Bangladesh economy in danger of contraction

Farhad Chowdhury : Bangladesh’s economic growth was above 6 percent for more than a decade. At one point it crossed 7 percent and touched 8 percent. But the statistics of Bangladesh Bureau of Statistics (BBS) says that the country’s economy suffered a major shock after Covid. In that financial year i.e. 2019-20, the growth of the economy is shown to be 3.45 percent. The government then adopted austerity policies to de-stress the economy and bring relief.
The government’s multifaceted steps were indicating the turnaround of the economy. But the country’s economy has had an adverse effect due to the withdrawal from the policy of austerity. Besides, the global crisis and the recent political unrest have a negative effect on the revenue sector. Apart from this, due to the long-standing dollar crisis, the commodity import sector has contracted due to the complexity of opening LCs. Slow pace of growth in export activities due to various uncertainties.
There was stagnation in trade and commerce.
As a result, the desired level of revenue was not collected. In the 6 months from July to December of the current financial year, the revenue collection has fallen by Tk 25,660 crore against the target. Growth is also decelerating compared to the same period last fiscal.
According to the stakeholders, the negative reason for revenue collection is the slow pace of business in the country. Around the elections, political parties have held various programs including strikes and blockades. As a result, normal import and export activities are disrupted. Due to these reasons, revenue income has not increased. Due to low revenue collection, multi-faceted challenges will arise. Apart from this, due to the dollar crisis, the increase in the price of fuel, the prices of the products are beyond the reach of the common man.
Chairman of the National Board of Revenue (NBR) Abu Hena Md. Rahmatul Munim said, NBR is working to reduce the import duty to keep the prices of daily necessities at a bearable level during the upcoming fast. He said, we have received a proposal to reduce the import duty to reduce the price of daily necessities in view of Ramadan. Working on it.
Earlier, about a month ago, the NBR chairman said about the revenue collection, the revenue income at the local level is decreasing in the current financial year due to the decrease in the import of raw materials. Effective steps are being taken to stop VAT evasion in transition from this situation. He said that imports have decreased by up to 30 per cent in specific areas, depending on the product and sector, which has affected revenue collection. However, it has been able to sustain growth of over 17 percent till November. Initiatives are being taken to stop the evasion to maintain the growth of VAT. For example, after installing the EFD machine, VAT is being collected at an average of Tk 50 thousand from each shop, which was Tk 4-5 thousand earlier.
Taxes regulated by the National Board of Revenue are collected from Value Added Tax (VAT), Supplementary Duty, Import-Export Duty, Excise and other sectors. A meeting was recently held under the chairmanship of the Senior Secretary of Internal Resources Department of the Ministry of Finance regarding the situation. It is shown there that the target of revenue collection in the current financial year is Tk 4.30 lakh crores. In the first six months (July-December), the target is Tk 1 lakh 88 thousand 867 crores. On the contrary, Tk 1 lakh 63 thousand 197 crore was collected. The achievement rate against the target is 86.41 percent.
It was said in the meeting that the target revenue collection rate was 91.99 percent at one point in the last financial year. The National Board of Revenue is committed to achieving revenue collection targets and is accountable to the International Monetary Fund (IMF). In the meeting, Senior Secretary of the Department of Internal Resources Abu Hena Rahmatul Munim directed the concerned officials and employees to be diligent to achieve the target of revenue collection.
Analysts said that the expansionary revenue target is not being achieved in the current scenario. Currently not investing. The past few months have been full of political uncertainty. In this case it will be difficult to achieve the revenue target.
Data analysis shows that one sector of revenue collection is export duty. But the election uncertainty did not achieve the target of export earnings in the last 3 months from October to December. In particular, the income fell short of the target by $148 million in October, $500 million in November and $31 million in December. Apart from achieving the targets, there has been no growth in the last 3 months. Meanwhile, due to the global and dollar crisis, the import sector is shrinking. Due to the dollar crisis, many traders face difficulties in opening LCs. Imports of luxury goods are still banned.
Analyzing the data before the election, it has been seen that during this period from July to November, according to the data of Bangladesh Bank, about 39 percent in food products, 20 percent in daily commodities, about 22 percent in primary products, 22 percent in energy products and about 20 percent in raw materials of the garment sector were opened. Due to which the revenue collection from the import and export sector is decreasing by 15 percent in the last 6 months. Besides, VAT collection has decreased by 11 percent compared to the target. This is mainly due to stagnation in the wholesale and retail markets. Although the new government is trying to normalize the situation after the 12th National Assembly elections.
Those concerned said that the lack of revenue collection is a big problem for us. The National Board of Revenue needs reform. Various reforms should be brought including the use of digital technology in revenue collection. Then the overall revenue collection will return to a positive trend.
According to the sources, a large part of the revenue income comes from the Annual Development Project (ADP). Due to political considerations, the size of the ADP this year has been increased by Tk 35,434 crore compared to the revised ADP of the last financial year. But in the middle of the year, several instructions were given from the finance department to implement the development project. ADP of Tk 18000 crore is now being cut by imposing strict exemptions. As a result, revenue collection will decrease at the end of the year.
Sources in the Finance Department said that considering the overall situation of revenue collection, it has been decided to cut Tk 33,900 crore from the revenue target in the current budget (2023-24).
Net foreign direct investment (FDI) in Bangladesh fell by nearly 40 percent in the three months to the September quarter of 2023, further accelerating the erosion of the country’s reserves. According to Bangladesh Bank data, the amount of net FDI during July-September 2023 was $670 million, which was $1.1 billion in the same quarter of the previous year. In addition, in the first 9 months of 2023, net FDI into the country was $2.115 billion, which is about 23.78 percent less than the same period of 2022.
Volatility in commodity markets. Prices of all types of consumer goods have increased. High season rice and vegetable prices. Apart from this, the prices of broiler chicken, eggs, meat, flour, flour, pulses, chickpeas, ginger and garlic have increased. Government agency Trading Corporation of Bangladesh (TCB) market price list says that the prices of most products have increased.
Many entrepreneurs are unable to sustain production as planned despite increasing capacity through large investments. The import of raw materials is still not meeting the dollar demand. Apart from this, a large part of the production capacity remains unutilized due to the energy crisis, rise in the price of raw materials and demand. Production in various sectors including steel, cement, plastic, established as the country’s heavy industries, has already decreased by at least 30 percent. The large industrial groups are struggling to sustain the industries under this fourfold pressure. This information is known by talking to industrial entrepreneurs.