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'Fiscal situation worsens amid poor revenue, high public borrowings':Dr Bhattacharya

bluesky

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'Fiscal situation worsens amid poor revenue, high public borrowings'​

Dr Bhattacharya tells media, suggests a slew of measures​


FE REPORT | Published: August 12, 2022 11:16:39

'Fiscal situation worsens amid poor revenue, high public borrowings'


Economist Dr Debapriya Bhattacharya on Thursday said the country's fiscal situation worsened especially over the past two months due to poor revenue growth and high public borrowings.

Terming the fiscal account as the number one 'villain' of the economy, the distinguished fellow of the Centre for Policy Dialogue (CPD) said Bangladesh is now struggling with finding fiscal resources to deal with the current economic challenges.

He was exchanging views virtually with the media on "Overcoming the Current Economic Challenges: Towards a Transitional Policy Understanding".

He pointed out that the revenue-GDP ratio did not increase more than 10 per cent while the share of income and asset taxes in total revenue remained stagnant at around 30 per cent. The budget deficit is increasingly being funded by bank borrowings.

Dr Bhattacharya said the domestic economic problems are not only for external reasons, but there has been an absence of reforms in the fiscal arena for years.

He said the low-income groups are bearing the same level of tax burden like that of the high-income groups.

The finance minister during his latest budget speech mentioned six challenges, including higher inflation. "Almost all six challenges now have aggravated further over the last couple of months," he said.

A transitional policy understanding is necessary and that has to be developed through a participatory and consultative process, suggested the economist.

He also stressed that the target of understanding should be stabilising macro-economy, continuing production and employment, and protecting the vulnerable group of people. "[The government] should listen to all. The government may abide by those or not."

On subsidies and cash transfers, Dr Bhattacharya said the Bangladesh Power Development Board eats up more than 41 per cent of the total subsidies and cash transfers.

He also stressed on liberalising the interest rate with a band to protect the real value of savings and facilitate a moderate credit growth.

"The people are incurring losses on savings as the real interest rate is negative," he said, adding: "Make exchange rate market-based further and do away with multiple premium rates for different types of foreign exchange earners."

He suggested reviewing the subsidy package to protect 'good subsidies' for agriculture (i.e. fertiliser and electricity) and liquid fuel (i.e. diesel and petrol), and remove all 'bad subsidies' (capacity charges).

Dr. Bhattacharya favoured effective use of budget support received from global lenders like the World Bank and Asian Development Bank (ADB) to ensure additional contractual disbursement.
He also suggested holding negotiations with the International Monetary Fund (IMF) for a substantive balance of payment support.

jasimharoon@yahoo.com
 

Bilal9

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Dr. Bhattacharya and the AL govt. are at loggerheads with each other.

None will speak nicely about the other.
 

BananaRepublicUK

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Dr. Bhattacharya and the AL govt. are at loggerheads with each other.

None will speak nicely about the other.

Hinduvta turds are trying to destabilise the country for another coup.

But Hasina is smarter than her father and “shadinota ghoshok” Zia.
 

mb444

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'Fiscal situation worsens amid poor revenue, high public borrowings'​

Dr Bhattacharya tells media, suggests a slew of measures​


FE REPORT | Published: August 12, 2022 11:16:39

'Fiscal situation worsens amid poor revenue, high public borrowings''Fiscal situation worsens amid poor revenue, high public borrowings'


Economist Dr Debapriya Bhattacharya on Thursday said the country's fiscal situation worsened especially over the past two months due to poor revenue growth and high public borrowings.

Terming the fiscal account as the number one 'villain' of the economy, the distinguished fellow of the Centre for Policy Dialogue (CPD) said Bangladesh is now struggling with finding fiscal resources to deal with the current economic challenges.

He was exchanging views virtually with the media on "Overcoming the Current Economic Challenges: Towards a Transitional Policy Understanding".

He pointed out that the revenue-GDP ratio did not increase more than 10 per cent while the share of income and asset taxes in total revenue remained stagnant at around 30 per cent. The budget deficit is increasingly being funded by bank borrowings.

Dr Bhattacharya said the domestic economic problems are not only for external reasons, but there has been an absence of reforms in the fiscal arena for years.

He said the low-income groups are bearing the same level of tax burden like that of the high-income groups.

The finance minister during his latest budget speech mentioned six challenges, including higher inflation. "Almost all six challenges now have aggravated further over the last couple of months," he said.

A transitional policy understanding is necessary and that has to be developed through a participatory and consultative process, suggested the economist.

He also stressed that the target of understanding should be stabilising macro-economy, continuing production and employment, and protecting the vulnerable group of people. "[The government] should listen to all. The government may abide by those or not."

On subsidies and cash transfers, Dr Bhattacharya said the Bangladesh Power Development Board eats up more than 41 per cent of the total subsidies and cash transfers.

He also stressed on liberalising the interest rate with a band to protect the real value of savings and facilitate a moderate credit growth.

