Interview: Selim Raihan

Capacity to shoulder any further pressure has diminished

Dr Selim Raihan is professor of economics at Dhaka University and the executive director of the South Asian Network on Economic Modelling (SANEM). In an interview with Prothom Alo's Monoj Dey, he talks about how far the budget has met the expectations of resolving the prevailing economic crisis, how far it will play a role in controlling inflation, what more could the budget have offered to bring some relief to the poor and low income people, and also about the problem of low allocations in health and education.

Prothom Alo :

This is Awami League's budget in its fourth term and the first budget for the new finance minister. What's new in this budget? Broadly speaking, how would you evaluate it?

There were high expectations from this budget. Our economic crisis or problems, however you may term it, have been continuing for long. After the Covid outbreak, the Russia-Ukraine war and then this extended stretch of high inflation, the steady dwindling of foreign currency reserves, the wavering export revenue and remittance -- all these factors led to expectations that this budget would have specific guidelines to tackle the issues. But the initiatives taken in the budget to address these issues are not adequate. It can be said that the expectations regarding the budget have certainly not been fulfilled.

The targets set for growth, lowering inflation, and private sector investment, do not seem realistic. The additional taxes imposed on certain products and services (like taking on the mobile phone, using the internet and other services), will directly fall on the shoulders of the low income and middle class people.

If we talk about the tax sector reforms, then we need to put more emphasis on income tax so that the wealthy and ultra-wealthy pay more taxes. There was an initiative in the budget to increase tax rates from 25 per cent to 30 per cent, which is a good move. But the problem is that a large section of the wealthy and ultra-wealthy do not pay taxes. They remain outside of the tax ambit. So even if the tax rate is increased, the volume of income tax cannot be increased unless they are brought under the tax umbrella. Our revenue-GDP ratio is very little, much lower that even our neighbouring countries.

Our first expectation had been that the budget would prioritise controlling inflation. There was need for an outline to declare war on inflation by bringing about a balance in our monetary policy, revenue policy and market management.

The second expectation was for stronger and more well-defined initiatives for tax sector reforms. The government did not go down that path. It took the easy way out by simply extending the existing tax system.

The third expectation was that serious measures would be undertaken for financial sector reforms. There was hope for strong decisions on two heads - how loan default could be reduced and how good governance in the banking sector could be established. But there was nothing very clear in either of these areas.

The budget could not meet expectations in controlling inflation, tax sector reforms and financial sector reforms.

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Prothom Alo :

For the past two years people have been bearing the yoke of high inflation. When announcing the monetary policy, Bangladesh Bank said that inflation would fall to around 6 per cent. When presenting the budget, the finance minister has said that inflation would fall within this year. How realistic is such optimism?

For two years at a stretch the high inflation has been around 9 to 10 per cent. The government took certain steps in reduce inflation, such as raising interest rates. In this budget, duty has been lowered on certain essential commodities.

All said and done, inflation still isn't going down. There are two reasons behind his. Firstly, correct steps have not been taken up for a long time. In particular, the interest rate and monetary policy can be cited. This interest rate had long been kept at 6 per cent-9 per cent.

Had the interest rate been made flexible when inflation was on a steady rise, the monetary policy then would have has a somewhat effective impact. But by the time the decision was taken, it was already too late. So even though interest rates have been raised, this is hardly having an impact on inflation. The reason behind this is that the actual income of a large chunk of the population has gone down due to inflation. So there is no more scope for them to shrink their demands further if interest rates go up. Had the policy to increase interest and decrease demands been taken a year or a year and a half back, it could have been effective. As it has been taken up too late, it has hardly any impact.

Secondly, the initiative to lower duty on essential products in the revenue policy has come too late. We also see no tangible measures against the various syndicates and other unscrupulous elements that manipulate the market. Overall, we have seen no success of the government over the past two years in three areas -- monetary policy, revenue policy and management of the domestic market. There is no reason to believe we will see much success in the coming one year either. There are no reflections of any appropriate initiatives in the budget. So we cannot be hopeful at all about the target to lower inflation to 6 per cent in the next one year. No effective measures are being taken. And there is no coordination among the initiatives that are being taken. So inflation will last for a further extended period of time.

The government can easily declare a special stimulus package for the poor, given these circumstances.  Such a package would basically expand the social safety net and increase its reach.

