Offer roadmap for post-LDC challenges

The government should unveil a roadmap in the upcoming budget to deal with the challenges that the country might face following its graduation from the group of the least-developed countries (LDCs), said Monzur Hossain, research director of the Bangladesh Institute of Development Studies (BIDS).

The graduation is set to take place in 2026 as the country has comfortably met all three criteria.

One of the downsides of graduation is Bangladesh will lose preferential market access in the export destinations. The duty-free export facility has allowed the country to ship goods without any tariff since its inclusion in the LDC group in 1975. 

"So, Bangladesh will have to take important steps, domestically and internationally, to retain the trade privilege after graduation," said Hossain.

He said the government should outline a four-year roadmap to deal with LDC graduation-related challenges and it should be started from the upcoming budget.

"This will help the private sector understand what is going to happen in the next four years," he said in a phone interview recently.

According to the economist, the budget for the upcoming fiscal year can be neither expansionary nor contractionary. It should be a balanced one.

"Although time warrants an expansionary budget to strengthen the economic recovery from the coronavirus pandemic, the government should be cautious in budgetary expenditures considering the current global situation and the Russian-Ukraine war."

"The budget should not be expanded in a bigger way since it may affect fiscal discipline."

He called for further strengthening of fiscal discipline, by way of cutting unnecessary expenses, prioritising implementation of ongoing projects, remaining cautious in initiating new projects, and becoming selective in taking up external debt.

Hossain urged the government not to allocate funds to unproductive sectors since the economy is under pressure.

He recommended imposing tariffs to rein in soaring imports in order to prevent the foreign exchange reserves from sliding further.

The reserves, which stood at $44 billion on April 30, may decline to less than $42 billion shortly once the central bank adjusts the import payments.

In the face of falling foreign exchange reserves, the Bangladesh Bank on Tuesday instructed banks to take up to 75 per cent of import payments in advance from businesses to open letters of credit for luxury and non-essential goods.

"Import growth has to be cut," said Hossain.

Revenue collection has to be increased since the current tax-to-GDP ratio is very low in Bangladesh, said Hossain.

"Emphasis has to be given in this area so that the pressure on the fiscal space lessens."

He asked the government to revise upwards the mouza-based value of land since the country is losing a lot of revenue for the lower rate.

The capacity-building and digitalisation process of the National Board of Revenue have to be beefed up to generate more taxes.  

The economist suggested learning from Sri Lanka's experience when it comes to exports.

"We should not depend on a single product since it is always exposed to external shocks. We have to take initiatives to diversify exports in terms of products and markets."

Bangladesh's export is dominated by garments, which account for about 85 per cent of national receipts.

Destination-wise, the country's shipment relies largely on the European Union and the United States.

Some reforms are needed in the interest rate regime in the banking sector and the caps on both deposit and lending rates should be revised upwards, he said.

If the deposit rate goes from the current 6 per cent, people will be interested in parking funds with banks since the real interest rate will be above the inflation rate, which stood at 6.22 per cent in March. 

"The upward revision of the lending rate from 9 per cent will squeeze the money supply that is needed to control inflation," he said.

The economist suggested preparing a database of the poor.

The government is going to carry out a new population census. So, if possible, the database of the poor should be prepared along with the census, he said.  

If there is a database, government assistance can be extended to them, he said, calling for expanding the coverage of safety nets considering new poor and vulnerable groups.

The government will have to continue the open market sales operation through the Trading Corporation of Bangladesh for a year or two since there is inflationary pressure, he added.

A few programmes aimed at creating jobs the rural areas were taken in the past, and those programmes can be relaunched, said Hossain, who obtained his PhD in international economics from the National Graduate Institute for Policy Studies in Tokyo in 2007.

He called for rolling out some programmes targeting the unemployed people, especially those who lost jobs amidst the coronavirus pandemic so that they can find employment again.