In an economics conference on 5 March, finance minister AHM Mustafa Kamal said he had lowered the interest rate as industries were unable to survive when it's 28-30 per cent. But the banks in Bangladesh had never set such an interest rate in the past. Where did the minister find this information?
As per the rule, every bank sets its interest rate and informs the Bangladesh Bank when this will be effective. Will the central bank be able to provide information as to when 28-30 per cent interest rate was set? Will the minister be able to provide this information?
At the same conference, prime minister’s private sector affairs adviser Salman F Rahman said inequality will increase if development takes place. Is the statement true? If we look at Sweden, a developed country, we see a different picture. Its central bank was founded even before the Bank of England. Bank of Sweden is the founder of Nobel Prize as well. Sweden is a model of economic development based on equality.
Gini ratio is a recognised method by the economists to assess income inequality. If the ratio is above or below .3, the income inequality is normal. It is tolerable if it is around .4. If the ration reaches to .5, it indicates extreme inequality.
Prime minister’s private sector affairs adviser Salman F Rahman said inequality will increase if development takes place. Is the statement true? If we look at Sweden, a developed country, we see a different picture
Gini ratio remains up and down between .29 and .32 in Sweden for long. So the resourceful country has a suitable distribution system for all. Many may think Sweden is exceptional. But that is not right. Norway, Denmark, New Zealand and Switzerland are following the Sweden model. Gini ratio remains .3 to .4 in these countries. Germany is also tolerable in terms of income inequality. The development in these countries means development of the people. The development does not mean only a few people becoming rich.
Most of the European countries follow modern socialistic economy, another name for welfare economy. The Bangladesh constitution includes welfare economy. In communist economy, only the state is the owner of assets and citizens are only allowed to use it. As per the Bangladesh constitution, wealth can be kept by the citizens, the state and the association. So the socialism of Bangladesh indicates welfare economy. The indicator of welfare economy is the tolerable level of income inequality and the gini ratio will remain around .4. But gini ratio in Bangladesh is .5, which indicates extreme inequality. This inequality is against the spirit of the Liberation War, constitution and principles of Bangabandhu. People like Salmans are supporting extreme income inequality.
What is the way to come out of extreme inequality? What is the way to return to Bangabandhu’s welfare economy? The way is to follow Sweden. The government does not have that sort of capacity, but it is at least possible to progress if we follow the likes of India.
A citizen has to pay tax if his income is Tk 250,000 in Bangladesh. Despite lower growth in India than Bangladesh, an Indian citizen pays tax if income is above 500,000 rupees. The level of poverty in Bangladesh and India is almost similar. India is setting tax for rich people dropping middle-lower classes, and the country is running the state. On the contrary, Bangladesh is setting tax harming the poor people. With the money from the poor, the government is meeting expenses of the civil and military sectors.
So the socialism of Bangladesh indicates welfare economy. The indicator of welfare economy is the tolerable level of income inequality and the gini ratio will remain around .4. But gini ratio in Bangladesh is .5, which indicates extreme inequality. This inequality is against the spirit of the Liberation War, constitution and principles of Bangabandhu. People like Salmans are supporting extreme income inequality
The rich people in Bangladesh either do not give tax or give a little of amount. Tax is collected from the poor to run the state. Like India, keep up to Tk 500,000 free of tax. Capacity has to be built to collect tax from rich people.
Salman F Rahman has made another confusing statement. The ratio between tax and GDP is low due to tax exemption.
There is a tax exemption in every country. Tax exemption in India is up to Tk 600,000. But there is no such exemption in our country. So the statement of Salman is not true.
I have been astonished at the statement of Bangladesh Bank governor Fazle Kabir at the conference.
Citing the example of India, he said the amount of default loan is not very high. Why did he give the example of India ignoring Sri Lanka, Nepal, Malaysia, Singapore and Indonesia and Philippines?
Politicians say many things. But does it suit the Bangladesh Bank governor to give such a statement? Governors across the world do not give such statements. The statements of the governor should alert the government about malpractices, not to laud them.
We hope the policymakers would serve the people the right information.
Khondokar Ibrahim Khaled is a former deputy governor of Bangladesh Bank.
This piece, originally published in Prothom Alo print edition, has been rewritten in English by Rabiul Islam.