No more austerity

The government has officially abandoned the austerity stance it took on at the beginning of the fiscal year as it deems the economy is nearing good health.

"The prime minister said the economic situation is okay now," Shamsul Alam, the state minister for planning, told reporters as he emerged from yesterday's meeting of the National Economic Council presided over by Sheikh Hasina.

"But there might be trouble ahead. So we must be cautious," he said, adding that the PM has instructed swift recruitment of manpower to make the maximum use of the infrastructure the current Awami League government has built during its time.

At the meeting, the budget for the annual development programme was set at Tk 227,566.09 crore, down by 7.5 percent from the original allocation -- the biggest downward revision since fiscal 2015-16.

"Austerity measures are still on but the economy has somewhat improved, so we relaxed the policy a bit," said Satyajit Karmaker, secretary of the planning division.

As part of the belt-tightening measures, the finance division in a notice on July 3 last year pared back the ADP.

Projects were classified into A, B and C categories. The A-category projects would go on as normal, while up to 75 percent of the allocation for the B-category projects could be spent. All C-category projects were put on hold.

Now, the C-category projects that are nearing completion are being given funds to wrap them up at the earliest.

Projects that are going on in full swing are getting funds as per their requirements, while those that don't need to be implemented now are on hold, Karmaker said.

"With much fanfare, the government gave that circular but nothing came of it," said Ahsan H Mansur, executive director of the Policy Research Institute.

There was no further announcement of how much money was saved as a result of the austerity measures.

"From where did they save the money? We want to know," said Mansur, a former economist of the International Monetary Fund.

Of the 58 ministries and divisions, 21 saw their allocations increase in the revised ADP while 37 saw their budgets slashed.

"This was done on the assessment of their demands," Karmaker said.

Health services and secondary and higher education divisions and the ministries of primary and mass education, science and technology, agriculture, food and expatriates' welfare and overseas employment are seeing their allocations sheared.

The ministries of local government, rural development and co-operatives; water resources; religious affairs; and housing and public works are seeing their kitties topped up.

"These will only create demand in the economy and fuel inflation further," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

The opposite was needed to bring down inflation, which averaged 8.7 percent in the first seven months of the fiscal year, much higher than the budgetary target of 5.6 percent.

"Because of the high inflation, people are unable to buy goods -- their purchasing power has reduced. If you bring it down, people would be able to buy more with their same income and the economy will stage a recovery," Hussain added.

The trim was done by scaling back ambitions to fund the development works through foreign aid. Foreign fund in ADP was slashed by 19.9 percent to Tk 74,500 crore.

"This shows the reality on the ground -- we can't use foreign funds effectively and speedily. Unfortunately, this year we needed to use foreign funds the most as our reserves would prop up and the pressure on imports would go down. But we couldn't," said Mansur, also the chairman of Brac Bank.

Asked why foreign funds were pared back from the ADP at a time when it would have eased the ongoing dollar crisis, Karmaker said: "The ministries' capacity to use foreign funds is less."

And that is not because of the project directors' incapacity.

"Our development partners' rules and compliance are very strict. They view issues related to implementation from their viewpoint and that is a time-consuming process."

As a result, foreign-funded projects invariably get delayed.

"But we are taking steps. The PM has tasked the principal secretary to sit with the ministries and divisions and come up with a solution."

At present, $52 billion of foreign aid is sitting in the pipeline. "We want to use this as soon as possible," Karmaker added.