Published in The Daily Star on Wednesday, 9 April 2014.
View more news reports on the meeting
Concern over growing underground economy
Star Business Report
The government is set to conduct a new study on the underground economy after economists voiced concerns about the rise of black money and capital flight.
“Alongside the increase in economic growth rate, the underground economy also expanded,” Finance Minister AMA Muhith said after a pre-budget meeting on Monday with the country’s leading economists.
Citing a study conducted during his last stint as finance minister, he said the government will start another study on the size of underground economy next year, likely to be concluded in two years’ time.
The finance minister said many economists raised the issues of capital flight and increase in black money at the meeting.
“I am not sure what can be done in this regard,” he said, adding that investment ratio compared to GDP has been “stagnant” at 24 to 26 percent and savings rate is 29 percent.
Muhith said it shows that the underground economy in the country is expanding, while advocating for steps to increase investment in a bid to reduce the size of the black economy.
The size of the underground economy in Bangladesh was only 7 percent of nominal GDP in 1973, according to a finance division study conducted in 2011. Since then, it increased phenomenally, and in 2010, stood at 62.75 percent of GDP.
In the meeting, Mustafizur Rahman, executive director of the Centre for Policy Dialogue (CPD), quoting a global study, said around $1.5 billion capital flight takes from Bangladesh every year.
To increase the National Board of Revenue’s (NBR) earnings, appropriate measures will have to be taken to stop capital flight, under invoicing and over invoicing.
Rehman Sobhan, chairman of CPD, said the government may introduce bonds to increase people’s participation in the Padma bridge project, which it has resolved to construct with own resources.
Bonds can also be introduced for proper utilisation of remittance sent in by the expatriate Bangladeshis, he said.
Quoting a World Bank study which said about $100 billion will be required by 2020 to meet the investment needs for infrastructure, Sobhan said the government may use these bonds to fulfil the investment gap.
The finance minister termed the suggestion a good one, adding that the proposal should be actively considered.
Former finance minister M Syeduzzaman said, in recent times the private sector has been taking loans of about $1 billion every year. He recommended caution from the government, lest the private sector fails to repay the loans and interests and it becomes a burden for the government.
In response, Muhith said the interest on private sector’s foreign borrowing is even lower than that on the loans the government took from the Asian Development Bank.
Bangladesh’s debt sustainability is one of the best in the world and there is no risk involved, the finance minister added.
Wahiduddin Mahmud, former adviser to a caretaker government, said the country’s growth rate is increasing gradually and attempts must continue to sustain it. Infrastructure deficit, however, would be an obstacle and steps must be taken to remove the hindrance.