Budget FY 2022-23: Tackling challenges of inflation and Covid losses
It appears normal service will resume with fiscal 2022-23's budget, which will see the return of double-digit growth in size -- a practice introduced by former finance minister AMA Muhith.
In a departure from the previous years, the budget size grew in single digits in the past two fiscal years as the uncertainty surrounding the global coronavirus pandemic meant Finance Minister AHM Mustafa Kamal scaled back his ambitions.
Seeing that the country has managed to remarkably adapt to living with Covid-19, he has decided to go big with the budget this time as he looks to tackle the twin challenges of global inflation and make up for the losses of the pandemic.
The Tk 677,864 crore budget that will be placed by Finance Minister AHM Mustafa Kamal in the parliament on June 9 would be 12.29 percent bigger than this year.
The budget will look to tame inflation arising from the Ukraine-Russia war, attract investment, complete the implementation of the 28 stimulus packages, boost agricultural productivity particularly by incentivising farm mechanisation and enhance social security for the poor and the vulnerable, said a finance ministry report.
Job creation, rural development as well as the overall development of human resources through academic and skill development will also get focus.
In the proposed budget, the deficit will be Tk 244,864 crore, which will be a respectable 5.5 percent of the GDP, down from 6.2 percent this year.
"The return to normal service on the budget front is all very well but the monetary expansion cannot be such that inflation increases further," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.
In March, inflation leapt to a 17-month-high of 6.22 percent on the back of rising food prices.
And the spectre of inflation this time is not just restricted within the national borders; it is a global phenomenon thanks to Russia's invasion of Ukraine.
Regardless, the impact of inflation is felt the most by the poor and the vulnerable, he said.
The finance ministry appears to be not too worried about domestic inflation.
Referring to previous statistics, the finance ministry expects inflation to neutralise within nine months, according to the report.
"If food production remains unchanged, food prices would fall and inflation would not be adversely affected. As the production and overall marketing process of the agriculture and manufacturing sector remain normal, inflation would remain stable even if it increases slightly," it said.
Another major challenge, according to Hussain, is the contracting foreign exchange reserves thanks in part to the inflation abroad that has swelled the import bill.
Bangladesh's foreign currency reserves have come down to less than $42 billion, which is the lowest in 18 months.
The reserves are sufficient to cover five months' import bills, down from six months previously.
Given that remittance, a major source of foreign currency, remains sticky downwards despite the higher cash incentive from this year, the pressure on reserves will continue in the foreseeable future.
The situation can be navigated deftly, Hussain said.
"The government should control imports and there is ample scope to do so."
For now, the government should not take up projects with its own funds that have a sizeable import component.
"There should be a restraint on the government's expenditure. All foreign tours by government officials and car imports for government officials should be put on hold -- it would lower the pressure on reserves."
The government should also speed up the implementation of projects that are mostly foreign-funded.
"That way, foreign currency will come in," he added.
Selim Raihan, executive director of the South Asian Network on Economic Modeling, called for greater support for the small- and medium-sized enterprises, which are yet to bounce back from the pandemic whiplash.
"The stimulus package has not been of much help to them. How they can be helped more should be explored in the budget."
He also called for a greater focus on employment generation.
"It is a longstanding problem but it has become more pressing in light of the pandemic as many lost jobs," he added.