Economists find the absence of "bold actions" in the proposed fiscal budget to tackle the challenges the economy has been facing for quite a long period.
They see a lack of proper steps to manage inflation and bigger deficit in budget, and high dependency on bank borrowing and external resources may dry up resources for private-sector investment.
Dr Salehuddin Ahmed:
Former central bank governor Dr Salehuddin Ahmed in his instant reaction says Bangladesh's economy is facing tough challenges with macroeconomic stability under pressure.
"Making progress won't be possible unless macroeconomic stability is restored," he added.3
For macroeconomic stability, there are three areas - inflation, forex reserve and the devaluation of local currency, and the third is energy. "I didn't see any clear steps on theses three issues."
The government sets a target to bring down the inflation rate to 6.5 per cent, but no concrete measures have been spelt out for the same.
A reduction in import duty on essential commodities alone would not help lessen inflation, observed Dr Ahmed.
The economist, however, suggested that the government take steps to raise investments in small and medium enterprises.
Due to higher deficit, the government will borrow a lot from banks. "It raises question how the businesses will get money. Otherwise, how employment will be generated?"
If business is not expanded, how the NBR will raise revenue collection, Mr Ahmed posed a question.
Dr Zahid Hussain:
Dr Zahid Hussain, a former lead economist at the World Bank's Dhaka office, terms the annual financial plan a "usual budget in an unusual situation".
"There are various macroeconomic stresses prevailing now, including liquidity stress and forex shortage…"
"The large-sized targets taken in this budget will further raise stress on macroeconomy," said the economist.
In the last couple of months, Dr Hussain said, the government borrowed a lot when the interest rate was very high, meaning the interest expenditure pressure will surpass the projection made for the next budget.
"I was expecting that there would be some steps for structural reforms as this is the first budget of the new government. But I noticed the government next years will also walk through the traditional paths."
Dr Debapriya Bhattacharya:
Dr Debapriya Bhattacharya, a distinguished fellow at the Centre for Policy Dialogue (CPD), says the budget fails to recognise ongoing economic problems properly as it lacks adequate measures to overcome them.
He said no coherent pathway has been laid out for controlling inflation, managing debt distress, improving revenue collection and ensuring quality of public expenditure.
"The budget as well as the medium-term macroeconomic framework doesn't allay our fear about the challenges of macroeconomic management."
One of the major concerns is both public and private investment. Although the GDP growth rate has been fixed at 6.75 per cent for FY25, it is much higher than the current estimate of 5.82 per cent for FY24.
One wonders whether there will be adequate finance to support the investment requirement, comments Dr Bhattacharya.
The private-sector credit growth has been kept at 9.0 per cent, which is less than last year's.
Moreover, the availability of credit will be constrained by the huge borrowing by the government. About 60 per cent of the government's expenditure will be financed by the banking sector.
Export growth has been projected to be similar to that of last year's, i.e., 8.0 per cent.
Import will pick up a bit, but remittance growth is expected to fall to 7.0 per cent from 10 per cent.
As a result, Dr Bhattacharya said, the current account balance would remain marginally positive, less than 0.6 per cent of the GDP.
On the other hand, foreign-exchange reserves are supposed to increase by more than $3.0 billion. One is not sure that the pressure on taka is going to ease in the upcoming fiscal year.
"Debt management will remain a critical issue next year. The entire ADP will be financed by borrowed resources, which is a major issue," added Mr Bhattacharya.
Dr M Masrur Reaz:
Dr M Masrur Reaz, chairman and CEO of Policy Exchange Bangladesh, said this time the highest priority of the budget was warranted for macroeconomic stability.
"Thus, inflationary element received a lot of attention in the budget," he said.
He says the increase in inflated budget is very conservative and very marginal, which takes the budget as a fiscal policy instrument in alignment with the monetary policy that is contractionary.
The minimum increase or conservative increase in budget size will be helpful in containing inflation.
As the ADP size has not increased, it will help manage foreign-exchange reserves through containing import demand, according to Dr Reaz.
The allocation in education and health in terms of GDP has gone up, which is encouraging in this tight situation, he noted.
Mr Reaz, however, also saw contradictory steps in the management of inflation.
© 2024 - All Rights with The Financial Express
