Hiren Pandit
The energy crisis is now a harsh reality in most countries of the world. On the one hand, the price increase, on the other hand, the chaos in the supply chain – in both these problems, the use of fuel oil and gas is being cut back in Bangladesh. Diesel-powered power plants have been shut down. Bangladesh Petroleum Corporation is facing obstacles while opening LC for oil import. Due to reduced power generation, the government is doing mandatory load shedding for 2-3 hours daily across the country.
Although about 4 crore people in our country can afford to pay tax, mainly 2.5 lakh people pay tax by filing a return, and about 1 crore people pay tax indirectly. Bangladesh has the lowest tax-GDP ratio in Asia. Still, tax-GDP is close to 9 per cent. Our target of raising the tax-GDP ratio to 15 per cent by 2021 has not materialized. The Eighth Five Year Plan has set a target of increasing this ratio to 24 per cent by 2041. Every year there is growth in revenue collection of NBR but the target is not achieved. Automating the collection of direct taxes and VAT will increase revenue. Through administrative reforms, NBR manpower should be increased and tax offices should be expanded up to the Thana level. All-out measures should be taken very quickly to increase domestic resource accumulation. Otherwise, loans will have to be taken from domestic banks and foreign development partners. In that case, the country’s debt burden will increase.
Those who are campaigning that ‘the country’s economy is on the edge of Sri Lanka, they are making the situation worse by unnecessarily panicking the countrymen. Such misinformation can destabilize commodity prices, foreign currencies, and the banking system. The people of Bangladesh should be careful about this.
Due to the Covid-19 pandemic, global economic activities have come to a standstill. The Russia-Ukraine war that started last February forced the supply chain and export of most of the world’s essential commodities, especially fuel oil, gas, wheat, corn, edible oil, fertiliser, etc. before the global production and consumption demand returned to normal after this stagnation. As a result, forecasts of economic recession with inflation in almost all countries became noticeable. In particular, inflation in the United States and Europe rose to the highest level in the last eight to nine years. US inflation is close to 9 per cent and inflation in various European countries exceeds 6-7 per cent. Due to inflation, many people in developing countries are terrified of economic disaster in their respective countries. As a result of the economic sanctions of the United States and its European allies on Russia, not only Russia, but almost all countries of the world are suffering.
Due to the adverse global economic situation, various indicators of the economy of Bangladesh have also fallen into a negative trend. No doubt, the economy of Bangladesh is also under a lot of pressure. In this context, many people in the country are engaged in various discussions. Constructive discussions are good, but unknowingly spreading unnecessary panic can have more negative effects on the economy.
Some indicators and emerging issues are discussed in the context of the relevant global situation and the current economic reality of Bangladesh. According to the latest Bangladesh Bureau of Statistics calculations, inflation rose to 7.56 per cent in June. This is the highest inflation in the last nine years. But food inflation is higher. According to private accounts, the country’s overall inflation is 10 per cent.
Inflation is currently a concern of government policymakers. We need to pay more attention to agriculture to control food inflation. Food grain production should be increased by continuing and including new subsidies on fertilizers, agricultural machinery, electricity for irrigation etc. Attention should also be paid to the excellence of agricultural research. Strict enforcement of laws and market monitoring should be strengthened to prevent the black market, excessive profit, hoarding, cartels etc. of daily necessities. The benefits of rationing and social security programmes must be ensured to continue and reach the truly deserving.
Central banks in many countries, including the United States, have raised interest rates to combat inflation. Bangladesh Bank has also increased the interest rate, the interest rate on call money, treasury bills and bonds. But the interest rate on commercial bank loans and deposits is only 9.6 per cent. Although there are signs of change, this rate is still unchanged.
Economists say that loan interest rates should be left to the market. However, considering the sector-wise needs and risks of the country’s production, the upper limit of the loan can be set at 12-14 per cent. Interest on deposits may be capped at 9 per cent to encourage savings and provide depositors with interest rates higher than inflation. Industrial entrepreneurs and investors can expect negative effects on production and trade if interest rates are increased. A temporary slowdown in the economy is acceptable to prevent inflation.
