The government has to prioritise vaccination against Covid-19 for all people in the first two years of its eighth Five Year Plan to free the country of the pandemic, said experts at a webinar on Tuesday.
Otherwise, it will be very difficult for the economy to return to pre-pandemic times, they added.
The pandemic cannot be fought only with monetary policy. The economic recovery also needs to get attention in the fiscal policy, they said in a review discussion titled the "Eighth Five-year Plan addressing Covid-19 challenges and sustainable LDC graduation", organised by the Centre for Policy Dialogue (CPD).
Reforming revenue policy, creating business-friendly investment, ensuring autonomy of the Bangladesh Bank, forming a banking commission, reducing non-performing loans and other economic reforms are also very essential, they said.
In 2024 when Bangladesh will move out of the least developed country (LDC) status, the country will lose duty-free facilities in many countries. There will be a big change in exports and foreign loans will also be expensive. So, the country needs to focus on economic diversification, they pointed out.
While presenting a keynote paper, CPD Executive Director Fahmida Khatun said the revenue-GDP ratio target of 16.1% by FY20 will be missed by a large margin. The ratio reached 10% only once during the seventh Five Year Plan.
Moving away from the ambitious revenue collection target, the government set the new target of 14.1% under the eighth plan. A massive reformation is required in the revenue sector even to meet this target, she added.
She said very narrow fiscal space manifested particularly in the last two years that originated from low revenue-GDP (and tax-GDP) ratio led to low public expenditure.
The Covid-19 pandemic has posed further pressure on revenue collection in the backdrop of higher public demands, Fahmida added.
Public expenditure should be revisited in the eighth Five Year Plan in view of addressing Covid -19, LDC graduation and SDG implementation, the CPD said.
Famida said corruption, inadequate infrastructure, and inefficient government bureaucracy were the top three problematic factors for doing business during the seventh five year period.
A number of institutional measures such as VAT reform, Financial Reporting Council Bangladesh, One Stop Service, and setting up Competition Commission and Financial Reporting Council, and reduction of number of regulatory hassles in opening businesses, have been initiated.
These initiatives are yet to generate expected results in the form of attracting local and foreign private investments.
Major reforms, including in public and banking sectors, income tax, subsidy, tariff, and the ease of doing business are yet to be undertaken, she said.
The CPD said during the Covid period, major manufacturing industries have experienced a slump in demand. Small and medium enterprises were hit the hardest. Majority of enterprises have been in operation below their pre-Covid level capacities.
The CPD also said the loss of preferential market access as an LDC in major export markets, particularly in the European Union, would have an adverse impact on price advantages of Bangladeshi products. The possible fall in the export (around 5.7% annually) can cause loss in employment, particularly in the RMG sector.
According to the General Economics Division's report-2020, loss of preferences in major markets would cause a loss of $7 billion per year. Since the RMG sector would be the major export sector in the post-graduation period, an estimated 538,770 RMG jobs could be lost due to preference erosion.
Bangladesh would face further competitive pressure in the international market due to the signing of regional and bilateral trade/investment/economic partnership agreements. Employment in export-oriented industries would be under further pressure in view of these agreements.
The CPD also mentioned that a major benchmark issue of the eighth five year plan for discussion would be whether the targeted public and private investments in the first year of the 8th plan (2021) could be delivered in the backdrop of major shocks in FY20.
Post-graduation from the LDC would be a challenging period for ensuring employment growth, particularly in the export-oriented sectors.
A proactive employment-focused strategy through investment and industrialisation will be needed to address the challenges.
Famida said the Bangladesh Bank's guidelines on Risk Based Capital Adequacy (2014) state that banks in Bangladesh must maintain a minimum total capital ratio of 10% (or minimum total capital plus capital conservation buffer of 12.5%) by 2019, in line with BASEL III.
State-owned commercial banks have failed to maintain minimum capital adequacy requirements since 2013. Development finance institutions are critically under-capitalised.
She said although 11 new banks were awarded licenses to begin operations during 2013 to 2016 on the grounds of increasing financial inclusion of the poor, districts with relatively higher rates of poverty had lower levels of banking activities.
Dr Zahid Hussain, former lead economist of the World Bank's Dhaka office, said, "The first challenge will be ensuring Covid vaccination for all in the first two years of the eighth plan. The second challenge is the inclusion of all in economic progress." The government is dealing with the pandemic through monetary policy. The fiscal policy also needs to be included in doing so, he added.
Professor Rehman Sobhan, chairman of the CPD, said, "Most initiatives taken in previous five year plans remained unimplemented."
He emphasises bringing workers of the informal sector under safety net programmes.
Dr Ahsan H Mansur, executive director at Policy Research Institute of Bangladesh said, "Employment is a big challenge for us. We are still over-dependent on agriculture, which needs to be reduced."
There are inconsistencies in investment and employment indexes with the economic growth, he added.
Dr Mostafizur Rahman, distinguished fellow at the CPD, spending on social safety net programmes and healthcare will increase in the eighth five year plan. So, some low priority sectors will not get much funding.
Dr Shamsul Alam, member of the Planning Commission, said, "Monetary and fiscal policies are important for the economic recovery but we need to reform various sectors too."