Warns of debt trap amidst internal economic challenges
B Mirror Desk:
The proposed budget for 2024-25 can be termed a sacrificial lamb with its hands and feet tied, leaving no opportunity to move, said economist Dr. Wahiduddin Mahmud on Monday. Speaking at the “Economy Chart and Proposed Budget 2024-25” event organized by the Newspaper Owners Association of Bangladesh (NOAB) and Sampadak Parishad, he highlighted numerous issues plaguing the economy and the budget.
Dr. Mahmud emphasized that the budget is stifled by internal inflation, shortfall in revenue collection, stagnation in export and remittance flow, disorder in the capital market and banking sector, rampant corruption, irregularity in government expenditure, wastage, and unaccountability. Additionally, there is immense pressure to pay interest on both foreign and domestic debt, leading to a fragile overall economy.
“The low rate of revenue collection prevents creating a budget befitting a country of Bangladesh’s size. Consequently, expenditure must be reduced, impacting spending on social security, education, health, and development. This is compounded by the substantial burden of subsidies and capacity charges in the power sector,” Dr. Mahmud stated.
Dr. Mahmud noted that a significant portion of the budget deficit is met through bank loans, with fears over printing new money, which he deemed dangerous. He pointed out that private sector credit growth is estimated at 9%, but defaulted loans continue to increase, reducing opportunities for new loans. Consequently, private sector investment estimated in the budget is unrealistic.
He warned that the country’s extremely low revenue collection rate has been consistently neglected, leading to borrowing from domestic and foreign sources. The proposed budget also envisages borrowing to meet the deficit at half of the loan interest payments, raising concerns of a potential debt trap.
Dr. Mahmud also criticized the unregulated and vulnerable state of the country’s banking sector.
Power and Participation Research Centre (PPRC) Executive Chairman Hossain Zillur Rahman remarked that the finance minister mentioned three big actors in the proposed budget – the International Monetary Fund (IMF), the oligarchs, and the bureaucracy. He noted that the budget ensures their facilities are not reduced while public welfare is not prioritized.
“The finance minister did not consider hard working entrepreneurs and workers, as there is no initiative to reform the tax administration or improve the business climate. Costs for using mobile internet and buying motorcycles have increased, while the tax-free life expectancy has not,” Zillur said.
Salehuddin Ahmed, former governor of Bangladesh Bank, commented, “While it is said the budget is contractionary, the budget deficit is not. Reliance on bank loans has increased to meet the deficit. If the government borrows more, the private sector cannot borrow, affecting employment and particularly impacting the small and medium industry sector.”
He added that the banking sector is in dire condition due to an extreme lack of good governance. “Loan default has now become a business model where you take a loan from the bank and never pay it back. This model is ongoing,” Ahmed stated.
The event highlighted the significant challenges and vulnerabilities within the proposed budget and the broader economy. Experts called for comprehensive reforms and effective governance to address these issues and ensure sustainable economic growth.
