Macroeconomic stability, not growth should take priority

Focus should be on long-term macroeconomic stability instead of annual growth and prioritising public expenditure but not curtailing social-safety-net annuities, says CPD to show which course development drives ought to steer.
The Centre for Policy Dialogue (CPD) also suggests taming inflation and bringing stability of interest and foreign-exchange rates should be concentration of policymakers in the upcoming budget for fiscal year 2024-25.
"The priority should be given to overall macroeconomic stability, rather than focusing on high growth target, in the coming budget," said Golam Moazzem, research director of the CPD, while speaking at a media briefing, days before the budget placement.
"Restoring macroeconomic stability should be the main focus of the policymakers," he said on the economic thoughts of the policy think-tank.
It says policymakers must also offer concrete measures for providing respite to the inflation-afflicted common people with limited income.
At the press meet at its office in the city the CPD observed that the ongoing macroeconomic instability and consequent policy adjustments, largely influenced by the IMF lending conditionalities, surely affected the country's economic growth prospects.
"In this context, the debate concerning the tradeoff between economic growth and macroeconomic stability has once again come to the fore," he said in the briefing.
The event was organised as part of Independent Review of Bangladesh's Development (IRBD) programme, the Centre for Policy Dialogue (CPD)'s interim review of the national economy towards the end of every fiscal year.
Accordingly, the third interim review of Bangladesh's macroeconomic performance for FY2023-24 has been undertaken for the event.
The independent think-tank states that the Bangladesh economy is currently under significant strains stemming from several ongoing challenges.
Policy weaknesses, poor governance, and inadequate reforms resulting in low revenue collection, reduced fiscal space, increased government borrowing from banks, and a declining foreign-currency reserve are identified as major points of crisis for now.
"Everyone understands the challenges of the country's economy now, but the measures taken to face the challenges aren't being effective," he told the function.
The think-tank also recommends that policymakers implement concrete measures to provide relief to inflation-affected individuals with limited incomes.
The CPD observed that the performance of the Bangladesh economy in the first 10 months of FY24 suggests that the remaining months will continue to face ongoing challenges, despite some positive policy measures initiated by the Bangladesh Bank.
"This is because policy outcomes take time to materialize. Moreover, the effectiveness of any policy also relies on complementary measures in other areas," the CPD added.
It also states that, in Bangladesh, it is a matter of regret that it has become customary to set targets concerning the macroeconomic framework that are not consistent with ongoing realities.
For FY24, the government initially targeted a GDP growth of 7.5 per cent despite existing distresses in the macroeconomic scenario," he said adding that the government shouldn't repeat the same in 2024-25.
He said the performance of the Bangladesh economy during the first ten months of FY2024 indicates that the remaining months of the FY2024 will continue to face the ongoing challenges despite some positive policy measures taken by the Bangladesh Bank.
Moazzem said issues such as enhancing fiscal space, prioritising expenditure, and prioritising foreign financing ought to guide the public finance management in FY2025.
He said complementarity between the fiscal and monetary policies must be ensured for positive outcomes of policy measures and improving macroeconomic performance.
He said the government should work towards addressing the structural problems such as establishing good governance and strengthening institutions through reforms.
"In both short and long terms, there should be reform agenda for overcoming structural chronic problems."
Relevant ministries and departments should work in a coordinated way to make success of measures being taken to overcome macroeconomic instability.
The CPD thinks the success in reducing inflation will depend on the proper implementation of the policies undertaken by the government.
"No policy can work in isolation."
The Centre says a proper revision of Competition Act 2012 should be taken to address monopolies.
The law also should include specific anti-trust clauses and concrete penalties for violators.
"The act should adopt a zero-tolerance policy towards overall collusive practices," he said.
He said though CPD stressed on cutting and carefull approach to government expenditure, but there should be measures for direct cash support to people experiencing poverty, enhance social protection for low-income families.
He also extending stimulus packages to small businesses needed for survival during challenging times.
He said selling of essential comodities in open market system (OMS) must be managed effectively.
He said the government should scrutinize to find out why measures taken to curb inflation aren't working.
"The efforts to manage the situation are deemed insufficient, with social security remaining low. Reduced import tariffs do not benefit consumers; instead, the advantages go to importers," he said.
He said Bangladesh's inflation rate is higher than Sri Lanka's.
"The cost of essential goods in Bangladesh has escalated to the point of becoming luxury items, with food prices rising disproportionately compared to income levels, he said.
"These price increases are driving the poor deeper into poverty," he said.
He said rice prices have risen more sharply for poorer segments compared to those for the wealthier segments, mainly because the rice they consume is sold more frequently.
"Over these five years, the price of rice increased by 17 per cent, with the price of coarse rice rising by 30 per cent and the paijam variety by 15 per cent," he said.
He said lentil prices have surged by 95 per cent, flour by 40 per cent, loose flour by 54 per cent, all-purpose flour (moyda) by 60 per cent, loose soybean oil by 84 per cent, and bottled soybean oil by 54 per cent.

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