Corruption has devoured our dreams

Inflation, reserves, the dollar exchange rate – all economic indicators have taken a nose dive. What is the state of the macro economy?

Mustafa Kamal Mujeri: If we look at the overall picture of Bangladesh’s economy over the past few years, we will see it is not doing very well. Over the past four or five years the macroeconomic indicators have turned downwards, whether it is the inflation, foreign exchange reserves, the foreign currency exchange rate, the banking sector and so on. Even just a few years ago our growth exceeded 8 per cent. But that has turned downwards now. Given the current growth trend, it is apparent that we have deviated far from the eighth five-year plan roadmap. It is the same with the other indicators. In short, we have moved far away from the path where we wanted to lead the economy in order to meet our targets and fufill our dreams. This deviation has taken place in every area, some more, some less.

We are seeing instances of corruption by persons in top positions of important government institutions. Money laundering can’t be stopped either. Where is corruption and money laundering leading our economy?

Mustafa Kamal Mujeri: Reports on the corruption of a few persons in high government positions have come to light. But this is not the overall picture of corruption. The overall picture is undoubtedly much worse. I would say with time our corruption has accumulated. Corruption in intrinsically linked with the problems of our economy today, with the struggle we are witnessing. Corruption has devoured our dreams. Even the information we receive about money laundering is not comprehensive or accurate. But given the information we have from various agencies at home and abroad, it is clear that money laundering is a large part of our corruption. It is the wealthy and influential persons of society who are involved in money laundering. Corruption and money laundering are a huge problem for us, a huge challenge.

The finance minister has said that the budget will be designed to take the economy to back where it was. What do you think the main challenges of the budget will be?

Mustafa Kamal Mujeri: If we want to take our budget towards achieving its goal, then restoring economic stability is certainly a precondition. If we want to increase investment in our budget, if we want to increase our growth and boost our agriculture, industry and other sectors, then too our precondition will be overall stability of the economy.

One of the major challenges of this budget is controlling inflation. Inflation has steadily increased to a point where it has become a major headache for us. For two years inflation has remained more or less fixed at a high level. Bangladesh Bank continues in its attempt to control inflation through its contractionary monetary policy. But in a country like ours, it will not be possible to control inflation simply with a contractionary monetary policy alone. The revenue policy and the other macroeconomic policies must also support the contractionary monetary policy. The budget has to be in keeping with the monetary policy.

The government’s target in the ninth five-year plan is to become an upper middle income country by 2031 by achieving sustainable growth.

Over the past three or four years our growth trend has turned downwards. A big challenge for the budget this time will be to turn that growth around. In order to become an upper middle income country, the per capital income must reach a certain level. That is why another significant challenge for the budget this time will be to speedily get the growth trend back on the right track.

Investment, growth, revenue income, quality of education everything has come to a standstill. How can the growth trend be brought on track as aspired?

Mustafa Kamal Mujeri: Investment must certainly be increased if growth is to be increased. But over the past few years we see investment at a standstill, particularly in the case of private investment. The private sector is the main driving force of growth. We must make the private sector vibrant at any cost.

Investment is a significant driving force for the speed in which we want to advance. But simply investment without increasing our productivity, our use of advanced technology, will not take us to our goal. We must make productivity our main driving force in the ninth five-year plan. If productivity is to be increased, we must pay attention to developing a skilled workforce. But the quality of our education has slumped. Unless we improve the quality of our education, we cannot create a skilled workforce.

There is qualitative deficiency not just in education, but in healthcare, agriculture industry, everywhere. We will not be able to increase productivity unless we achieve this qualitative standard. These must be taken pragmatically into consideration in the budget.

One of the main problems in our budget is income from domestic sources. Our tax-GDP ratio is one of the lowest in South Asia. Our budget size is now 16 to 17 per cent of the GDP. The budget allocation for education is still below 2 per cent, for health it is around 1 per cent. But according to our eighth five-year plan, allocation for education should have been 4 to 5 per cent and for health 2 to 3 per cent. Unless the budgetary allocation is increased, the quality of the education and health sectors will not increase.

In countries like ours, the role of the government in development is vital. But our government expenditure is extremely low. The private sector is to carry out the development, but the government is to play a supportive role. A major chunk of our revenue income is spent on debt repayment, administration costs or subsidies. After all that, what is left for the development sector? In such a situation, the government makes an effort to expand the budget with the help of foreign loans. But there is a limit to foreign loans. So loans must be taken from the domestic sector. But that has a negative impact too. If large loans are taken from the central bank, this affects inflation. If loans are taken from commercial banks, the private sector is deprived of loans.

There is no alternative but to increase our revenue income. The question that looms large is whether we will be able to increase revenue income in comparison to the GDP. If we want to use this budget to break the stagnancy of the past few years and build a bridge to the future, several stern decisions must be taken. There must be political will too.

