Dr. Ahsan H Mansur
Executive Director
Policy Research Institute

Interviewed by Akhlaqur Rahman Sachee, Team MBR

Dr. Ahsan H. Mansur started his career as a lecturer in the Department of Economics at the University of Dhaka in 1976. He joined the International Monetary Fund under its Economist Program in 1981 and thereafter completed his PhD in Economics (on general equilibrium analysis) from the University of Western Ontario in 1982. He also served as the Fiscal Advisor to the Minister of Finance, Government of Bangladesh (1989–91), and was involved with the successful introduction of Value Added Tax in Bangladesh in 1991. Team MBR was in a conversation with Dr. Mansur and was fortunate enough to receive his take on the national budget 2022–23.

Akhlaqur Rahman Sachee: What are the aspects in which you think the national budget 2022-23 is different from the national budget 2021-22?

Dr. Ahsan H. Mansur: In comparison to past fiscal years, the size of the national budget 2022–23 relative to the estimated GDP is comparatively small. It is around 15.20% of the estimated GDP, which may ultimately stand at around 13% by the end of the financial year, whereas the budget size used to be mostly in the range of 17% to 18% in the last ten years. The budget deficit has been projected to be 5.50%, which has been overestimated to some extent, in my opinion. By the end of the financial year, it may stand at 5%, which is quite okay for an economy like ours. Overall, this budget cannot be called an expansionary budget, and this is also not the right time to propose an expansionary budget. As we know, the government intends to control inflation, and it has declared the target inflation to be 5.60%. Also, the government aims to ensure macroeconomic stability through the proposed budget. From that perspective, a relatively small budget like the one that has been proposed will be helpful in achieving the macroeconomic stabilization objectives. However, the government seems to be very ambitious about the GDP growth rate, as the target GDP growth rate has been declared to be 7.50%. In my opinion, high GDP growth rate should not be an objective this year. It is macroeconomic stability that should be given the utmost priority. As a part of that, efforts should be made to control inflation, stabilize the exchange rate, and reduce the sizable imbalance in the balance of payments. The government has already taken some initiatives to reduce budgetary expenditures by BDT 40 billion. The effort must be carried on, and measures need to be taken to reduce the expenditures further.

Akhlaqur Rahman Sachee: The national budget for FY 2022–23 has been approved right at the moment when the economy is experiencing severe inflationary pressure. How helpful will the budget propositions be in curbing inflation?

Dr. Ahsan H. Mansur: Budget is one of the most significant tools for macroeconomic management. To control inflation, demand needs to be suppressed, and a relatively small budget helps to achieve that purpose. As I mentioned earlier, this financial year’s budget is relatively small. The proposed budget is in line with the government’s objective of controlling inflation. But, there is much more to be done in this regard to reduce the demand pressures in the economy. The budget deficit should be brought down to 4.50% to 5%. Also, the dependence on bank borrowing must be cut down. It should also be kept in mind that the budget alone cannot control inflation. Monetary policy support is required simultaneously. External sectors must be kept under observation as well. It has been observed that there is not adequate monetary policy support. As the government has already set the floor (6% for deposit rates) and the ceiling (9% for lending rates) of interest rates, Bangladesh Bank (BB) has been left with no policy tool to formulate an effective monetary policy. The interest rate is the most effective instrument of monetary policy that can be tweaked to control demand and thereby inflation. The interest rate cap will act as a barrier on the way to achieving the target inflation rate of the proposed budget. The newly announced monetary policy does not contain any statement regarding the increase in interest rates, which is a problem in coordinating the fiscal policy and the monetary policy. An increase in the interest rate structure is required to achieve the targeted inflation rate and stabilize the exchange rate. Also, it must be ensured that fiscal and monetary policies are perfectly aligned.

Akhlaqur Rahman Sachee: Corporate taxes have been reduced further in the national budget for FY 2022–23. Do you think that this tax cut will encourage investment and create more job opportunities?

Dr. Ahsan H. Mansur: Measures to reduce corporate taxes deserve appreciation. Our corporate taxes are a bit higher compared to other countries, and the government is trying to reduce the gap gradually. However, the applicability of the reduced corporate tax structure is subject to the fulfilment of some conditions, which will be challenging to comply with for more than 90% of businesses. At the time of budget announcement, corporations were allowed to limit cash transactions to below BDT 12 lakhs to remain eligible for the reduced tax structure. Under pressures from the business community, this limit was increased to BDT 36 lakhs, which is still only BDT 3 lakhs per month. This is going to be very difficult to comply with for any large corporation. It would have been better if it had been increased to BDT 50 lakhs at least. The government could have reduced the limit later on gradually. Only then will the policy be more beneficial to corporations.

