Economist Dr Zahid Hussain has suggested the government design an employment-friendly budget by keeping inflation in check and ensuring food security amid increasing import spending triggered by a rise in international commodities prices, bdnews24.com reports.
The former lead economist of the World Bank’s Dhaka office thinks rising inflation, caused by higher prices of commodities on the domestic market, will drive the marginalised Bangladeshis to the corner by creating uncertainty over food.
Dr Zahid believes the issue can be fended off by expanding social security along with subsidies in the new budget.
He urged the government to move away from the “conventional course” of a budget deficit and adopt an effective budget that can stabilise the domestic market in the current global context.
In an interview with this news provider ahead of the upcoming national budget for the financial year 2022-23, he described inflation and the demand and supply gap in the foreign exchange market as the biggest challenge to Bangladesh’s economy now.
Dr Zahid thinks inflation and the dollar crisis stem from the same issue.
Finance Minister AHM Mustafa Kamal is set to present the national budget on Jun 9. Finance Division officials said they were preparing a budget of Tk 6.75 trillion.
“Lack of balance in external trade is causing a deficit in foreign currency. The foreign currency we used to get is not enough to meet the deficit. Due to this, the increasing demand of foreign exchange is not consistent with the supply,” Dr Zahid said.
“So the demand for dollars remains unfulfilled and the currency exchange rate is under pressure.”
He pointed out the rise of prices of commodities, including food, fuel and construction materials, and the soaring dollar prices on the international market as the key issues that need to be addressed in the budget.
“Domestic demand has gone up along with growth. Along with the demand, the prices of goods are rising on the global market and the costs of products that the government has no control over are moving up as well.”
“The budget can play a role and calm the domestic demand. But a conventional budget deficit will not be able to play this role.”
“In that case, the budget must come into play in the demand for imported goods. It will also be able to stabilise the dollar market.”
Dr Zahid thinks the government’s go-slow strategy towards development projects that lack overseas assistance but relies on import materials will come in handy. “But this plan has to be executed.”
He suggested proper management of the power and fuel market to adjust inflation in the new budget. “The higher prices of fuel are a major cause for the rising inflation. These two factors impact almost every sphere.”
According to the Bangladesh Bureau of Statistics, inflation rose to 6.29 per cent in April - the highest in 18 months.
On the warning of the World Food Programme or WFP, International Monetary Fund or IMF and World Bank over an impending food crisis, Dr Zahid said, “International trade can’t be relied on during a food crisis.”
“We’ve seen in 2008-09 that when the international market is hit by a crisis, nations start to stock goods. Recently Indonesia cut palm oil supply and India stopped exporting wheat.”
“So we can’t take any risks with food security. We can’t raise fertiliser prices in that account and have to be cautious about hiking diesel prices.”
In the current fiscal year, the government allocated Tk 668.25 billion for subsidies. Zahid thinks this area needs more allocation now. But the clever execution of the budget for subsidies will be the key to achieving success.
Highlighting the odds of marginalised people falling to uncertainty over food if inflation keeps rising, the economist suggested providing the poor with food at lower prices in the next budget and increasing allowances if necessary.
“We have to move to boost production in the next Boro paddy harvest season to ensure food security. So [the government] has to be prudent in calculating how much the prices of agricultural commodities, diesel, power and other production-related materials can be raised.”
“That will be the main challenge for the next budget."
The government provisioned Tk 55 billion for the food sector and Tk 120 billion for power as subsidies in the ongoing fiscal year, while providing another Tk 120 billion for agriculture and Tk 12 billion for jute products as incentives.
Dr Zahid thinks Bangladesh’s chief export market Europe will undoubtedly slide into recession with questions remaining only over when it will happen, how bad it will be and how long will the crisis last.
He said if Europe and the United States are hit by recessions, Bangladesh's exports will suffer and the country’s industry and employment will struggle. So it is crucial to prepare swiftly for this oncoming crisis.
In Dr Zahid's words, the Bangladesh Bank was wrong to release foreign currencies to stabilise the market.
Bangladesh’s foreign reserves reached $48 billion in August last year but slipped to $42 billion after the central bank recently sold almost $5.8 billion to the market. “We are selling dollars at a time when we need it the most,” he said.
“We will have the option to pay for imports if we have sufficient reserve. But it will be troublesome if we can’t enlarge the reserves, which was the case in Sri Lanka.”
“There’s no need to control the value of dollar as it is linked to the global market.”
He called for special attention to increasing employment in the country by bringing in domestic and international investment in the next budget.
“The government claims improvement in the Doing Business Index. The government speaks of the availability of one-stop services. But in reality, Bangladesh is yet to harbour a competitive environment for investment.”
The World Bank did not publish the Ease of Doing Business ratings in the past two years. But before that, Bangladesh was ranked 168th among 190 countries.
“So we've to take steps," the former lead economist said, "to attract overseas investors in the next budget.”
According to the Bangladesh Bank, the country drew in $3.88 billion in foreign direct investment or FDI in 2021, which was 15 per cent more than the previous year. In 2020, the total FDI stood at $3.37 billion.