Economists and experts have recommended discontinuing cash incentives for exports as they argued the latest big Taka devaluation effectively functions as a subsidy.

At a book launch event in Dhaka on Thursday, they said the devaluation was necessary due to the exchange rate's prolonged overvaluation. As evidence, they cited the real effective exchange rate's (REER) appreciation by 57 per cent between FY2011 and FY2022.

For optimal results, they called for coordinated trade, fiscal and monetary policies. They argued standalone monetary policy or any other single policy would be insufficient to stabilise the macroeconomic situation.

"The advantages would not be materialised if the government intervenes in one policy but neglects others in the macroeconomic ecosystem," said Binayak Sen, director general of the Bangladesh Institute of Development Studies (BIDS).

At the event, Dr Sadiq Ahmed's book 'Bangladesh: Stabilising the Macroeconomy' was launched. Dr Mashiur Rahman, economic affairs advisor to the prime minister, was the chief guest at the event.

While acknowledging broad agreement on abolishing export incentives, Dr Mashiur Rahman advocated for performance-based cash incentives with a phase-out plan.

He proposed a high-level government committee to determine which sectors, such as leather, pharmaceuticals and IT, would continue to receive export incentives.

Dr Rahman appreciated the central bank's recent introduction of a crawling peg exchange rate system, adding that the rates should be adjusted regularly.

He criticised the tax authority for manipulating tax rates, which he believes increases revenue collection leaks.

At the programme, former planning minister MA Mannan called for a more direct approach in addressing banking sector plundering.

"We often resort to euphemisms," he said. "But those who default on loans and steal money from banks in broad daylight should be called out for what they are: robbers and thieves."

The ex-minister came down heavily on the approval of unnecessary projects. "Many projects are proposed that simply should not exist," he said. "These are not real projects, yet we approve them with big funding."

He stressed on the need for thorough project reviews and feasibility studies before allocation in the Annual Development Programme (ADP).

Policy Research Institute of Bangladesh (PRI) Vice Chairman Dr Sadiq Ahmed called for Bangladesh Bank to restrict lending by state-owned commercial banks until they comply with Basel III standards and achieve a remarkable reduction in non-performing loans (NPLs).

"Allowing state-owned commercial banks to continue lending essentially permits them to create more bad debt," he said, summarising his book.

He acknowledged the proposed NPL Reduction Action Plan's focus on reducing existing non-performing loans.

"But unless the flow of new NPLs is addressed first, any progress in reducing the stock will be temporary. New bad debt will quickly overwhelm any reduction efforts," he added.

According to the PRI vice chairman, the action plan for improving banking sector governance falls short by neglecting reforms to the governance structure of state-owned commercial banks.

He welcomed the recent exchange rate adjustment, noting the Taka's prolonged overvaluation. To support his argument, Dr Ahmed pointed to the REER's appreciation by 57 per cent between FY2011 and FY2022.

"By failing to correct this overvaluation in a timely manner, Bangladesh exposed its currency to substantial depreciation between April 2022 and September 2023," he said. "Even now, the Taka remains overvalued by 40 per cent in real terms compared to 2011."

He advocated for a market-determined exchange rate as a sustainable approach to managing the balance of payments. "This should be complemented by trade policy reforms that reduce trade protection and the bias against exports." He said a flexible exchange rate, combined with lower trade barriers, would boost exports and remittances, eventually increasing foreign exchange supply.

The discussion also addressed managing demand-side pressures. It was suggested that a combination of higher interest rates, increased taxes, and a lower fiscal deficit could help reduce private spending and curb import demand, thereby preventing excessive exchange rate depreciation.

Former BIDS director general Dr Mustafa K Mujeri said the time has come to take hard decisions to stabilise the macroeconomic situation. "Taking such decisions requires looking beyond the interests of specific groups," he said, criticising ad-hoc policy-making in the country.

Director of the Policy Research Institute of Bangladesh (PRI) and Chairman of the South Asian Network on Economic Modeling (SANEM) Prof Bazlul Haque Khondker stressed on the need for increasing social protection allocations. However, he advocated for universal social protection programmes instead of targeted ones.

PRI Chairman and Chief Executive Dr Zaidi Sattar said cash incentives for exports should be stopped now as the recent Raka devaluation effectively subsidises exports.

He also advocated for tariff rationalisation to align with the changes in monetary policy.

Among others, Deputy Governor of Bangladesh Bank Dr Md Habibur Rahman, Director General of Bangladesh Institute of Bank Management (BIBM) Md. Akhtaruzzaman and BIDS Research Director Dr Monzur Hossain also spoke at the event.