The real rate of growth in GDP in the current fiscal year may decline to 5.65 percent against the government’s target of 7.2 percent, predicts Unnayan Onneshan, an independent multidisciplinary think-tank.
The research organisation’s half-yearly assessment of the economy, coinciding with the end of the calendar year and the completion of the tenure of the present government, also states that the growth in GDP may fall below the decadal average of six percent due to fiscal and monetary management trap, functioned by lack of policy farsightedness and political contestations.
“The major reasons of failing to achieve the targeted level of growth of the current fiscal year are the increased gap between savings-investment, mismatch between investment demand and growth of credit to the private sector, poor rate of ADP implementation, failure to achieve the targeted level of revenue, reduction in public spending in physical infrastructure and social sectors. These have been accompanied with political contestations,” explains the think-tank.
The Unnayan Onneshan observes that several policy-induced macroeconomic challenges have severely restricted the maintenance of upward mobility of rate of growth in the recent fiscal years and the continuation of progress in different social sectors.
“The measures proposed in the budget, coupled with a contractionary monetary policy and orthodox exchange-rate management agreed as part of a three-year programme between the government and the International Monetary Fund (IMF) have led to slide in the rate of growth,” it said.
The Unnayan Onneshan points out that the lower collection of revenue is likely to reduce public investment, especially in infrastructure and social sectors, causing economic growth to decline. “To finance this increase in revenue expenditure, the government may have to go for further borrowing and thus trapping the country in a vicious circle of spiraling debt and deficit,” it adds.
The organisation observes that the narrow tax base along with structural weakness and the wide opportunities of evading and avoiding tax have added difficulties to collection of revenue in the present fiscal year.
The research organisation projects that at the current rate of revenue realisation, the gap between targeted and actualised revenue may increase to TK 8.18 billion, which is likely to reduce public expenditure in real and social sectors.
Public expenditure has already been suffering from either lower allocation or lower rate of growth.
Referring to the linkage between expansion of credit and growth in investment, the Unnayan Onneshan notes that the decline in the rate of growth in credit will drag down investment and consequentially slide down the GDP.
The organisation recommends for adjustment of monetary policy with fiscal policy since reductionist policies only cut down investment demand, creates unemployment and in turn hampers growth. It also proposes structural reforms in tax structure, strengthening institutional capacity in the areas of net, burden, avoidance and evasion of taxes in the backdrop of rising pressure on revenue collection.