Budget focused as usual on growth, instead of macroeconomic stability: Experts tell BIDS Seminar

Speakers in a seminar of BIDS said the proposed budget prioritised GDP growth instead of concentrating on macroeconomic stability and controlling higher inflation.

The economists present at the seminar noted that the rate of inflation decreased in the last one year in different countries, but it is increasing in Bangladesh due to lack of right measures.

The speakers made the observation at a seminar on ‘Four Key Challenges for the National Budget FY2023-24: Some Reflection’ organised by Bangladesh Institute of Development Studies (BIDS) at its auditorium on Monday.

At the seminar, Sadiq Ahmed, former chief economist of World Bank (South Asia) and Vice Chairman of Policy Research Institute (PRI) presented a keynote paper on the topic.

“For stability of the domestic economy, now is the time to determine the single and market-based exchange rate of the currency. Because foreign currency reserves are decreasing. Reserves fell by $10 billion in one year. Depletion of foreign exchange reserves cannot be mitigated by import controls,” Dr Sadiq said in his keynote speech.

He highlighted that the national budget arguably is the most prominent reflection of the government's perception of the state of the economy and the main short-to-medium-term economic challenges it is facing.

Sadiq highlighted that the budget is facing four key challenges- Restoring Macroeconomic Stability; the Challenge of Revenue Mobilization; Prudent Financing of the Budget Deficit; and Protecting Social Sector Spending.

He felt that the most important thing at this time was to protect the stability of the macro economy. But the government has given the most emphasis on growth in the budget as usual.

“In the proposed budget, the government has failed to understand the depth of the macroeconomic crisis. But the government's estimate of private sector investment to achieve growth is not realistic,” Dr Sadiq said.

He believes that it is convenient to blame this inflation on the Russia-Ukraine war, but it is not realistic.

There is inflationary pressure, but due to lack of proper demand control measures in the country's market, the inflation is prolonged, he said.

“The countries which have taken measures to reduce demand to control inflation, have been able to reduce inflation significantly. That is, the countries that have increased the policy interest rate, those countries have been able to consistently reduce the policy interest rate,” Dr Sadiq said.

As an example, he said, between June 2022 and April 2023, Thailand's inflation dropped from 7.7 percent to 2.7 percent. During the same period, US inflation fell to 46 percent. India's inflation rate is 40 percent from April 2022 to April 2023. Inflation in Vietnam has always been between 2 and 3 percent.

Binayak Sen, the Director General of BIDS emphasised on rationalising the subsidy structure of the government.

He said as much as 2 percent of GDP is going into subsidies, most of which are unnecessary. Agriculture, fertilizers and social security can be subsidised, but private sector subsidies do not make sense.

Replying to a query Binayak Sen said that tax and debt defaulters should not be allowed to participate in the upcoming elections.

He feels that there should be no opportunity to get out of the defaulters list by depositing 5 or 10 percent of the bank loan. There needs to be this commitment in politics, otherwise institutional reform is not possible.