Currently, the main problem of banks and financial institutions is more than defaulted loans. There is no substitute for greater caution on the part of bank officials in lending as well as sincerity and rigour in debt recovery. The very flexible policies of the government and the central bank towards defaulting borrowers are not conducive to debt recovery. Earlier, the facility was given to regularize defaulted loans by depositing 2 per cent. In July, Bangladesh Bank issued another order allowing regularization of defaulted loans by depositing 2.5 to 4.5 per cent. Again, the loan repayment period has also been increased from the previous two years to a maximum of eight years. The culture of non-payment of bank loans in Bangladesh will increase as a result of this opportunity. There are also allegations that many of the defaulters take loans from banks and smuggle money abroad. This money will never come to the country and the bank loan will not be paid. A former governor of Bangladesh Bank has suggested strict measures to recover defaulted loans. Moreover, recently the IMF asked to take appropriate steps to recover defaulted loans.
Money laundering is a big problem in Bangladesh. Money is laundered from the country through over-invoicing and under-invoicing of imports and exports. Direct and massive money laundering takes place through hundreds. At present, due to the devaluation of the taka against the dollar, the exporters are delaying the return of their export value. Willful defaulters and money launderers have nothing to say about morality and patriotism.
A rational devaluation of money is required based on market demand and supply. Bangladesh Bank announced the price per dollar TK 94.7. But 1 dollar was sold at Tk 115 in the open market. Commercial banks are not able to sell dollars at the rate fixed by the central bank while opening LCs. Although the taka has depreciated about 11 per cent against the dollar over the last year, further devaluation is needed for stability. As a result, imports of tourism, medical and luxury goods abroad will decrease and our exports will benefit. Almost all currencies in the world have depreciated against the dollar. So, there is nothing to worry about near currency depreciation.
Despite Covid-19, the growth of expatriate income in the last financial year 2020-21 was 36.10 per cent, which is the highest in the history of Bangladesh. This may be because, during the Covid period, expatriates send expatriate income through legal channels instead of sending foreign currency through people. Second is the 2 per cent government incentive.
In the last financial year 2021-22, the import expenditure was a record 83 billion dollars and the export earnings were 52 billion dollars. High import costs are believed to be due to an increase in prices of various products including fuel oil and money laundering under the guise of trade. The trade deficit stands at $30.82 billion despite record export earnings of $52 billion for the first time. As a result, the central bank’s reserves have been strained.
Bangladesh Bank’s foreign exchange reserves were $48 billion in August last year, which has fallen below $40 billion at present. Our reserves rose to $48 billion on growth in export earnings and record growth in expatriate earnings in FY2021-21. Bangladesh Bank sold 7.62 billion dollars from the reserve given the devaluation of the rupee with the dollar and the demand for dollars from the commercial banks.
The government has initiated cost containment, foreign exchange savings, and frugality in energy consumption is positive. However, the Bangladesh Petroleum Corporation has to continue importing to deal with the possible energy crisis. If power generation and supply are not stable, the production of the domestic industry will be disrupted. We have not felt any adverse impact in any global recession as the production, employment and consumer demand in Bangladesh is current. This time we have to keep our economy running in a possible global recession.
Bangladesh’s foreign debt is about 13 per cent of its GDP. In the 2022 report of the World Bank and the IMF, Bangladesh has been mentioned as a low-risk country in terms of debt repayment. Because so far Bangladesh has never delayed the payment of foreign debt. Through the automated system in place between the Finance Department and the Economic Relations Department, the dues of various development partners are disbursed on time against the budget allocation. 80 per cent of our loans are long-term and have low interest.
Recently CPD mentioned that currently the foreign debt is paid at the rate of 1.1 per cent of GDP every year. By the next year 2026, it will have to be paid almost twice. Several projects in Bangladesh such as Rooppur nuclear power plant, Matarbari coal-fired power plant, metro rail, and Karnaphuli tunnel will be commissioned by the end of 2024 to generate commercial production and revenue. In that case, there should be no difficulty in paying the foreign debt. However, from now on, it will be advisable to scrutinize the profit and loss account of the project in case of large-scale foreign borrowing.
The writer is a researcher and columnist. He can be reached at hiren.bnnrc@gmail.com