A budget to set 8 difficult tasks to fight “imported inflation”

Identifying “imported inflation” as the main culprit in the economy, the Ministry of Finance prepared a list of eight difficult tasks for the new fiscal year in July to contain price shocks, continue development work productive and protect livelihoods.

Mobilizing a fund for higher subsidies for fuel, gas and fertilizer, and expanding social safety net programs are among the priorities of the new budget so as not to pass the full brunt of price shocks onto consumers, finance officials familiar with the budget process told The Business. Standard.

Controlling imports to maintain a stable foreign exchange reserve, delaying less important projects, keeping interest rates below 9% are among the strategies, increasing income revenue to reduce the budget deficit and supporting private sector investment. to create jobs are also included in the to-do list. incorporated into Finance Minister AHM Mustafa Kamal’s June 9 budget speech.

A finance ministry official told TBS: “The government will be very tactful in addressing these challenges. But the key strategy would be to increase supply by keeping existing domestic demand intact. That is why, in In the case of operating budget allocation, production activities will be prioritized by reducing luxuries and lesser expenses, including overseas travel, car purchases, and construction of new buildings.

Imports of luxury goods and products which are also produced in the country will be discouraged in order to keep import costs at a reasonable level, he said, adding that the implementation of development projects which will increase employment and production will be given priority and that additional funds will be allocated for them if necessary. In addition, the government will continue to provide the necessary policy support to increase private investment, he said.

Finance officials said the government was not planning to raise the prices of oil, gas and electricity at the start of the financial year, which is why subsidies on these three sectors as well as on fertilizers will increase.

However, if the war between Ukraine and Russia is prolonged and the import-export trade of these two countries does not normalize, the government could opt for the elimination of subsidies and the increase in prices, have- they added.

They fear that the rise in commodity prices on the world market following the war in Ukraine, coupled with several cycles of depreciation of the local taka currency against the US dollar, could further push up the prices of the main goods of consumption in the country.

The Russian-Ukrainian war has driven up the prices of all nine “strategic commodities” for Bangladesh – fuel oil, LNG, wheat, chemical fertilizers, palm oil, soybean oil, coal, maize and rice – in the international market.

Bangladesh’s imports of these products this year have been similar to last year, but this time the country has to pay an additional $8.2 billion just because of the price hike, which is responsible for the escalating inflation in addition to causing foreign exchange reserves to decline, according to official data.

According to data from the Ministry of Finance, crude oil prices soared to over $113 a barrel after the outbreak of war between Ukraine and Russia in February. Natural gas prices have increased at least 12 times on the international market. Fuel oil prices in the international market increased by around 70% year-on-year in April this year, while prices for urea-based fertilizers tripled.

In addition, soybean oil prices have risen by 40%, wheat prices by 80% and sugar by around 25% since the start of the Ukrainian war. The prices of industrial raw materials and transport costs also rose sharply.

According to the official estimate, the inflation rate in the country exceeded 6% but private research organizations estimate that the rate is at least 12%.

In this situation, the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) and the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) have called on the government not to increase gas and oil prices. electricity. They fear that increases in the prices of these raw materials will further push up inflation and disrupt industrial production.

In this situation, the Ministry of Finance plans to take measures to control commodity prices by increasing supply and increase people’s incomes by increasing allocations for production-oriented projects that will create more opportunities. employment. Also, various incentives announced during the Covid pandemic will continue in order to attract new investments in the private sector.

Officials involved in preparing the budget also told TBS that Prime Minister Sheikh Hasina had ordered them to continue subsidizing oil, gas and electricity until inflation is brought under control.

Against this backdrop, government subsidies are estimated at Tk 82,745 crore for FY23, or 1.9% of the country’s Gross Domestic Product (GDP). In the revised budget for the current FY22, subsidies and incentives were estimated at Tk 66,825 crore or 1.7% of GDP.

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