Influentials hamper reform process : Economists
05 February 2023
Staff Reporter :
Bangladesh needs institutional reform to overcome economic challenges, but undue influences of the powerful quarters thwart the process, said the country's noted economists on Saturday.
They were also skeptical about the implementation of a set of reforms tagged by the International Monetary Fund (IMF) with its $4.7 billion credit programme to Bangladesh.
They came up with the observations at the SANEM'S (South Asian Network on Economic Modeling) 6th economic conference held at the BRAC Centre Inn in the capital. The economists also questioned the country's quality of growth as it cannot create jobs and reduce inequality.
Speaking at the inaugural ceremony of the conference, renowned economist Wahiduddin Mahmud said Bangladesh would hardly have needed to go for a sudden hike in fuel prices last year had the government waived Value Added Tax (VAT) on petroleum.
"VAT is in principle a tax on consumption and is imposed on intermediate goods only as matter of expediency. But a universal intermediate input like fuel should not be a major source of VAT revenue collection," he added.
Wahiduddin, was speaking in a session on 'Rowing against the tide,' said that the sudden hikes in international high fuel prices have been the trigger for the current global economic crisis.
He further said, that the usual IMF prescription of aligning domestic prices to global prices is generally a good idea and can be justified only if targeted to very specific groups or for specific purposes, such as fuel needs for irrigation by poor farmers.
"But very sharp and sudden hikes in domestic fuel prices lead to price increase across the board at a time when there is already inflationary pressure in the country," he said.
"The problem is exacerbated if the government has to rely heavily on fuel taxes for revenue purposes, as is the case in Bangladesh, where VAT on fuel is an important source of revenue," he added.
Mentioning the global food prices, the economist said the present crisis has been a reminder that there should be renewed emphasis to food security in terms of investments in agricultural research and extension, food storage and public food distribution programmes.
About the depletion of the country's foreign currency reserves, he said, "The amount of forex reserves doesn't matter. But it is alarming, when it is going down as it will be difficult to prevent the downtrend."
Mentioning defaulted loan reduction is one of the major conditions to get the IMF's $4.70 billion loan, Wahiduddin said, "I have seen for many decades, if only signing the paper will reduce the defaulted loan? It is absolutely a political matter."
Citing no alternative to government spending to ensure education, he said, "The private sector will be complementary. In India and Nepal, government spending on education is more than 5 per cent. Bangladesh and Sri Lanka are now equal in terms of government spending on education."
Selim Raihan, Executive Director of SANEM, said the ongoing economic challenges of Bangladesh came from structural weakness, decade-long ignorance and lack of interest in reforms.
He said that the government and people are unclear about the objective of reforms. Vested groups resist implementation of reforms.
"We have actors with high interest in reforms but they have little influence. On the other hand, there are some actors who have high influence but have little interest in reforms," he said.
Hossain Zillur Rahman, chairman of the BRAC and PPRC, also said that influential people hamper reforms.
"Problem in Bangladesh is that people with high influence also have high personal interest. That is why they do not have any interest in reforms," Zillur said.
He said that Bangladesh has had a lot of structural problems for many years and they spent many times discussing those. But the policymakers expressed lower interest to solve those types of problems, he said.
Zahid Hussain, former lead economist at the World Bank's Dhaka office, said, "Interest of some of the influentials is accumulating wealth with rent-seeking without engaging in any productive activities, which decelerates the reforms initiatives,".
He said that the World Bank proposed gender reforms four years ago to increase female labour participation. The cabinet approved the child daycare centre act in 2017 as a part of that reform but the government forgot about the implementation of the act.
State Minister for Planning Shamsul Alam, Centre for Policy Dialogue Chairman Rehman Sobhan and Executive Director of Policy Research Institute (PRI) Dr Ahsan H Mansur, among others, spoke on the occasion.
