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Boosting Macroeconomic Stability: Government Unveils Comprehensive Reforms

by supto
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Macroeconomic Stability

The government of Bangladesh has embarked on a series of medium-term reforms aimed at bolstering macroeconomic stability and fostering long-term growth in light of global and national economic contexts. These reforms, outlined in an official budgetary document, have several key objectives, including enhancing revenue generation, reducing borrowing costs for the public sector, curbing subsidies, and improving spending efficiency through fiscal institutional reforms.

To ensure the effectiveness of these reforms, extensive consultations and negotiations with stakeholders have taken place. The overarching strategy is to strengthen the external balance and rebuild reserves while gradually easing temporary measures implemented for demand and import management.

The document highlights the importance of fiscal sustainability, which will be reinforced by maintaining the budget deficit and public debt within acceptable limits. To achieve this, the government plans to introduce more efficient expenditure management practices and increase investment in priority sectors such as social welfare and development spending.

Prudent fiscal policies will be pursued, with close attention given to the budget deficit, financing mix, and levels of public and publicly guaranteed debt. The medium-term policy will focus on maintaining the primary fiscal deficit (including grants) at around 3.3 percent of GDP and containing public debt below 45 percent of GDP.

In addition to increasing expenditures on development and social safety net programs, the government aims to rationalize subsidies and domestic debt financing costs. Reforms in the governance of social safety net programs, including improvements in targeting, rationalization of coverage, and the use of government-to-person (G2P) systems, will continue in the medium term. The Universal Pension Management Bill, 2023, has already been passed, aiming to establish a universal pension scheme for Bangladesh’s growing elderly population.

Efforts to improve the tax-to-GDP ratio, which is currently one of the lowest in the world, are underway. Policy and administrative reforms focus on modernizing the income tax and value-added tax (VAT) systems, simplifying tax laws, rationalizing tax expenditures, and broadening the tax base. Administrative reforms include establishing compliance risk management units, enhancing information sharing between tax wings, implementing automation in tax administration, and increasing at-source tax collection.

These reforms are expected to generate additional revenue equivalent to 0.5 percent of GDP annually in the fiscal years 2023–24 and 2024–25, and 0.7 percent of GDP in the fiscal year 2025–26.

To rationalize energy subsidies and allocate sufficient funds for social and development expenditures, the government increased petroleum prices to match international levels and reduce subsidies. A periodic formula-based automatic fuel price adjustment mechanism is also being introduced to eliminate the need for petroleum product subsidies.

The government is also focusing on untapped areas in the tax-revenue sector and exploring non-tax revenue sources. Measures such as reducing interest rates on savings certificates, introducing tiered interest rates, capping issuances, and increasing taxes on earned interest have been implemented to decrease the government’s interest expenditure.

Efficient cash management is another priority, with the expansion and strengthening of the Treasury Single Account (TSA) to facilitate better cash management, reduce interest expenses, and enhance commitment controls.

Through these comprehensive reforms, the government of Bangladesh aims to achieve macroeconomic stability, foster long-term growth, and ensure sustainable development for the country. These reforms also aim to improve transparency and accountability in the government’s financial operations. By implementing stricter financial controls and oversight, the government hopes to prevent any misuse or misallocation of funds. Efficient resource utilization benefits the country and its citizens.

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