Finance adviser talks about govt’s 3 strategies to ease economic strain
Photo: Prabir Das/Star
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Photo: Prabir Das/Star
The interim government has an uphill task of fixing the economy it inherited from the Awami League government of 15 years, said Finance Adviser Salehuddin Ahmed.
“When the interim government assumed power, it inherited a problem-driven economy — the situation was more dire than people thought,” he told The Daily Star in an interview on Monday.
For all latest news, follow The Daily Star’s Google News channel. There were external problems, but the underlying domestic issues were even more acute: the foreign exchange reserves were depleting rapidly, inflation was stubbornly high and the balance of payments was negative.
“Even though we are not in the situation where we want to be, things are improving.”
The new government inherited another big problem: outstanding letters of credit dues of upwards of $4.5 billion.
“Without touching the foreign exchange reserves, the new government repaid it, and the outstanding amount dropped to $400–500 million.”
The foreign reserves are stable now, said Ahmed, also a former governor of Bangladesh Bank.
The interim government has adopted a three-pronged approach to steadying the ship: raising the buffer stock of food, ensuring steady stream of liquidity for businesses and creating jobs through realignment of the annual development programme (ADP).
Photo: Prabir Das/Star
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Photo: Prabir Das/Star
He said the government has been able to steady the wobbly banking sector and ward off a complete collapse of the system.
“The situation was so dire that there was widespread fear that banks could run out of money anytime. It is rare for a bank to be emptied by a few individuals — no country in the world has experienced such a phenomenon.”
Some banks are rebounding, including Islami Bank and Social Islami Bank. The two banks were controlled by the Awami League-affiliated S Alam Group.
The strong remittance inflow has provided some relief to the Shariah-based banks, helping them to revive their health.
“We have implemented targeted measures for the banking sector so that savers do not lose confidence. The central bank provided over Tk 20,000 crore to the banks and now people are no longer struggling to get their money back.”
The new governor is trying but the mismanagement and poor decisions of the previous regime have created a deep-rooted problem that is hard to fix, Ahmed said.
For instance, a huge volume of defaulted loans has been stuck in the courts for a long time.
“The backlog in the courts is enormous. If this continues, the situation will only get worse.”
Immediate actions such as a special judicial bench are needed to resolve the pending cases quickly.
“But this requires focused attention and significant effort. I will sit with the law adviser and the chief justice soon and urge them to launch a special bench for clearing these backlogs.”
The government has stopped the provision of giving amnesty to black money though the system still contains ways to legalise undeclared wealth.
For instance, people are selling properties for prices far higher than their registered value.
This creates massive amounts of unaccounted money, which are funnelled into buying cars, appliances or other assets.
“This creates a system where black money thrives — we will try to address this.”
Regarding corruption in government projects, he acknowledged that the menace still remains.
Photo: Prabir Das/Star
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Photo: Prabir Das/Star
“We are trying to tackle this, but it’s not easy. The same old players remain in the system under new names, making real changes difficult.”
Asked about the grievances of the White Paper Committee about the government’s failure to implement the recommendations, he said: “We will review their suggestions within the next two to three months, but some of them have been addressed.”
For example, the government has established task forces to bring back billions of dollars siphoned out of Bangladesh and has sought international support where necessary.
The interim government is also trying to fix the tax system, which is responsible for one of the lowest tax-to-GDP ratios in the world.
The previous government has issued several statutory regulatory orders to benefit certain firms and individuals, Ahmed said.
“After coming to power, we cancelled the SROs. We are separating the tax policy from the tax administration. In 2008, the government tried to do this but failed. I know some officials are standing in the way — who wants to give up power? But I will implement it before I leave.”
Ahmed blames the persistently high inflation on supply-side issues.
“It’s not that essentials are unavailable — they get stuck in one place without being distributed.”
He pointed out that even officials like consumer rights officers or magistrates can’t bring about meaningful changes alone. Extortion during transportation of goods is also raising costs, which is fuelling inflation.
Regarding the recent increase in value-added tax and supplementary duties, he said the tax rate has already been brought down for several goods and services that are widely consumed by the general public.
“The rest do not affect the general population. For instance, the VAT on biscuits priced above Tk 200 per kg is logical. Whoever buys biscuits that cost Tk 200 per kg has the ability to pay VAT.”
Asked about the ADP, he said the interim government will focus on local roads and culverts to boost rural job creation.
It will not take on any sophisticated project but continue with existing mega projects such as the deep-sea port, he said, adding that the ADP budget may be pruned by about Tk 50,000 crore.
“Some people criticise us for not revising the budget introduced by the previous government. Actually, it is difficult to revise the budget in such a short period. Though the budget was not revised, we have cut government costs except for the necessary expenditures.”
One such necessary expenditure was vehicle purchase for the Bangladesh Police as 300 of their vehicles were burnt down during the July uprising.
“The next budget will be pragmatic — it won’t be an unpopular budget.”
Yet, the much-maligned power sector subsidy will continue. “Otherwise, people and businesses will suffer.”
The main targets of the budget will be macroeconomic stability, containing inflation, ensuring energy supply and taking steps for the agricultural sector so that farmers do not suffer, Ahmed added.