The fight against inflation should be the priority
The government should formulate the next budget for the 2022-23 financial year with a focus on macroeconomic stability and reducing the inflation rate to protect low- and middle-income people, experts said.
They also believe that the budget for the coming financial year must be “exceptional”, as the frequent rises in commodity prices, the foreign trade situation and the ongoing Russian-Ukrainian war have put the economy under new pressures. .
The country also has to deal with the depreciation of the taka, a downward trend in remittances and pressure on foreign exchange reserves.
The government should also take initiatives to increase production and people’s incomes by creating jobs.
The inflation rate has been above 6% for three consecutive months.
The current state of inflation
The point-to-point inflation rate jumped to 6.29% in April, the highest in 18 months. The government had set a target to keep the inflation rate below 5.30% in FY21-22, but an inflation rate of 5.36% recorded in July 2021 was the highest. bottom of exercise.
In March, headline inflation was 6.22%. In February and January, it was 6.17% and 5.86% respectively.
Selim Raihan, executive director of SANEM, told the Dhaka Tribune that a volatile situation is prevailing all over the world, with a rising global inflation rate, and that Bangladesh is also feeling the pressure.
Due to the pandemic and the ongoing Russian-Ukrainian war, there has been a disruption in the global supply chain which has led to higher raw material prices, shipping costs and production costs, he added.
However, the BBS inflation rate has also been questioned by prominent economists in the country.
Recently, in a presentation, Economist Debapriya Bhattacharya said that the inflation rate is actually higher because the BBS data failed to capture the real price level and the consumer’s basket. He also said that the inflation rate could reach 12% and this trend will continue in the coming days.
The global inflation scene is also fragile, with inflation in the EU at 8.1%, the Eurozone at 7.4% and the US at 8.3% in April.
Since the start of the Ukraine-Russia war, wheat prices have doubled, the price of fuel has exceeded $100 a barrel, and the prices of cotton, clinker and iron have increased by 50-100%.
Inflation pressure everywhere
According to recent data published by the BBS on the prices of 47 essential products, the prices of 32 products rose in April and only 13 products saw price decreases.
The list included rice, cooking oil, lentils, flour (atta and maida), sugar, fish, meat, milk, eggs, fuel, clothing and others essential products.
According to Bhattacharya’s presentation, the price of soybeans increased by 55.83%, palm oil by 61.29%, fuzziness by 57.75%, lentils by 46.43%, chicken by 10 .85% and 6.90% sugar.
He said the poor, lower middle class and middle class will suffer the most if macroeconomic stability is lost because their incomes have not risen alongside rising prices of basic necessities.
The way to control inflation
Bhattacharya said the government should take adequate initiatives to control inflation from the new fiscal year to continue the productive development work and protect livelihoods.
Creating jobs, reducing imports, expanding the social safety net, stabilizing foreign exchange systems and foreign exchange reserves will be enough to prevent inflation.
Zahid Hussain, a former senior economist at the World Bank, said inflation in Bangladesh has mainly occurred for two reasons: increased domestic demand and rising commodity prices in the international market.
“To control inflation, we need an initiative on how to reduce it by reducing pressure on demand and reducing the budget deficit,” he added.
The budget deficit for the next fiscal year is not expected to exceed that of the current fiscal year, he said.
He also said the government should find a way to save on subsidies.
“Remittance senders are already benefiting from the rising value of the dollar, so the remittance subsidy should be lifted as the country spends Tk 5,000 crore on it,” he added.
In addition, the 1% cash subsidy on exports should also be scrapped, he said. “Most industries have changed their fortunes since the pandemic.”
In the national budget, about Tk 85,000 crore can be spent on subsidies, so the subsidy should be reduced in possible sectors.
Selim Raihan said customs fees and duties on essential import goods could be reduced as much as possible.
In addition, the area of domestic supply needed to be expanded.
“Prices of various commodities are rising from import level to consumer level due to unscrupulous traders. The type of actions that can be taken against them can also be presented in the budget,” he added.
To ensure the security of low-income people
Poor and low-income people are feeling the most inflationary pressures and their livelihoods are in crisis and the middle class are feeling the savings crisis.
“As there are not many opportunities for them by reducing the deficit, the budget should increase both the allocation and coverage areas for the poor in social security programs,” said Zahid Hussain.
Selim Raihan said people would look at how social protection programs expand their area of coverage to protect those directly affected by rising inflation, such as low- and middle-income households.
Distinguished CPD member Professor Mustafizur Rahman recently told the media that the country’s population is now under inflationary pressure and should be kept at a tolerant level as much as possible to relieve people.
“For this, spending on social safety nets must be increased and side by side, the poorest section of the population must be given protection,” he added.
Also, as ordinary people are now under inflationary pressure, allowances against subsidies should be increased.
Dealing with the dollar crisis
Experts also believe that keeping the dollar stable is now more important than reducing the cost of imports to deal with inflationary pressures.
They also said inflation could not be controlled by keeping the dollar unstable.
Professor Mustafizur Rahman said the current level of foreign exchange reserves did not create any apprehension. Thus, the sale of US dollars should continue according to demand so that there is no crisis.
According to Debapriya Bhattacharya’s recent presentation, investment (as % of GDP) decreased between FY19 (32.21%) and FY21 (31.02%), with private investment decreasing to 23.07% in FY21 versus 24.94% in FY18.
National savings are also down due to rising inflation. They fell to 30.8% in FY21 from 32.1% in FY16, and domestic savings also fell to 25.3% in FY21 from 27. 3% in FY16.
Given the current circumstances, Mustafizur Rahman suggested paying more attention to the revenue budget rather than the development budget.