Noted Economist Dr Debapriya Bhattacharya on Thursday called for a ‘transitional policy understanding’ to overcome the ongoing financial turmoil in the country’s economy.
"The main villain of the economy is the weakness of the financial sector. The reason for this is the lack of reforms that have been accumulating for a long time. Its effects are now visible. We are unable to move forward without a transitional policy,” he said.
Debapriya, a distinguished fellow of think tank Centre for Policy Dialogue (CPD), made the remarks at a media conversation with economic reporters on “Overcoming the Current Economic Challenges – Towards a Transitional Policy Understanding.”
“The current crisis is only a symptom of the disease, because of the lack of reform. He said that the government has to reduce the subsidy to deal with the crisis in the financial sector. But now it was more necessary to give subsidies to protect poor people to control inflation,” he said.
He said Bangladesh’s economy is yet to go back to the pre-COVID benchmark and experiencing fragmented recovery and macroeconomic stability is under high stress, particularly due to inflationary pressure and unstable foreign exchange rate with the local currencies.
Besides, the global economy’s prospects for FY23 --commodity price rise, supply chain disruption, and logistic, increase in transportation cost – are bad for Bangladesh, he argued.
In such a situation the economy needs a transitional policy understanding for a period of 2-3 years to overcome the uncertainties (national and global) for stabilization and consolidation of the economy with a short-term outlook.
Export-Import deficit of USD $33.25 billion, the current account deficit of $18.70 billion, and the overall external deficit of $5.38 million, these are the symptoms of the disease, not the disease itself, he mentioned.
The revenue share in GDP did not go up more than 10 per cent of GDP, the share of income and asset tax in total revenue stagnated at around 30 per cent, and the budget deficit was increasingly being funded by borrowing from banks, all are the elements of fiscal mismanagement, he said.
In reply to a query, he said the recent fuel oil price hike is disagreeable and imprudent, the economy will not be benefited from this move in the current context domestic economic situation, he said.
Debapriya pointed out that the government has cut subsidies in the oil sector, which are now diverted to pay the capacity charge of rental power plants.
He urged to increase the interest of bank lending to 12 per cent for a moderate credit growth, and protect depositors increasing its rate to 8-9 per cent.
He also called for ending the direct central bank’s interference in fixing the exchange rate, rather it should be fixed by the competitive market rate.
In reply to another query, he said people will pay revenue eagerly when they can see transparency and adaptation in government expenditure including procurement.