Focus on fighting inflation, not higher GDP growth
The upcoming budget for fiscal year 2022-23 should focus on checking inflation to give relief to the poor, lower middle and middle-income people, not on the higher gross domestic product (GDP) growth rate, said economists yesterday.
The government should shift its prime target of achieving higher GDP growth rates to rein in inflation, said Debapriya Bhattacharya, a distinguished fellow at the Centre for Policy Dialogue (CPD).
The poor and lower middle-income earners are facing problems for high market prices of essential commodities, he said.
The government should mainly focus on macroeconomic stability, even if it means accepting a trade-off, he said.
Among all the macroeconomic indicators, inflation alongside ways to control it should be the main target, especially food inflation, he said.
"The government should give a safeguard to the purchasing power of middle-income people," said Bhattacharya, also convener of the Citizen's Platform for SDGs, Bangladesh.
His comments came in a meeting on challenges of the economy and recommendations for the upcoming national budget organised by Bangla daily Prothom Alo at its office.
Some people opine that Bangladesh's remittance income of two months is enough to repay its monthly debt demand, said Bhattacharya.
But the fact is that this is the income of individuals and so it remains to be known how this money can be used for repaying the country's loans, he said.
On the other hand, export income of the country is rising but that is in tune with an increase in the cost of raw materials, meaning real income is not that high. "This is a classical case of pseudo economics," he said.
To keep market prices of essential commodities at a tolerable level, the government should raise the budget deficit in food and energy, he said, adding that salary costs of the government should be checked.
The exchange rate should also be adjusted and allowed to creep up slowly, he added.
Nazneen Ahmed, country economist of United Nations Development Programme, echoed him, saying that the budget should focus on controlling inflation.
The exchange rate should have been adjusted slowly as any sudden big adjustment creates some problems, she said.
Economists throughout the past decade had been recommending devaluing the local currency against the greenback but the central bank did not pay any heed, said MA Razzaque, research director of Policy Research Institute.
For this, the per capita income seems to be big, he said, adding, "If the real exchange rate is considered, then the per capita income would be reduced to $2,300."
In the present economic situation, the government should check the import of goods which are of low necessity while it can also take soft loans, he said.
This year the government can keep a higher budget deficit to check inflationary pressure on the masses, he said.
If the government raises the allocation for its food assistance programme by Tk 6,000 crore, at least 40 per cent of the poor can be covered, said Razzaque.
So this small increase in funding might play a big role on reducing disparity and giving relief to the poor, he added.
Sayema Haque Bidisha, research director of the South Asian Network on Economic Modeling, also urged keeping inflation in check as the main target of the upcoming budget.
Bangladesh's tax system needs to undergo a massive reform to ensure inclusive GDP growth, she said, adding that relevant digitalisation needs to be brought about immediately.
Economists have long been recommending increasing focus on direct tax and the tax net and reaching untapped areas but the main income of the National Board of Revenue (NBR) is still based on indirect tax, she said.
To reduce the disparity, the government should enhance employment opportunities and allocation in the social safety nets, she said.
The amount provided to every person under the social safety net programmes also need to be increased and it should be extended to the urban areas, she said.
To encourage youths to become entrepreneurs, she recommended improving the business environment and for government offices to stay flexible in their demands for tax and documentation.
Syed Mahbubur Rahman, a former chairman of the Association of Bankers, Bangladesh, said policy continuity was a necessity, otherwise it hampers plans of entrepreneurs.
Overall, good governance needs to be ensured alongside a level playing field for every entity, he said.
Non-performing loans should also be brought under control and to do so, the government needs to take exemplary legal steps, added Rahman, also managing director and CEO of Mutual Trust Bank.
The present economic situation had been anticipated while economists alarmed, said M Masrur Reaz, chairman and CEO of the Policy Exchange of Bangladesh.
This is because pent-up demand was looming overhead, meaning extra pressure was to naturally come about on the exchange rate, but no policy program was undertaken, he said.
"Our investment climate was in pressure. Moreover, transportation costs rose, freight charges increased and labour cost was enhanced, so our local firms are lagging behind in market competition," he said.
There is an absence of leadership pertaining to economic policies while some policies taken for a sector benefit just one or two firms. The government should work on this, he said.