"The people are incurring losses on savings as the real interest rate is negative," he said, adding: "Make exchange rate market-based further and do away with multiple premium rates for different types of foreign exchange earners."

He suggested reviewing the subsidy package to protect 'good subsidies' for agriculture (i.e. fertiliser and electricity) and liquid fuel (i.e. diesel and petrol), and remove all 'bad subsidies' (capacity charges).

Dr. Bhattacharya favoured effective use of budget support received from global lenders like the World Bank and Asian Development Bank (ADB) to ensure additional contractual disbursement.
He also suggested holding negotiations with the International Monetary Fund (IMF) for a substantive balance of payment support.

jasimharoon@yahoo.com
Very prudent recommendations.

It is time to get serious on black money and debt defaulters.

As to the banks and money changers immediately impose a punitive windfall tax to negate their ill-gotten profits and punish them.

Review every banks balance sheet and particularly those with unusual bad debts. Put them in special measures or close them and GoB take on the debts and blacklist the defaulters until debts are paid off. If they do not take over or nationalise their businesses, put in new management to keep them going and in time sell them off to the public via the stock markets.

Take steps against over invoicing racket and increase the percentage that importers have to self finance for LC.

And finally get serious about taxation and stop the money whitening scam.

All of these GoB already knows but have failed to implement primarily due to democratic illegitimacy.

I am glad this shock happened, its a temporary thing and is an opportunity to lay the foundation for long term fiscal discipline.
 

bluesky

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Dr Bhattacharya said the domestic economic problems are not only for external reasons, but there has been an absence of reforms in the fiscal arena for years.

He said the low-income groups are bearing the same level of tax burden like that of the high-income groups.
Bold part: Can someone clarify this same rate of tax burdens for the poor and rich? For me, it is like saying, "If a person's yearly salary and wages are, say, Tk200,000 and with an income tax rate of 8%, he pays Tk16,000 to the NBR.

On the other hand, a rich with a yearly earning of Tk4,000,000 pays Tk320,000 only.

I will be shocked if the above scenario is true but I will understand why the Tax-GDP ratio is only 8%. This must be the weirdest scenario for any country. Such a country cannot develop because its budget will always face shortfalls between expenditures and revenues.

In an ideal country, the tax rates are progressive. The more your NET income is, the higher rate of tax is applied to you. So, the tax rates maybe 8%, 12%, 20%, 30% or 40% of the NET income.
 

Abu Shaleh Rumi

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I support borrowing for infra projects. But, GoB with its low IQ policy makers borrowed short term high interest loans to fullfil their hunger for money laundering...
 

bluesky

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I support borrowing for infra projects.
How do you propose the country pay back the borrowed money? Infrastructure development must be supplemented by industrialization. Industrial products are the wealth of a nation.

So, the borrowed money can be repaid by a part of the wealth (tax) produced in industries. However, I do not see any large-scale industrialization occurring in BD in the last few decades.

So, money should not be borrowed if it cannot be repaid. The repayment will reach $4 to $5 billion in 2024. During this period many more loans will also get matured and the repayment amount will increase.
 

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Bold part: Can someone clarify this same rate of tax burdens for the poor and rich? For me, it is like saying, "If a person's yearly salary and wages are, say, Tk200,000 and with an income tax rate of 8%, he pays Tk16,000 to the NBR.

On the other hand, a rich with a yearly earning of Tk4,000,000 pays Tk320,000 only.

I will be shocked if the above scenario is true but I will understand why the Tax-GDP ratio is only 8%. This must be the weirdest scenario for any country. Such a country cannot develop because its budget will always face shortfalls between expenditures and revenues.

In an ideal country, the tax rates are progressive. The more your NET income is, the higher rate of tax is applied to you. So, the tax rates maybe 8%, 12%, 20%, 30% or 40% of the NET income.

Progressive tax will not help much though, much of the wealth is actually in the hands of middle income people, it is true for countries like Indonesia and BD where the stock market capitalization (part of wealth) is still small relative to their GDP.

Singapore, Malaysia, and Thailand stocks market capitalization is already around 100 % of their GDP, for Indonesia it is still around 20 %, which I believe the same like BD stock market.

Majority of money for Indonesia case is in the hands of middle income and lower middle income people, this is why 60.6 percent of GDP within a year in Indonesia is created by our middle, small, and micro businesses, small scale farmers are also part of the group.

Most of the business in this category dont pay taxes and if they pay the pay will be much smaller than it should be as it is not being the focus for quite long time due to lack of human resources within our Finance Ministry to cover this group and many are also working in informal sector. This is why our Finance Ministry start to target this business starting around last year since if we can make them pay taxes, the result will be quite great.

Indonesia tax to GDP ratio is also not far from BD, we are at 9 % last year, but the number is also due to tax incentive our government give during covid years, the percentage will likely increase this year as for this semester, our government revenue grows at 50 %.
 
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Abu Shaleh Rumi

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How do you propose the country pay back the borrowed money? Infrastructure development must be supplemented by industrialization. Industrial products are the wealth of a nation.

