Economic mismanagements for yrs led to current crisis: Wahiduddin Mahmud
Although the country's economic crisis is visible due to the global turmoil for the last couple of months, former caretaker government adviser and economist Wahiduddin Mahmud said economic mismanagements for several years have led Bangladesh into it.
Joining the "Bizweek" by private television channel Nexus Television, Wahiduddin on Sunday also said the authorities had to raise fuel prices abruptly as the fuel sector was accepted as a major source of government revenue.
"The rise in oil prices as a result of revenue collection mismanagement has triggered a panic across the country. Because of this panic, prices of essential items escalated manyfold putting the low and middle-income people in serious trouble," he commented.
The economist called for effective measures after assessing the crisis thoroughly.
He said almost all the countries are currently facing financial issues. Sri Lanka went bankrupt, while Pakistan is close to a collapse. Earlier, many countries went bankrupt, Sri Lanka's bankruptcy in Asia has added a new layer to the financial fear.
Wahiduddin Mahmud said, "We all are witnessing the visible tensions now. The Bangladesh Bank is trying to stabilise taka against the US dollar. But the kerb market shows severe volatility.
"Concerns have also arisen about the forex reserves. Because, the price of the greenback does not stabilise even after the central bank loosened the grip on the reserve. With this, inflation has emerged as a fresh source of economic worry."
He said diesel is a core item as it is used to produce a lot of things. Any hike in diesel price leaves marks in every aspect of people's lives.
He also said economists have been talking out financial sector issues such as rising defaulted loans and money laundering for a long time. In the current situation, the issues have taken a new dimension.
The economist said export and remittances were in a good position for many years, helping the government maintain its balance sheet better. But mounting import has surpassed the export and remittance earnings, putting a strain on the reserve.
"But the economy cannot survive with the whopping import against the shrinking export and remittance. Especially after three-four years, our debt repayment will be tricky," he commented.
Commenting there had been major mistakes in reserve management and exchange rates, he said the forex reserve, apart from dealing with future crises, is also a gauge of confidence for foreign donors.
"But considering the reserve akin to the budget, there were talks why this reserve is not invested. A large portion of the reserve, around $7-8 billion, has been allocated to a sector."
Wahiduddin Mahmud believes it is not possible to reduce imports by increasing the dollar price in an import-dependent country like Bangladesh, where industrial and agricultural inputs are imported.
"Panic is not good for any economy. As much as real economic crises occur, panic automatically deepens the problem," he noted.
Pointing out the weakness of revenue management, he said the government has to depend heavily on VAT and other import taxes as the amount of direct tax cannot be increased. While VAT is supposed to be levied on consumer goods, VAT on inputs such as fuel has become a major source of revenue due to revenue weakness.
Urging a well-thought-out decision on the interest rate ceiling, he said if the interest rate is unchanged, the real interest rate decreases due to inflation. The powerful want to take advantage of it.
"On the other hand, if the interest rate is left completely on the market, the volume of very risky debt increases. People who would default or smuggle money abroad do not care about the interest rates. Together they will raise interest rates so much that real businessmen would not borrow.
"So, it will not be right to leave the interest rate completely on the market or impose a harsh limit. This management should be efficient."
He feared that food security would be disrupted due to the fuel hike coupled with pricier fertilisers.
Expressing concerns that people's savings may decrease due to the increase in the cost of living, he said individual-level savings play a helpful role in meeting the budget deficit of the government. A decrease in savings may also decrease the amount of investment.
He also said that the entire problem in the economy is connected with one another. The whole problem should be comprehensively reviewed and a comprehensive decision should be taken.