So, what is your basic advice concerning the budget?

Mustafa Kamal Mujeri: Firstly, the private sector must be given the policy support it requires to okay its role. But that must be in a just manner. In using the private sector as the economy’s driving force, it cannot be given an absolute free rein. The facilities provided to the private sector in the budget are often misused. As a result, the private sector is unable to build Bangladesh up as a country that can compete in the world market. In fact, our policies are weakening the private sector. It is imperative to take up policies that build a dynamic, effective and productive private sector.

Secondly, the public sector must be made more dynamic. We are taking up innumerable projects in our Annual Development Programmed (ADP) in the budget. We think that the more projects we can take, the larger the ADP will be, and the more development will take place. That is not how it happens. We are not just taking up more and more projects in the ADP; we are spending more time and money on the implementation of each and every project. It will be hard to point to a project that has been implemented correctly in the stipulated time and at the stipulated cost. Since we have constraints to fund availability, we must use the funds effectively, while maintaining due standards. But we are failing to do so.

The ADP implementation or the government’s development role must be made more strategic. The development projects need to be reorganized.

Thirdly, due to persistent inflation and various economic tensions, the resilience of our rural and urban poor and low income people has fallen to such a low that they are in a hapless situation. Their malnutrition has increased. Health problems have increased. Steps must be taken in this budget to increase the capacity of the people to tackle the crises. The reach of the social safety net must be increased.

In order to increase revenue income, the tax burden including VAT may be increased on the common taxpayers. How do you see this policy of increasing the tax burden on the people instead of reforming the revenue sector?

Mustafa Kamal Mujeri: Unfortunately, our tax system is regressive rather than progressive. In a progressive tax system, those with more capacity will pay more. Those with less, will pay less. Our tax system relies on indirect taxation such as VAT. The indirect taxes come more from the common people. And direct tax comes from income tax or wealth.

I feel that there are three ways in which the revenue earnings are to be increased. One. Wealth tax – collection of such taxes must be increased. Two. The loopholes that facilitate tax evasion must be removed. Three. We must move away from the manner in which tax holidays have been given a permanent shape. In other countries, tax holidays are given for a specific period in order to take forward an industry or sector. But in our country, if tax holiday is given to any industry or sector, that becomes permanent. As a result, not only is the government deprived of taxes, but any new sector that needs tax holidays so it can develop, is also deprived. We are weak in taking decisions, or in the interests of powerful and influential groups, we make weak policies.

In this budget too, ample scope is being given to whiten black money. This policy has been continuing for years on end. How does the government benefit?

Mustafa Kamal Mujeri: The policy to whiten back money has been in place for many years in our country. The question remains as to what the government has achieved through this. But actually this simply facilitates further increase of black money. The message that this delivers is that there is no problem in having black money. It can be whitened at any time. This is depriving the government of revenue. Due to this policy of the government, we are perhaps living in a rule of black money.

The central bank is talking about controlling inflation. On the other hand we see they are also referring to IMF and mulling over lifting subsidy on power and energy. Electricity prices are being hiked. Yet we have to bear a massive burden of capacity charge. How do you explain that?

Mustafa Kamal Mujeri: On principle, the power sector cannot permanently be subsidized. Subsidies can be for a specific time. But the question is, why does subsidy have to be paid in the power sector? The expenditure in the power sector is more than the income. How do you break even? By increasing income and lowering expenditure. In the case of electricity, it is seen that there is pilferage and waste, and revenue is not earned properly. Our power sector has been built up as an extremely expensive sector. We have expanded the sector in an unplanned manner with no bearing on demand. Capacity charge is a major reason of increasing costs in this sector. When there was no electricity, rental power plants were set up to increase power generation. But does that mean we will go on paying capacity charge ad infinitum? In the power sector too, capacity charge has been made permanent. As a result, electricity costs are on a rise. On one hand we are nurturing inefficiency in this sector and protecting this, on the other we are hiking prices. This cannot be any policy.

In the budget, Tk 1,280 billion (Tk 1 lakh 28 thousand crore) will be allocated for payment of interest on the loans. This is double than what it was five years ago. How far will our economy be able to withstand this pressure?

Mustafa Kamal Mujeri: Whether it is foreign loans or domestic loans, the loans must be repaid. If the loans are not repaid in time, our ratings will fall further. In the coming days, the volume of debt repayment will increase. But the concern is that the flow of foreign investment has taken a downward turn. The policies that we have in place for foreign investment are like those of any other country which are able to draw in foreign investment. These are very attractive policies. So why are we not being able to bring in investment? It is because while all these facilities and benefits are down on paper, we have failed to implement these. Whether it is our projects or our policies, our main deficiency lies in implementation. In the case of the budget too, our biggest weakness lies in implementation.

Thank you.

Mustafa Kamal Mujeri: Thank you too.