Prothom Alo :

Allocation in the social safety net sector has been increased by Tk 100 billion (Tk 10,000 crore). Will this allocation be adequate to help the poor and limited income people overcome the prevailing crisis that has gripped their lives?

Due to the crisis, the government announced all sorts of stimulus packages during the Covid pandemic. The economy is going through dire straits at the moment. The studies of various organisations, even the Bangladesh Bureau of Statistics' survey, states that food insecurity is a major fallout of the prevailing inflation. The government can easily declare a special stimulus package for the poor, given these circumstances.  Such a package would basically expand the social safety net and increase its reach.

Due to high inflation, the actual income of a large sector of the population has decreased and this has had a seriously negative impact on their lives. Such a stimulus package could have offered then some degree of relief. The additional Tk 100 billion in the budget for the social safety net programme is not adequate. The social safety net needs to be expanded extensively. If necessary, allocation is other sectors can be curtailed and added to this sector.

There are all sorts of loopholes in the social safety net programme. Pension, subsidy for savings certificates, are all part of the social safety net programme.  These must be drooped and allocations for the actual social safety net increased. We noted gross shortcomings in getting this assistance to the families that actually need it. Undeserving people were on the list. The data bank was inaccurately drawn up. There was need for coordination among the statistics bureau and the various ministries to resolve these problems.

Prothom Alo :

The tax-free ceiling wasn't raised in this budget either. The new tax and VAT burdens in the budget are increasing with taxes imposed on talking over the mobile phone and using the internet. Costs will go up repeatedly in the energy sector, for electricity in particular. How will the common people take this pressure?

Unfortunately, pressure on the common people is increasing rather than decreasing. All the ways and means that people had to take this pressure, are diminishing. People with savings are now dipping into their savings. They are cutting costs. They are cutting out holiday trips. They are curbing costs on recreation, healthcare and education. They are being forced to buy less nutritious food. They are resorting to all ways and means to survive. But this too has a limit.

People have found themselves with their backs up against the wall due to the long prevailing inflation. The real income of a large section of the population has decreased. Government assistance does not reach many families properly. In such circumstances, this budget's priority should have been the central focus of the budget. Many families have lost their capacity to take this pressure. The government must come forward to assist them.

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Prothom Alo :

As always, education and health have been overlooked in the budget. It has become a norm to keep around 12 per cent allocation for education and 5 per cent for health. Where will this paltry allocation take our development efforts?

It is unfortunate that this budget is not upholding the commitment made in the five-year plan regarding allocation to the health and education sectors. In the eighth five-year plan the government had committed to a much higher increase in allocation for health and education. This has not been reflected in the budget. The government is not keeping its commitment. Human development is simply not possible with such low allocation in the health and education sectors. In no way can benefits of the prevailing demographic dividends be reaped with such inadequate allocation in health and education.

If we continue in such low allocation in health and education, we will head towards a bleak future. A large section of youth will not have proper education, will not be skilled, and will not be duly productive. Rather than being an asset for the society, they will be a liability. If our policymakers understand this, if they incorporate this in the five-year plan, why is this not reflected in the budget?

It is often seen that the education and health sectors cannot utilise the allocated funds in full. Yet we see no effort in increase the capacity of these two ministries.

Prothom Alo :

Scope has been given to extensively whiten black money with a payment of 15 per cent tax. Yet a maximum 30 per cent tax has to be paid on legitimate earnings. How justified is it to shower the corrupt with such benefits?

In the budget the government talks about zero tolerance towards corruption. If the government has taken a zero tolerance stance against corruption, then the scope to legitimise black money with 15 per cent tax is contradictory. This policy will encourage corruption. The corrupt will take it for granted that black money can be easily whitened. No matter how much corruption they commit, they can whiten their black money. What logic the government has in keeping this provision intact, is entirely incomprehensible.

This was done in the past too, and did not yield must success. We feel this policy is not ethically acceptable. It is also contradictory to our constitution and our ethical stand. The government definitely must move away from this policy. If not, it will discourage taxpayers. It is establishing unethical values in society.          

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Prothom Alo :

Thank you.

Thank you. too

*This interview appeared in the print and online edition of Prothom Alo and has been rewritten for the English edition by Ayesha Kabir

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