't think there is any reason to worry about private-sector borrowing.”
He also felt that there is a need for a study on macroeconomics.
State Minister of Planning Shamsul Alam in his speech focused on the government's priority, he said: “Among domestic resources mobilization, our main goal now is to increase revenue and it is being worked on. Managing the reserve is another core concern. We also have to do a lot with the unified dollar rate which is a must.”
“To reduce inflation and manage the macroeconomy we have reduced non-performing loans (NPL) as well,” he added.
Earlier in his keynote presentation, Zaidi Sattar, chairman of PRI said that 20% currency depreciation is equal to a 20% increase in tariffs and a windfall for NBR.
It's a windfall for import-substituting businesses, whose level of effective protection jumps by 20% at the expense of consumers.
Bangladesh would not be able to sustain a big current account deficit for three to five years, according to the Policy Research Institute of Bangladesh. A current account deficit is a sign that a country is importing more than it is exporting.
Sattar said: “Bangladesh's current account deficit was 4% of GDP in the fiscal year of 2021-22, and a country running more than 3% of GDP in a current account deficit for three-four years is likely to face a financial crisis. It is a bad idea and I don't think we can sustain the current account deficit at 3-4% of GDP for three to four years. We can't afford it,” he added.
Additionally, he mentioned in his presentation that Bangladesh's economy is currently dealing with three issues, including inflation and the current account deficit. Another obstacle is anticipated to be external debt.
MA Razzaque, director of PRI in his presentation said that public health spending should be at least 5% of the GDP, which is just 0.7%.
The eighth FYP (Five-year plan) projection is to raise this up to 2% by 2025.”
Regarding currency depreciation, he stated that the taka will depreciate by more than 20%, increasing the burden of debt payment and restricting fiscal space.
“Although relatively manageable, the external debt stock is rapidly increasing, going from less than $40 billion in FY15 to nearly $96 billion in FY22. External debt servicing fees for the public sector will increase from $3 billion to $5.2 billion per year by 2030. If private sector fees are added, the total will exceed $8 billion.”
“He also informed, government borrowing is increasing from domestic sources at higher interest rates. Interest payments on domestic debt is currently about as high as 20% of all government revenue and 14% of total public spending.”
On the other hand, M A Razzaque, director of PRI in the concluding part of the presentation said that the simulated outcomes validate the long-standing understanding that tax reforms focusing on increasing tax efforts and structural change in revenue composition will be highly beneficial to Bangladesh.
The structural shift to raise 70% of revenue from direct taxes alone expands the economy by about 1% and 0.6% to GDP growth.
The changes in tax structure in favour of the direct tax along with expenditures of additional revenue likely result in an additional 3.3% point to the GDP growth rate.
This is a major outcome in any context and more so in the context of Bangladesh, as the nation strives to attain a 10% plus GDP growth rate, he described.
Given Bangladesh's average ICOR value of 4.5%, it is hypothesized that an additional investment of 13.5% will be required to add 3% points to the GDP growth rate. In other words, SIM2E's proposed tax-expenditure reforms will result in an increase in investment of 13.5%.
