'A transitional consensus plan needed for the economy'

How would you describe the prevailing economic situation in the country?

A certain degree of uncertainty exists in the prevailing economic situation. In some areas it has created a sense of apprehension, even alarm. Such worrying circumstances serve to exacerbate the weaknesses in the economy. Implementation of economic policy depends much on confidence and dependability. So I feel that restoring this confidence and dependability is important, in the short term, for the immediate future of the economy.

The 2022-23 budget and the projection in the last phase of the eighth five-year plan has lost relevance due to the global circumstances and our domestic economic realities. As these have become irrelevant, an interim policy plan or transitional programme is required. The main focus of this programme should be to give concessions to GDP growth and controlling inflation, as well as maintaining macroeconomic stability.

We are going through difficult times. Many feel that this situation has been created by pressure from outside. That is partially true. The global economic crisis has put pressure on us. The tax-GDP ratio is around only 9 per cent at present. If this was 14 to 15 per cent, the government would have a higher spending capacity. This would give a sort of relief to the economy. I would describe the present circumstances as a poor government of a high-growth economy. The government is unable to bring in the commodities required for its people. It is unable to provide subsidy. The development narrative dished out so far has focused on physical infrastructure. Not much has been invested in education, health and social security sectors. As a result, we do not have the productive skilled workforce that is required now. The government’s present development policy is rife with conflict and contradictions.

How can there be an interim economic policy plan? What issues should be given priority?

Three factors should be given priority in this interim economic plan. These are to maintain macroeconomic stability, to provide support to production and employment, and to protect the people in distress. This policy agreement must be very inclusive.

The government must discuss among themselves about this policy agreement. The discussions can be held by the cabinet, the coordination committee for financial, currency and currency exchange rates, the parliamentary standing committee of the finance ministry and so on. The government can discuss the matter with its political allies, even with the opposition political parties. Relevant professional groups should also be brought into the discussions.

We don’t hear of the government discussing the present circumstances with its own committees. This has led to a lack of transparency and coordination regarding policy formulation. This requires leadership. The one who is to lend leadership in such economic policy reshuffling, remains invisible.

If there is an participatory economic policy agreement for two or three years to overcome the present situation, there will be two types of benefits. Firstly, it will make loan negotiations with agencies like International Monetary Fund (IMF) and the World Bank much easier. Secondly, during heated political circumstances in the future, this policy plan or agreement reached through such a participatory process will protect the economy.

What needs to be done to keep the macroeconomic structure stable in the present circumstances?

The government is taking certain steps, albeit rather late. For example, control on imports, austerity in government expenditure, ensuring accountability in foreign exchange management and so on. These are important steps, but not enough. The initiatives are scattered, incomplete, inadequate and also have no continuity. So long there was a propensity to deny the problems in the economy. Now, under pressure, they are admitting the problems to a certain extent.

So what is to be done?

I feel that the interest rates must be freed within certain limits. And foreign exchange rates should be left to the market, but monitored. Outside of these two policies, the government must keep up revenue collection in order to arrange its funds. The number of taxpayers should be increased and directl taxes must also be increased.

The government is bringing about certain changes to its development expenditure. For example, the government has categorized project implementation. Category A is for attention, B is to be kept under consideration, and C is to be discarded. This should be maintained properly.

Now coming to the matter of subsidy. It is now most important for the government to reorganise its subsidy structure. More important than how much subsidy is being is given, is to whom it is being given. In economics, there is good subsidy and there is bad subsidy. Subsidy in the agricultural sector is good subsidy. Then again, paying capacity charge for idle capacity of power plants is bad subsidy. Fuel and food must be given priority in the provision of subsidies because fuel oil has an overall impact on the economy. And subsidy is required for fertiliser and electricity in order to increase food production.

