When Sri Lanka was on the brink of bankruptcy in 2021-22, a common concern echoed throughout the region: could Bangladesh face a similar fate? Despite the economy's internal decay during that period, outwardly, it maintained a façade of stability.
Fast forward to 2023-24, the murmurs of impending economic doom may have faded, but the reality is that the country's economic situation is dire. Before delving into the reasons for this decline, let me reassure you: Bangladesh, by the grace of God, will not go bankrupt. The nation is bolstered by a large, young workforce and substantial remittances from abroad. These remittances are the lifeblood of our economy.
Worse than corruption for an economy are capital flight and counterfeiting. These two factors alone can decimate a nation's financial stability. In most of the world's major economies, businesses raise capital through the Capital Market, commonly known as the stock market. However, in Bangladesh, the stock market has been systematically undermined by corporate criminals like Salman F. Rahman, who prevent it from standing on its own.
Salman F. Rahman, single-handedly, crashed the stock market twice-first in 1996 and then again in 2011-by flooding it with shares from shell companies. This led to the siphoning off of billions of taka, leaving countless families destitute, with many heads of households driven to despair.
The government began passing huge deficit budgets, funding most of this deficit through borrowing from domestic sources, mainly commercial banks and the Bangladesh Bank. As the government borrowed more, the Crowding Out Effect set in, gradually cutting off access to credit for businesses. This trend persisted over the last decade.
As liquidity in banks began to dry up, making loans harder to obtain, the government's cronies continued to secure billions in loans, while small and medium-sized enterprises were left high and dry. This led to businesses being unable to open Letters of Credit (LCs), stifling trade. Job losses followed, and real incomes began to decline.
To curb inflation, the government adopted a contractionary monetary policy, aimed at reducing the money supply in people's hands. But by then, it was too late. The dollar rate soared, and the artificial exchange rate maintenance had drained our reserves, leading to a surge in informal remittances through hundi channels, where the rate was much higher.
The depletion of reserves led to a halt in the opening of LCs, disrupting imports and causing red lights to flash across businesses. People lost jobs, and wages declined. Meanwhile, the Bangladesh Bank's contractionary policies further reduced the money supply in banks and people's hands, but prices couldn't be brought down.
I also forgot to mention another culprit in this economic downfall: the National Board of Revenue (NBR). The NBR primarily implements the government's fiscal policy. A country's economic policy consists of two types: Monetary Policy (implemented by the Bangladesh Bank) and Fiscal Policy (implemented by the government through the NBR). The NBR raises revenue for the government, primarily through two types of taxes:
1. Direct Taxes: Such as income tax. 2. Indirect Taxes: Such as VAT, surcharges, duties, and tariffs.
Consider how a country's revenue sources should be structured. Ideally, the wealthy should bear the tax burden, contributing the lion's share of the nation's income. But our NBR imposes most of the tax burden on the general population through indirect taxes.
Let me explain how: Assume you earn 20,000 taka and spend 20 taka on a 250 ml bottle of water. The government imposes a 5 taka VAT on it. Now, whether a day laborer buys the bottle or a billionaire like Salman F. Rahman, both pay the same 5 taka VAT. Yet, this is the main source of our country's income! Meanwhile, billionaires receive tax exemptions and various incentives from the government.
The NBR's policy contradicts the Bangladesh Bank's all-out contractionary monetary stance. How can I cover a massive budget deficit without printing money? But if I print money, how can I control inflation?
Finally, let me end with a piece of disheartening news. A shocking revelation surfaced about a month before the government's downfall. In early July, Bangladesh Bank disclosed that there was a discrepancy of 23 billion dollars between the Export Development Bureau's calculated export earnings and actual export earnings. Over the past 20 months, 2.3 billion dollars have disappeared.
As a result, the Financial Account shifted from surplus to deficit, and the Current Account went from deficit to surplus. The implications of this for Bangladesh's economy are catastrophic. The entire budget is based on calculations of export earnings, GDP, GNP, and per capita income. Economists formulate policies based on this data, advising on how to run the country. If there's a deficit, one prescription is given; if there's a surplus, the opposite is advised.
So, what does this mean? It means that the entire budget-GDP, GNP, national income and expenditure, export-import figures-everything is based on false premise!
The writer studies MSS in Economics at University of Chittagong 
