Bangladesh has been facing a shortage of dollars since economic activities bolstered after the coronavirus pandemic
Published : 30 Apr 2024, 11:26 PM
If the Bangladesh Bank gradually adjusted the value of the taka against the US dollar instead of maintaining a fixed rate for an extended period, it could have mitigated the impact of the dollar shortage on businesses, Mashiur Rahman has said.
The prime minister’s economic affairs adviser made the remarks at a seminar titled ‘Bangladesh’s Domestic Resource Mobilisation: Imperatives and a Roadmap’, organised by the Policy Research Institute in Dhaka on Tuesday.
Bangladesh has been grappling with a shortage of dollars since the economy picked up pace following the coronavirus pandemic.
Its foreign currency reserves have shrunken below $20 billion now in line with the International Monetary Fund’s BPM-6 method from nearly $50 billion during the pandemic.
The taka has continued to weaken against the US dollar and depreciated by 30.36 percent in the past three years.
After the Bangladesh Bank reintroduced market-based rates fixed by banks and dealers, the importers are paying Tk 115-116 per dollar or more now.
The devaluation of the taka caused the most damage to entrepreneurs, claimed Mahbubul Alam, president of the Federation of Bangladesh Chamber of Commerce and Industry.
“The government needs to think about how to cover our losses while the dollar crisis persists,” he said at the seminar.
Mashiur said the businesses would have got an idea about the crisis had the Bangladesh Bank allowed the readjustment of the taka-dollar rate gradually. “As it was not done, the pressure increased at a time in the past few years.”
“A gradual readjustment would have made the pressure tolerable for the businesses and the economy. They would not have felt so much pressure now,” the adviser argued.
He said Bangladesh could have taken a policy of devaluing the local currency against the dollar like many other economies in the world.
The FBCCI president also said a rise in interest rates to 14.5 percent after the central bank removed a cap at 9 percent has led to an operational cost hike for the businesses.
Mashiur said the ruling Awami League’s election manifesto mentioned that interests will be in line with the central bank’s policy rate, not fixed.
Currently the interest rates are determined on the Six Months Moving Average Rate of Treasury Bills. The banks add margins to the rate to set interests.
In the keynote, PRI Executive Director Ahsan H Mansur emphasised increasing the ratio of revenue to GDP, which is currently around 8 percent.
"Bangladesh is going to achieve the middle-income country status with such a capacity of revenue collection that is very risky. In the future, the government’s cost will increase because of domestic and foreign loan interest payments, salary increase of officials, subsidies and pensions. If revenue collection is not increased to meet this additional expenditure, the economy will be at risk,” he said.
Reforms to the tax structure and the National Board of Revenue or NBR, and implementation of the IMF's reform programme in the financial sector can generate additional revenue of Tk 600 billion in the next four years, according to him.
"If comprehensive reforms are not implemented, there will be a revenue loss of Tk 5 trillion by the end of 2041. Greater revenue generation is essential to invest in macroeconomic stability and long-term development.”
Citing research, he said it is possible to increase the amount of revenue collection by at least 60 percent through the development of tax management.
Former chairman of NBR Muhammad Abdul Mazid commented that revenue collection cannot be increased only by reforming the management.
He said, "The political economy philosophy should be incorporated along with reducing tax exemptions to increase revenue collection. This approach will facilitate a more effective reduction in tax exemptions."
Currently, entrepreneurs are enjoying 120 types of tax exemptions in various sectors. Some sectors have been enjoying this exemption for the past 25 years.
State Minister for Finance Waseqa Ayesha Khan also advocated for reducing tax exemptions and encouraging businesses to be self-sufficient.
"It is time to rationalise the opportunities to give tax exemptions. To take the country forward, businessmen should take into account the issues of not taking tax exemptions.''
Waseqa also observed that it was time to develop the bond market and the capital market.
“Businessmen can raise capital from the stock market instead of banks. They can avoid interests then. The liquidity pressure on banks will also decrease. The development of the economy should be capital market-oriented.”
PRI Chairman Zaidi Sattar suggested reducing reliance on trade duties and prioritising direct tax collection.
NBR Chairman Abu Hena Md Rahmatul Muneem said NBR selects one sector for policy benefits every year.
Due to policy facilitation, the number of ocean-going ships has now exceeded 100, according to him.
“We want to reduce dependence on imports and develop the domestic industry. Foreign economies are benefiting from the huge market that the middle class has. NBR will provide the necessary facilities to domestic entrepreneurs to meet the needs of the middle class,” he said.