Post-election economic priorities
Whatever the outcome of the election is, the upcoming government to be formed faces some challenges from the onset of its tenure given both local and global economic conditions. Given the challenges, the government must dive into the issues and come up with corrective measures immediately after taking charge.
Taming the rising inflation: The focus must be on limiting public expenditure through all possible measures by re-assessing needs and rooting out inefficiencies. It is high time the government re-thought the future and purpose of the consistently loss-making state-owned enterprises (SOEs). Do our taxpayers really need to carry the burden of their inefficiencies?
The government should also prioritise infrastructure projects based on economic outcome and urgency. Despite significant achievements in our infrastructural development, the time is now to exercise discretion and conservativeness in initiating new mega projects.
The government should also increase transparency in public procurement and foster quicker completion of existing projects to reduce inefficiencies caused by unfair practices. Reducing the fiscal budget and sacrificing GDP growth, along with raising interest rates and addressing supply-side inefficiencies will help control inflation, which has reached double-digit figures.
Stabilising the forex market: It is of utmost significance that the foreign exchange market is stabilised by taking appropriate measures. As of 2022-23, the total external debt position of Bangladesh is $62.3 billion, an increase of 62 percent during the current tenure of the government and the number has increased in the last five to six months.
Some 41 percent of this debt position is bilateral loans with stricter terms as compared to multilateral loans. The repayment of these loans will be one of the major challenges for the upcoming government. Given the current level of foreign reserves and the depleting trend, these numbers may start ringing alarm bells soon.
Ensuring adequate liquidity: In order to ensure seamless commercial activities, necessary actions must be taken. We need structural changes in the banking sector with improved governance that addresses our longstanding non-performing loan (NPL) situation. Reducing NPL and bringing down operational costs through digital transformation will allow the financial sector to generate optimal returns on their capital base, thus leading to improved liquidity.
The forex market requires pragmatic steps to reduce the dominant prevalence of unofficial channels. The central bank must take every step possible to keep remittance inflows and the outflow of forex in official channels. With the kerb market rates nearly 10 percent above official rates, that will not be possible even with increased incentives. We have to look beyond.
Expanding the revenue base: While being thrifty with spending is one side of the coin, revenue generation is the other side that the government should put more emphasis on. Tax reform is an ongoing process, and the government should work to ensure further compliance with the tax code.
In the coming years, the government should utilise more digital platforms and technology to reduce evasion and keep track of personal finances. With customs and trade facilitation, customs procedures can be streamlined and smuggling and illicit trade can be combatted to ensure higher contribution to government revenue and foreign exchange reserve.
SOE privatisation is another avenue that previously worked for a lot of governments in reducing operational costs, which would help the fiscal budget.
While these aspects are important, some other reform areas have been widely discussed for a while now. Our central bank needs to be a tad bit proactive at times. We have seen delayed responses when it comes to lifting the interest rate cap on lending, stopping the printing and lending of the taka, and deciding to opt for a market-driven exchange rate. It is extremely important for the government to set monetary policies and control mechanisms that reflect the ground reality.
The author is an economic analyst