Bangladesh exposure to capital flight very high: UNCTAD report

Illicit outflows accounted for 36pc of tax revenue in 2015

Staff Correspondent | Published: 00:00, Nov 21,2019 | Updated: 12:43, Nov 21,2019


Centre for Policy Dialogue distinguished fellow Debapriya Bhattacharya speaks at a press briefing on the latest UNCTAD report at the Economic Reporters’ Forum auditorium in Dhaka on Wednesday. CPD executive director Fahmida Khatun, research director Khondaker Golam Moazzem and senior research fellow Towfiqul Islam Khan were present at the event. — New Age photo

Bangladesh’s exposure to illicit financial outflows is very high among the least developed countries as the rate of such outflows was equivalent to 36 per cent of the country’s tax revenue and 3 per cent of gross domestic product in 2015, according to the latest report of the United Nations Conference on Trade and Development.

The report also listed Bangladesh among the LDCs which are facing an alarming increase both in domestic and external public debts for the last five years.

Illicit financial flows in 2015 were on average equivalent to 36 per cent of tax revenue and 5 per cent of GDP in the least developed countries, said the report titled ‘LDCs Report-2019: the Present and Future of External Development — Old Dependence, New Challenges.

Some countries, including Bangladesh, are facing high illicit financial outflows relative to tax revenue, it said, adding that the highest such outflows were 115 per cent of tax revenue in Cambodia in the year.

The Centre for Policy Dialogue unveiled the Bangladesh part of the report at a press briefing held at the Economic Reporters Forum auditorium in Dhaka on Wednesday.

Curbing illicit financial flows has the potential to boost revenue, the report said.

Out of 40 LDCs under consideration, only Burkina Faso (40 per cent), Zambia (43 per cent), Timor-Leste (52 per cent), Kiribati (58 per cent), Mozambique (58 per cent), Vanuatu (64 per cent), Myanmar (68 per cent) and Cambodia (115 per cent) have the higher rate of illicit financial flows, according to the report.

It also said that the developing countries were significantly more exposed to tax avoidance by multinational firms.

Tax revenue-to-GDP ratio in Bangladesh is very low at 9 per cent despite its relatively large economy among the LDCs where the average tax revenue-to-GDP ratio increased to 19 per cent in 2017 from 11 per cent in 2000, according to the report.

The UNCTAD made the calculation based on the data from the World Development Indicators database, the direction of trade statistics of the International Monetary Fund and the Global Financial Integrity Report-2019.

According to the GFI report, about $5.9 billion (about Tk 50,000 crore) was siphoned off from Bangladesh in 2015, taking the amount of illicit outflows to $81.74 billion in 11 years since 2005.

The UNCTAD report also said that Bangladesh’s key challenges, in terms of external development finance,  included lower utilisation capacity of official development assistance (ODA) and growing debt stress in case of both foreign and domestic debts.

Though foreign aid dependence in terms of GDP of Bangladesh declined in recent years, the country has the highest share of loans, which is 65 per cent, in total ODA disbursements during 2015-2017, it said.

Bangladesh was the third largest recipients of ODA in the period, it said.

At the briefing, CPD distinguished fellow Debapriya Bhattacharya said more than 80 per cent of the capital  flights was occurred through exports and imports.

If the funds were not siphoned off, the country would have got more tax revenue, he said.

Debapriya said that external development finance would remain significant for Bangladesh even after it graduated from the LDC status after 2024 as the country faced deficits in national savings for required investment, in revenue collection for

development expenditure and in foreign currency earnings for foreign transactions.

The share of loans has increased many folds than grants but the capacity of utilisation has not increased, he said.

He also emphasised the need for scrutinising the rationale of high-cost loans and increasing the utilisation capacity to keep the ability to repay under control.

The country will have to take a leading role in global discussion for required and alternative financing at low cost after graduation from the LDC status, he said, adding that international lenders, including World Bank and Asian Development Bank, had already raised the interest rate for Bangladesh after it was upgraded to lower-middle income group from lower income group.

CPD senior research fellow Towfiqul Islam Khan presented the findings of the report at the briefing.

He said that Bangladesh would be able to increase its tax revenue by one-third if it could curb the illicit financial outflows.

Referring to the UNCTAD report, he said that privately mobilised capital under the ODA-backed development cooperation was not focused on development effectiveness or pro-poor though the country was the fourth highest in terms of getting the support.

Bangladesh’s tax buoyancy and tax efforts are also very low compared to that in its LDC counterparts, he said.

CPD executive director Fahmida Khatun made the opening remarks and its research director Khondaker Golam Moazzem was also present at the briefing.

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