The Unnayan Onneshan (UO), an independent multidisciplinary think tank, in its year-end assessment of the economy has urged the government to adopt a medium-term strategy and encompass employment enhancement actions for fostering equality of opportunity in the society.
It also put emphasis on higher revenue collection through expanding the tax base, institutional reform in financial sector, increasing private investment through improved business climate and effective harmonisation of macroeconomic policies.
The issue identifies the medium-term macroeconomic challenges in the forms of inequality of opportunities, arrested productive capacity, ineffectual macroeconomic policy framework and resultant growth hiding in shadows looming large.
"The causes of elapsing prospects are more institutional. The gradual corrosion of institutions has constrained allocation of resources to channel efficiently into the productive sectors in order for the economy to get higher returns in terms of reduced welfare gap and expanded productive capacity," the UO said.
The UO in its monthly Bangladesh Economic Update mentioned that farsighted choice of macroeconomic policy regimes is critical to transporting the benefits of accelerated growth to the masses.
It cautioned that decline in the inflow of remittance coupled with recent inflationary pressure is likely to upset the rural economy since the remittance-recipient households in rural areas expend a significant portion of their income on consumption, health and education.
Referring to the unequal distribution of national income, the UO uncovers the façade of reported growth in gross domestic product (GDP).
The average rate of more than six percent growth in GDP in the last five years has not succeeded to bring benefits for the low-income people, as demonstrated by reduced rate of poverty alleviation and increased Gini coefficient.
The annual average reduction in incidence of poverty has declined of late according to the preliminary report on the Household Income and Expenditure Survey (HIES) 2016.
Annual average reduction in overall poverty as measured by upper poverty line fell to 1.2 percentage points in 2010-2016 from 1.7 percentage points in 2005-10 while the rate of reduction in extreme poverty as measured by lower poverty line declined to 0.8 from 1.5 percentage points.
The UO, referring to the World Bank, evinces that annual rate of growth in employment was 3.1 percent during the period between 2003 and 2010, whereas employment growth declined to 1.8 percent per annum during the period between 2011 and 2016, questioning the effectiveness of accelerated economic growth.
The twelve month average general inflation has been on the rise since May 2017. Average general inflation edged up to 5.59 percent in October 2017 while the average food inflation also increased to 6.89 percent.
The think tank shows that private investment as percentage of GDP has increased by less than one percent on average during the period between FY 2010-11 and FY 2016-17.
The research organisation warns that national savings, which have remained stagnant at 29-30 percent of GDP during the last decade, may further stagnate in the coming fiscal year. Consequentially, the target of increasing private investment is unlikely to be achieved.
The macroeconomic policy framework has not succeeded to boost the agriculture, industry and service sectors to their potential. Growth in agriculture has been on the decline, while growth in industry and service sectors stagnates.
Agriculture sector grew by 5.50 percent in FY 2005-06, and subsequently declined to 4.46 percent in FY 2010-11 and 3.40 percent in FY 2016-17.
Meanwhile, industrial growth remained stagnant at 9.80 percent in FY 2005-06, 9.02 percent in FY 2010-11, and 10.50 percent in FY 2016-17 while rate of growth in service sector was 6.60 percent, 6.22 percent and 6.50 percent during the corresponding years.
The UO notes that Bangladesh has the potential to increase the mobilisation of its revenue up to 22 percent of gross domestic product (GDP) whereas the total revenue mobilisation as percentage of GDP remained almost stagnant and stood at 11.65 percent, 11.66 percent, 10.78 percent, 10.26 percent, and 11.17 percent in FY 2012-13, FY 2013-14, FY 2014-15, FY 2015-16 and FY 2016-17 respectively.
According to the latest statistics, total collection of NBR tax revenue in the first four months of FY 2017-18 has stood at Tk 58,897.49 crore against the four months' target of Tk 65,458.58 crore, representing a 10.02 percent shortfall.
Taking account of the recent trend, the research organisation forecasts that the total collection of revenue may fall short of the target by Tk 38,900 crore in the end of the current fiscal year.
For the period of July-October 2017, revenue target was set at Tk 19,575 crore for income and travel tax, Tk 25,331.01 crore for value added tax (VAT) at the local level, and Tk 20,552.57 crore for import and export tax, while the actual collections fall short by 13 percent, 9.55 percent, and 7.78 percent respectively.
Furthermore, the rate of growth in revenue collection has declined in recent years, averaging 13.96 percent in the last five fiscal years (FY 2012 - FY 2017) compared to 18.4 percent in the preceding five fiscal years (FY 2007 - FY 2012).
The UO finds that almost one-fifth of the total non-development expenditure is allocated for interest payment, resulting in incapacity of the government to allocate more for resources for productive sectors.
The Unnayan Onneshan observes that "the public in general has to pump their tax money to rescue the stripped nationalised commercial banks through recapitilsation due to looting in these banks."
Against the target of Tk 164,085 crore as ADP expenditure in FY 2017-18, 20.11 percent (Tk 32,997 crore) of the total allocation was implemented during the first five months (July - November) of the current fiscal year.
As a result of deterioration in the trade balance with a deficit of more than USD 2,000 million compared to the previous fiscal year, the current account balance declined substantially in July-September 2017 compared to the corresponding period of the previous year.
The current account balance exhibited a surplus of USD 539 million in the first quarter of FY 2016-17, whereas the balance experiences a deficit of USD 1,791 million in the first quarter of FY 2017-18.
Inflow of workers' remittance was increased by 7.65 percent to USD 15,316.91 million in FY 2014-15, which subsequently declined by 2.52 percent to USD 14,931.15 million in FY 2015-16 and by 14.48 percent to USD 12,769.45 million in FY 2016-17.