Attempts are being made to bring inflation under control by curbing cash flow. It must be taken into consideration that if cash flow is curbed and growth does not take place, and if there is less employment, the government does not earn. In turn, it becomes unable to provide the distressed people with the assistance they require. So however stern the currency policy may be, the financial policy or spending capacity must be increased accordingly. In order to increase spending capacity, alongside revenue collection, it is important to ensure the proper use of foreign development assistance. There must be a credible solution to protect the macro-economy. There is need for sweeping reforms in the macroeconomic structure. I do not see that at the moment.

What should be done about production, employment?

Policy assistance must be extended to increase the country’s production and employment. Aman crop production is becoming a serious issue. Late rains, increased costs of fertiliser and fuel, are pushing up aman production costs. There is also a crisis in the availability of fertilizer. The government does pay attention to aman production, but this is not visible on ground.

Given the increase in the price of essentials, the workers in the industrial sector must be given protection. The tea garden workers are striking. There are apprehensions of similar discontent in the export-oriented industry. The prevailing minimum wages for the readymade garments workers has crossed three years already.

The taka exchange rate has gone up by 10 per cent. The garment exporters are benefitting from this. A part of this profit should be shared with the workers. Given the state of the market at present, they may have to be given a dearness allowance. And various programmes can be taken up for the safety of the workers in the non-formal sector. It must be kept in mind that the domestic market-oriented industry needs to be given some relief.

Every year 2 million people are entering the labour market. One fourth of them are employed overseas. The path to sending workers to the traditional labour market overseas, the emerging market and the market of other countries, must be kept smooth. At the same time, the initiative to create skilled workforce must continue.

What safety measures can be taken up for the people in distress?

The people who are lagging behind face the worst distress. A major economic responsibility at the moment is to protect the living standards of the lower middle class and those with limited income. The ‘family card’ system declared by the government must be started up immediately and kept free of corruption. Rice and other essential commodities must be sold through TCB at a district level.

The scope and the numbers of the social safety net programme must be widened. The allowances being paid now should be increased to a minimum Tk 1000. In a country where the per capital income is USD 2500 to USD 3000, it is unacceptable for the monthly allowance to be just 4 or 5 dollars. It is wrong and economically unjust for a beneficiary of the social safety net programme to receive just 60 dollars a year.

There are all sorts of discrepancies in the social safety net programme. For example, deserving persons are not receiving these benefits. There is discrimination in selecting the deserving persons too. Then again, those who have been included as beneficiaries, are getting inadequate allowances and commodities.

Youth unemployment has worsened after the Covid outbreak. Many youths are secretly unemployed. They should be registered and provided with a one-time grant or there can be a youth credit card.

The government has sought credit from IMF to tackle the situation. There is a lot of debate and discussion on loans from IMF. What’s your opinion?

On 19 May this year I had said the time has arrived to take loans from the IMF. I still think loans should be taken from IMF. Financial support is required given the prevailing economic circumstances and the deficit in foreign transactions. Bangladesh has sought USD 4.5 billion dollars, which is justified. After all, taking loans from IMF is not just about money. It is also needed for reforms and economic discipline. If IMF can get done what we have been calling for in vain, that will be good. If IMF is to be brought into the picture, the sooner the better. Sri Lanka has been the victim of this predicament.

Those who had been basking in economic development so long, are alarmed at the sound of IMF. They had been denying the structural weaknesses. We professionals are not worried about IMF.

IMF was created to provide support in such adverse circumstances. The problem is, those who are now so alarmed, are having a difficult time explaining their over enthusiastic narrative of development.

There are talks of buying oil from Russia. What is your opinion in this regard?

Geo-economy has now joined geopolitics. The fear is that this conflicting relationship will increase rather than decrease in the days to come. The government is now trying to come up with a foreign policy that saves all sides. Let’s see if it can last the mid-term. There are the US sanctions. There is international attention on human rights in the country. And the international community has made their expectations regarding the coming election very clear.

Under these circumstances, acumen and expertise, technical capacity and political farsightedness will be required to use fresh trade ties with Russia, completing ongoing projects and defence cooperation, in national interests. There are problems here too. Such decisions in any country require national consensus. I do not see any initiative or process to that end.