So, the borrowed money can be repaid by a part of the wealth (tax) produced in industries. However, I do not see any large-scale industrialization occurring in BD in the last few decades.

So, money should not be borrowed if it cannot be repaid. The repayment will reach $4 to $5 billion in 2024. During this period many more loans will also get matured and the repayment amount will increase.
You yourself answered you question bhai. GoB must develop infrastructure so our private sector can develop industries. Our problem is we are stuck with low IQ Bolshevik type politicians and their crony capitalists.
 

bluesky

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You yourself answered you question bhai. GoB must develop infrastructure so our private sector can develop industries. Our problem is we are stuck with low IQ Bolshevik type politicians and their crony capitalists.
No, for the last few decades the govt (BNP or BAL) had a weak policy to industrialize the country by the private sector. A private person or a company has to borrow Taka and dollars to build his factory.

The banks are nil without money because the Govt has borrowed $78 billion worth of local money from them. No money left for industrialization.

Now, please define the infrastructures needed for industrialization. The roads or Padma Bridge the govt so eagerly built are called SOCIAL INFRASTRUCTURE. Please check the definition.

As far as I understand EPZs and SEZs with proper infrastructures are required for industrialization. EPZs are built with all the required infrastructures: plots, roads with drains, access to the port, electricity, water, telephone/ fax lines, etc., etc.

But, instead of providing funds to industrialize, the govt borrowed Bank and foreign money to build fancy projects at random from where top people stole money.
 
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BananaRepublicUK

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Progressive tax will not help much though, much of the wealth is actually in the hands of middle income people, it is true for countries like Indonesia and BD where the stock market capitalization (part of wealth) is still small relative to their GDP.

Singapore, Malaysia, and Thailand stocks market capitalization is already around 100 % of their GDP, for Indonesia it is still around 20 %, which I believe the same like BD stock market.

Majority of money for Indonesia case is in the hands of middle income and lower middle income people, this is why 60.6 percent of GDP within a year in Indonesia is created by our middle, small, and micro businesses, small scale farmers are also part of the group.

Most of the business in this category dont pay taxes and if they pay the pay will be much smaller than it should be as it is not being the focus for quite long time due to lack of human resources within our Finance Ministry to cover this group and many are also working in informal sector. This is why our Finance Ministry start to target this business starting around last year since if we can make them pay taxes, the result will be quite great.

Indonesia tax to GDP ratio is also not far from BD, we are at 9 % last year, but the number is also due to tax incentive our government give during covid years, the percentage will likely increase this year as for this semester, our government revenue grows at 50 %.

Excellent post.

Explaining the tax to GDP mystery.

BD and Indonesia are progressive Muslim countries. Where wealth is spread very evenly.

Neither have many millionaires.
 

mb444

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Progressive tax will not help much though, much of the wealth is actually in the hands of middle income people, it is true for countries like Indonesia and BD where the stock market capitalization (part of wealth) is still small relative to their GDP.

Singapore, Malaysia, and Thailand stocks market capitalization is already around 100 % of their GDP, for Indonesia it is still around 20 %, which I believe the same like BD stock market.

Majority of money for Indonesia case is in the hands of middle income and lower middle income people, this is why 60.6 percent of GDP within a year in Indonesia is created by our middle, small, and micro businesses, small scale farmers are also part of the group.

Most of the business in this category dont pay taxes and if they pay the pay will be much smaller than it should be as it is not being the focus for quite long time due to lack of human resources within our Finance Ministry to cover this group and many are also working in informal sector. This is why our Finance Ministry start to target this business starting around last year since if we can make them pay taxes, the result will be quite great.

Indonesia tax to GDP ratio is also not far from BD, we are at 9 % last year, but the number is also due to tax incentive our government give during covid years, the percentage will likely increase this year as for this semester, our government revenue grows at 50 %.
I agree with the similarities you are drawing between Indonesia and BD. However in terms of the development ladder BD is few rungs behind and catching up fast.

The main driver of BD economy is not export driven but rather its own economic engine.

Our bureaucracy is inefficient so BD has made conscious decision to let capitalist run the show as much as possible and not let taxation become a deterrent.

What people need to realise just because there is a dip in remittances via official channels does not mean the net flow of revenues has fallen. Our expats are simply using unofficial channels to send money where they are getting more taka for their foreign currencies.

This is driving growth both internally and also for luxury imports that is using the pot of hard currencies coming in via official channels.

The curb or unofficial supply of dollar is there.... all it means its not on government hands.

The bubble to some extent is entirely manufactured. The rest is real due to high price of oil and disruption of wheat, rice, edible oil and pulses in the international market. Its a perfect storm but will be short lived although given low revenue collection will impact BD significantly for a while.

BD has not dealt with this but there is no room for further complacency. BD needs to bring up its tax collection to 20 percent of GDP quickly. It can not borrow its way out of trouble.... there is no slack in the public exchequer given random subsidies it offers and growing loan payment liabilities. It is ill prepared to deal with further shocks and a global recession is fairly certain.
 

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