There seems to be much confusion among the citizenry regarding how our economy is being managed, and challenges are addressed. There is a popular belief that it is none other than the International Monetary Fund (IMF) behind raising interest rates to combat inflation, pushing for raising taxes and now especially VAT to manage the government's earnings gap, and some say this may also be applicable for continuous depreciation of the taka against the greenback. The principal reason for these tightening or regressive decisions is -- increasing the government's ability to pay for their increased local and foreign payment obligations.

The government's debt escalated by 13.3 percent in the last fiscal year, attaining a concerning Tk 18.3 lakh crore due to a consistently fragile income footing. Upon the inauguration of the preceding administration in 2009, the national debt was $33.66 billion. By its departure in August 2024, the debt had surged to $156 billion. Although the current debt-to-GDP ratio of 36.3 percent is within the IMF's acceptable threshold, this statistic becomes concerning compared to the nation's lacklustre revenue generation and diminishing dollar reserves.

The acute cash shortage is a critical issue affecting domestic and international transactions. On one hand, income collection is exceedingly low; on the other hand, interest payments are escalating significantly.

The recently released white paper on the economy forecasts that by June 2025, the debt-to-GDP ratio may escalate to 41.3 percent, heightening the dangers of fiscal instability. Interest payments alone surged by 21 percent last year, totalling Tk 1.1 lakh crore -- representing one-sixth of the national budget. This substantial expenditure on debt payments has constricted the fiscal capacity, allowing minimal opportunity to support growth-focused initiatives. As inflation elevates interest rates on government bills and bonds, the fiscal constraint may intensify in the forthcoming years.

Bangladesh's foreign debt per capita has more than doubled in the past eight years, a worrying sign of the country's reliance on external borrowing. The government is now compelled to take out further loans to settle foreign debt and keep importing necessities like energy and fertiliser. Sustainable debt management requires fundamental adjustments, particularly in revenue yield. However, recent efforts to increase VAT and other taxes on almost 100 items and services could backfire, driving up inflation and raising prices for average people.

Addressing long-term tax evasion and greatly expanding the tax base are superior strategies. The government has been using indirect taxation, which unfairly burdens the poor more than the rich, for many years. This strategy deepens economic inequality and disadvantages the most vulnerable.

Bangladesh urgently needs a progressive taxation structure that reconciles equality with fiscal necessities. Enacting progressive revenue policies prioritises augmentation of direct taxes, maintains adherence to regulations, and curtails tax evasion. This will allow the government to address its escalating debt without further taxing the strained middle and lower classes. A comprehensive public financial management reform is necessary to reestablish budgetary discipline, optimise expenditures, and prioritise investments that yield long-term prosperity.

The country faces a pivotal decision: adhere to short-term solutions that exacerbate inequality or adopt enduring reforms that foster stability and advancement.

We need massive readjustment within our revenue architecture or public financial management model. A proven development partner like the IMF should be helping us there with all necessary tools and capacity building and refrain our government from taking any temporary or one-off regressive path to make the already suffering common person on the street in a widening income inequality and poverty-stricken country like Bangladesh.

The writer is the chairman of Financial Excellence Ltd