Budget largely fails to address current demand of economy

Like every year, there are reflections of some positive factors in this budget too. Some new positive issues have been included. The ceiling of tax at the individual level has been raised while duty has been imposed on the import of luxury items. The social safety net programmes have been expanded a bit and allowance has also been raised to some extent. Tax has been imposed in some areas including carbon tax which was needed much earlier. Tax has been raised for registration of flats and lands, purchase of second car and travel. These are the positive sides of this year's budget.

To me, the important question is whether the budget has been able to fulfill the current demand of the economy. In this case the budget has largely failed. Our economy has two big challenges. The first s inflation and the second is management of macroeconomics. If we look into inflation, we see 8 to 9 per cent and sometimes it jumps to about 10 per cent. Such high inflation has been prevailing for over one year. This has immensely affected a large section of the population, especially the low income group. Inflation has been mentioned in the budget. But what steps and strategies would be taken to fight inflation, remains absent. Moreover, there are no directives as to what should be done to deal with the economic crisis, mismanagement of the financial sector and revenue collection.

Everything must have a basis. Consider the current basis, the budget may well be ambitious. But given our prevailing circumstances, there is no scope for such luxury. That is why this ambitious target of the budget, seems to be out of context. This budget is not target-oriented and lacks focus. If the target and focus could have been determined, the other issues including priority ones would have fallen into place.

The income tax ceiling that has been increased may seem to be adequate for the time being. But a number of contradictory decisions have been taken. If a person remains outside the income tax ceiling, he has to pay Tk 2,000 if he wants to avail 44 particular government services. I don't think this is morally right. Are we assuming a low income person is going conceal his income to avail government services? How much tendency does a low income person have to conceal his income? It is those who have high incomes and are hugely wealthy who are the tax defaulters, loan defaulters and money launderers. They are benefited by the government in various ways. We never hear that they are being deprived of foreign trips or government services. Moreover, if there was a strong message in the budget that actions would be taken against the tax defaulters and loan defaulters among the rich, the matter would be justified. Government services are rights of the people. Imposition of such conditions is in no way justified.

This would have been possible if the government's actions and strategies had worked in bringing down the inflation which has been prevailing over a year.

No strategy has worked. The government did not take up the strategies and policies that it should have. If we look at the monetary policy, we notice the interest rate has been capped for a longtime by force. It has not helped in any way to control inflation. Prices of essentials could be brought down by adjusting tax and other fees in the revenue sector. Take energy for example. When the price of fuel went up in the international market, the price jumped in the local market too. At that time, we suggested keeping the price at a tolerable level by adjusting taxes. That was ignored. High price of fuel oil affects every sector of the economy. The third important thing is the management of the local market. There are inconsistencies and flaws as well as lack of competition in the market. Steps were not taken to overcome this.

Strict measures were not taken against traders who were involved in price manipulation by creating artificial crises. There is no effective initiative for market management, monetary and revenue policy. How will we be assured that the government will be able to make the right decisions in the next six months or one year? There is nothing about those steps in the budget. Another thing is, prices of commodities have been falling in the international market for the last couple of weeks. However, there is no reflection of that in the local market. There is no reflection in the budget as to what steps should be taken at the policy level and grassroots level to control the high inflation.

Going through the budget, it seems that the inflation will come down automatically. That is not possible. Now there is no scope to blame the Russia-Ukraine war for inflation. The prices of commodities have decreased in the international market to a great extent and the price of fuel oil has also decreased. The World Bank has predicted there is a possibility that the price of oil will decrease further. Except Sri Lanka and Pakistan, if I compare Bangladesh with some near countries including India, Indonesia and Vietnam, they have controlled inflation efficiently. They kept the inflation at a tolerable level by utilising monetary policy, revenue policy and internal market management efficiently.

That seems quite impossible to me. Private investment never increased in a year in such a dramatic manner in Bangladesh's history. The government has set a target of 7.5 per cent growth rate. It would require 33 per cent investment in proportion of GDP to achieve the target.