Akhlaqur Rahman Sachee: The launch of digital currency has been addressed in the national budget speech. Would you kindly share with us your thoughts regarding the prospects of digital currency in Bangladesh?

Dr. Ahsan H. Mansur: Possession or trading of cryptocurrency is still restricted by the Bangladesh Bank. If we take a look into the developed countries, the popular cryptocurrencies are mostly operated by private companies. They are not backed by any sovereign central bank. There are lots of other issues associated with them, especially their extreme volatility. From an investor’s perspective, they are simply some instruments for speculation. In my opinion, cryptocurrencies should remain restricted. However, initiatives to transform the central bank-backed currency into electronic currency can be appreciated. It is still not being practised at the retail level globally. European central banks have introduced the practice at the wholesale market, and China has made significant progress in the retail market. But, in the context of Bangladesh, this is just at the announcement phase right now. It will take decades to formulate an effective policy to introduce a central bank-backed e-currency. The scenario is almost the same in our neighbouring country, India. Before the introduction of such a currency, there must be robust technology platform in place to ensure the security and integrity of the system, and the currency must be highly regulated by the central bank. Also, only the central bank should have the sole authority to introduce such a currency. We cannot just rely on any currency brought into the market by any private initiative.

Akhlaqur Rahman Sachee: In your opinion, how impactful is the national budget for FY 2022–23 going to be in making our startup ecosystem flourish?

Dr. Ahsan H. Mansur: Most startups do not make a profit, so the tax which is most applicable to them is the turnover tax. The government has proposed a reduced turnover tax of 0.10% and waived all other filings except the submission of income tax returns, which is subject to fulfilment of some conditions. Indeed, the initiatives are to be appreciated. But, there are lots of other things that can be offered, such as incubator facilities, angel funds/grants, soft loans, guidance to secure foreign funding, etc. Initiatives should also be taken to develop the venture capital market. The startup sector is a growing sector, and the government should provide all the facilities required to make the growth sustainable. It is not unknown that most of our large local corporations rely mostly on India for tech support. However, there are lots of local IT startups being run by talented tech experts that can meet this market gap. These startups should receive proper nursing and support from the government.

Akhlaqur Rahman Sachee: What measures of the national budget for FY 2022–23 do you think will be helpful for the local manufacturing industries to be protected? What else can be done in the future, in your opinion?

Dr. Ahsan H. Mansur: To be frank, our domestic industries are already well protected, and they do not need any further protection. Rather, they should be encouraged to face the competition of the open market. Our level of protection, in fact, is higher than most countries. The average effective protection rate was more than 27% in the last financial year, whereas it was 9% in India, 7% in China, and 4.70% in the ASEAN countries. Some initiatives to reduce the gap in the balance of payment have helped the domestic industries to be protected further in turn. As a result, the average effective protection rate may have reached 29%, which is undesirable. Domestic industries will be uncompetitive unless we reduce protection. If they remain insulated like they are now, they will eventually become inefficient. On the other hand, Bangladesh is graduating from the LDC bloc. To get into preferential trade agreements, let alone free trade agreements, with other countries, the level of protection needs to be reduced further. So, the government should gradually take away the protective measures and get the domestic industries ready to face the challenges of the open market in the coming days.

Akhlaqur Rahman Sachee: Like other economies, Bangladesh’s economy is still COVID-scarred. Do you believe the national budget proposals for FY 2022–23 will help the economy return to pre-pandemic levels?

Dr. Ahsan H. Mansur: If we take a look at the current GDP size and the current per capita income, the figures have already surpassed the pre-pandemic levels. Our current per capita income is more than USD 2800, which is greater than that of the pre-pandemic level. The issue is not about surpassing the pre-pandemic level of economic activity. Rather, it is about facing the concurrent hostile global economic environment. Lots of countries around the world are now going for massive petroleum and gas price increases or rationing of supplies. We may need to walk along the same path. We may need to shut down some of our inefficient power plants using excessive amounts of natural gas to generate the same amount of electricity temporarily. The situation will certainly not be as horrific as in Sri Lanka. But, barriers like the aforementioned ones will be in our way in the upcoming days, and facing them ahead of time will be the biggest challenge this year. The cost of imports has risen significantly, which should be controlled without any further delay. A smooth supply of energy and necessities must be ensured, even if it is at the cost of higher prices and shaving some growth in income. Foreign exchange reserves must be kept under strict observation as well. Post-pandemic supply chain disruptions have affected our economy badly. The war between Russia and Ukraine has made the situation even worse. To face all these challenges and their aftermaths, we need to be extremely cautious about our every move. If we can successfully overcome this challenging situation, our economy will again reach new heights as it always did.