In April the International Monetary Fund agreed a loan of US$987 million to be disbursed to the Bangladesh government over the next three years. This loan will primarily be used to help cope with the balance of payments crisis which is partly caused by high foreign debt payments. Bangladesh is already burdened with a large external foreign debt, (about 20% of GDP). The government has to repay over US$2 billion every year, the equivalent of over 15 per cent of total government revenue.
As a condition of the loan, the IMF say Bangladesh must liberalise trade by reducing taxes on imports and bring in a new Value Added Tax (VAT). Following the condition, the government has reduced the import tax on many items in the current national budget for the 2012-13 fiscal year and introduced a new rate of VAT, two percentage points higher than before for many wholesale and retail level businesses. These measures will worsen livelihoods for poor people and increase inequality.
The increase in VAT will harm small entrepreneurs, the life-line of the Bangladesh economy. Increases in VAT are being proposed for essential items such as rice, lentils and cooking oil. This will only increase malnutrition and inequality. One-quarter of Bangladeshi’s are undernourished,and for every 1 taka earned by the poorest 10 per cent, the richest 10 per cent get 7 takas. The removal of import tariffs could prevent the development of domestic businesses, increase imports, worsening Bangladesh’s balance of payments, and reduce government revenue which will again create a dependency to take out news loans from the IMF.
Rather than follow these IMF conditions, the Bangladesh government should be using the tax system to tackle poverty and inequality, by:
- Expanding direct taxes, such as a progressive income tax. Progressive income taxes are used in many developed countries to collect high proportions of revenue. IMF advice to Bangladesh to collect revenue through expanding VAT is very regressive for poor people as they have to spend a large amount of income on essential good and services.
- Reducing corruption, thereby making more revenue available. The people of Bangladesh are losing approximately US$3 billion every year (4-5% of GDP) that should be used for domestic resource mobilization.
- Focussing VAT on luxury goods rather than basic necessities
- Increasing taxation on corporate profits, and regulate the removal of money from the country by multinational companies and rich individuals
The Bangladeshi people have suffered from paying a high foreign debt for over thirty years. This will be increased if the government takes out new loans for mega-projects like Padma Bridge (US$2.9 billion), city fly-over (US$1 billion) and Dhaka-Chittagong highway expansion (US$1.6 billion). Since 1990, foreign debt payments each year have averaged over 10 per cent of government revenue and this is increasing. The current fiscal year 2012-13, the government has allocated US$2.91 billion which is 19% of total revenue and 12.5% of the total national budget. Over 98 per cent of foreign ‘aid’ to the Bangladesh government is loans rather than grants.Rather than continuing its dependence on foreign loans, which have not demonstrably helped the majority of people, Bangladesh should hold an audit into debts to publicly find out:
- Who benefited from loans
- Whether any loans were contracted unjustly or illegally
- What the impact of continual high debt payments has been
- Whether and how foreign loans can be used in the future
The Bangladesh government is set to receive $575 million of loans from the World Bank, Asian Development Bank and UK government for projects to adapt to the impacts of climate change. This is unjust. These loans will make the people of Bangladesh pay twice for a problem they had not part in creating. The people of Bangladesh are owed reparations for the climate crisis caused by others, not loans which will only serve to increase the claimed financial debt. It is the people of Bangladesh who are creditors, and owed a debt by the rich world.
- End the IMF loan and damaging tax conditions
- Bring in tax justice
- Audit the debt
- Say no to climate loans, yes to reparations
World Bank World Development Indicators database.
Calculated from World Bank Global Development Finance database.
Flow of External Resource-2009, BB Quarterly report, March-11