It is like a mathematical calculation. But this is not the real calculation. This is far from reality. There is no sign in the economy that private investment will increase dramatically. It has been noticed over a year that the growth of borrowing from banks at the individual level has decreased significantly. It is steadily falling. How will private investment be increased in one jump?

There is another inconsistency. The government has said the budget deficit is 5.2 per cent in proportion of GDP. It would require a huge amount of loans from the banking sector to meet this deficit. But the question is, how will the banking sector provide so much funds to the government and the private sector? The banking sector is the major source of investment in the private sector as our capital market has not flourished to such a great extent. Our banking sector is not ready to provide such a big amount. So 27 per cent investment in the private sector is out of the question. If the government does not borrow so hugely from the banking sector, it has to go to the central bank to meet the deficit. Bangladesh Bank has to provide that money by printing taka and that will put additional pressure on inflation. Rather than setting ambitious investment targets, this budget needed to resolve the vicious circle of our economy.

We spend much less in comparison to the GDP on education and health. We should spend double the amount we do now for education and triple for health. The learning loss during the coronavirus pandemic is now a big challenge in the education sector. The learning loss during the period is devastating. There is nothing in the budget as to what steps should be taken to make up the learning loss. We kept our eyes shut during the coronavirus pandemic. Although we have opened our eyes, we are set to forget what really happened during the coronavirus period. A huge section of the youth are victims of learning loss and they will enter the labour market after a few years. What education will they be equipped with? Their productivity will decrease. Attention has not been given to this area in this year's budget. I hoped more importance will be given to this area in this year's budget and the upcoming ones.

We noticed that allocation was increased in the health sector during the coronavirus period, but the ministry could not spend that. This may be used as an excuse, as to what is the use of increasing the allocation if it can't be spent. This a lame excuse. If skill and institutional capacity are not increased in the health sector, such a vicious cycle will continue. We are talking about the demographic dividend of becoming a developed country. We will never be able to reach there by allocating such a meagre amount for the health and education sectors. The health and education sectors were neglected in the past and we have not been able to address this now either.

The government should have been more cautious about this at a time when austerity measures are being talked about. The government should have set the example of austerity. The government could create an example through reduction of operational costs in this budget. However, when different sectors and sub-sectors of the economy are under big pressure, I can't support that operational costs cannot be raised.

There is some reflection. In some cases, these are not clear. As per IMF conditions, the calculation of the updated GDP has to be published and interest rate or exchange rate has to be adjusted every three months. Although these issues are discussed outside the budget, these are not included in the budget. I think the way the IMF sets conditions is unfortunate for us. Why are we compelled to comply with IMF conditions at a time when our economy has reached this stage? Reforms were needed long ago. IMF is working as a prescription to solve accrued problems existing for a long time. There is doubt as to how the reforms will be carried out systematically. There are no directives in the budget as to how the government is carrying out reforms.

All budgets have more or less given importance to agriculture. There was a special stimulus package during the coronavirus pandemic. There is a commitment in the budget to continue special assistance. We have to assert this positively. But we see no directives that the agriculture sector needs massive development and mechanisation. We expected an allocation will be made for research and training for farmers at the grassroots for the modernisation of agriculture. That is missing in the budget.

Those of us who conduct research on poverty have a conceptual difference with government policymakers. That is why there is no significant expansion of social safety net programmes. The amount that has been increased this year is inadequate. The policymakers think the number of poor and ultra-poor has decreased significantly. But according to our research, a large number of people are suffering from food security. Moreover, many people have become poor recently. We hope that there will be a big transformation in the social safety net programmes. Although there is a controversy over the rate of poverty, there are 30-40 million of 170 million people are poor, according to the government estimation. There are 20 million ultra-poor, equal to the population of Nepal and Sri Lanka. Massive action is required to come out of this poverty situation. I think this is lacking in the budget.

Thank you too

*This interview, originally published in Prothom Alo print and online editions, has been rewritten in English by Rabiul Islam