TIB gauges mega size of BD shadow economy

TIB gauges mega size of BD shadow economy

FE Report

Transparency International Bangladesh (TIB) Sunday disclosed that the average size of the country's underground economy, taking into account a certain model, over the 1996-2008 period is 38.1 per cent of its GDP.

The TIB revealed this at a discussion meeting on titled The Shadow Economy of Bangladesh: Size Estimation and Policy Implications held at the National Press Club in the city. Chairman of the TIB Board of Trustee Hafiz Uddin Ahmed presided over the meeting, while former caretaker government adviser Syed Manzur Elahi and former Bangladesh Bank governor Dr Mohammed Farashuddin participated in it.

The TIB estimated the size of the shadow economy using two distinct approaches - currency demand model and dynamic multi-factor multivariable.

TIB executive director Iftekaruzzaman said the size of the country's underground or shadow economy varies from 10 per cent to 38 per cent.

He added that this was contributing to the rise in income inequality in the country leading to massive corruption.

M Kabir Hassan, a professor at University of New Orleans in the USA, who conducted the research, said: "According to currency demand model, the country's shadow economy during 1975-2008 averaged 10.1 per cent."

Currency demand model assumes that tax is the main variable impacting the size of the underground economy, while multi-factor multivariable model assumes that the shadow economy is the result of several casual variables such as regulations, taxes, economic status etc.

Mr Hassan also said: "According to the dynamic multi-factor multivariable model, the shadow economy's size was 38.1 per cent during 1996-2008."

He said, "We can roughly state that the average size of shadow economy in Bangladesh during 1996-2008 is 24 per cent of the GDP."

Mr Hassan said the country's underground economy grew sharply during 2008 with the amount coming to Taka 391.9 billion, equivalent to 12.18 per cent of the GDP.

He said his research was based on the secondary data Word Development Indicator (WDI) published by World Bank and International Financial Statistics (IFS) published by IMF.

He also said he conducted a survey on 202 persons relating to the underground economy.

"Ultimately, good governance and the rule of law will lead to reduction of the size of shadow economy," he added.

Addressing the meeting, former caretaker government adviser Syed Manzur Elahi said corruption creates negative image about a country and it affects the country's business community.

Mr Elahi said leadership is important to eradicating corruption from the country.

Citing SOEs, he said most of the state-owned enterprises failed as their chiefs are corrupt.

The TIB study observed that for combating any type of corruption, a good set of laws with proper implementations are of utmost necessity.

It also said in order to increase the country's tax-GDP ratio, the government must take policy measures and actions that will increase the amount of tax collection.

TIB advocates that the policy makers should ensure complete withdrawal of the provision of whitening black money, seal the source-point through effective communication among the central bank, banks and the National Board of Revenue.

It also advocates that law should be framed to bring to book the black money holders along with exemplary punishment.

It suggests that each policy maker should be legally obliged to submit his or her financial statement and asset holdings at regular intervals to the anti-corruption commission (ACC).

It also stresses the need for freedom of both the ACC and the NBR to trace out the black money holders