National, Front Page

Major reforms to boost reserves

Published : 09 Jun 2023 09:48 PM

The government is going to take up a major reform programme in 5 sectors in the medium term during 2024-26 to increase reserves and manage the economic crisis.

These include introducing corridors or market-based interest rates on bank loans and leaving the single currency exchange rate on the market basis, a Finance Ministry official said.

Besides, the government is going to reduce the amount of abnormal subsidy and borrowing in phases while they will borrow less from savings bonds, he added. 

In addition, to ensure good governance in the financial sector, Bank Companies and Financial Act will be amended, he mentioned.  

Last but not least, the reform programme includes raising revenue by 1.7 percent from the current level in the future and publishing the GDP (gross domestic product) growth rate every three months, he said, adding that the outline has been finalized and will be implemented soon. 

Sources also said that a plan has been made to bring changes in the government's expenditure management under the reforms. The first step would be to reduce or rationalize subsidy expenditure. 

Abnormal government subsidy expenditure on electricity, fertiliser, natural gas and fuel oil has increased due to devaluation of taka and increase in prices in the world market.

This expenditure is further increasing the government’s liability. In the proposed budget (FY 2023-24), an allocation of Tk 66.76 crore has been allocated for subsidy. In the revised budget, Tk 50.92 crore has been allocated to this sector. 

Regarding the reduction of subsidy expenditure, the finance department said in the reform programme report that the price of petroleum products was increased last August in order to adjust with the price of the world market and reduce the amount of subsidy. 

In continuation of this, a formula based new method will be introduced, which will eliminate the need for subsidy on petroleum products.

Apart from reducing subsidies, the reform programme includes improving public debt management, reducing borrowing from savings bonds, increasing account coverage with the Treasury to improve cash management, and increasing the use of Electronic Fund Transfer (EFT).

In the medium-term plan for this reform programme, the total revenue target in the proposed budget is Tk 5 lakh crore. A revenue target of Tk 5.80 lakh crore and Tk 9.09 lakh crore has been set for the fiscal year 2024-25 and 2025-26 respectively. 

The government will follow a cautious fiscal policy in the medium term. In this, the budget deficit will be kept within 3.3 percent of GDP, which is 5.2 percent of GDP in the proposed budget. 

Tax policy and revenue administration will be reformed to achieve this target.

Regarding the reform programme, the finance department said, macroeconomic stability is strong in the global and national economic context and growth needs to be sustained in the long term. For this purpose several reform programmes have been undertaken in the interim period.