The upcoming national budget for FY23-24 should focus on macroeconomic challenges such as taming inflation, better revenue collection, reining in growing defaulted loans and IMF-suggested reforms.
This was stated by Dr Atiur Rahman, former governor of Bangladesh Bank in conversation with UNB on the expectations from the budget to be placed in parliament on June 1.
Dr Atiur said the budget will certainly have to address a number of macroeconomic challenges. The foremost is, of course, inflation which is still running high at more than nine per cent.
“Bringing this down to 6.5 per cent in the next fiscal year may not be easy unless we go fast towards market-based solutions of major macroeconomic challenges arising out of administratively controlled indicators like rate of interest and foreign exchange rates,” he said.
Thanks to the IMF programme, the budget may encourage regulatory authorities to go for an ‘interest rate corridor’ and a ‘single exchange rate’ that are long overdue. If we could have followed this time-tested path of market-driven macroeconomic management many of the ongoing challenges would have been addressed by now, said the development economist.
“Yet, it is better late than never,” he said adding “Of course, some sectors like agriculture, export and remittances would still need financial support and they must continue to get it.”
This, he said, will be desired support to the real economy which can contribute towards easing supply-side constraints to reduce inflation to some extent.
However, constraining demand pressure by raising interest rates still remains a major move to reduce inflation. “I hope the macroeconomic managers would like to take this prudent path in the next fiscal year without any hesitation.”
He said the rich are currently enjoying huge advantages of a negative rate of interest when adjusted against the inflation rate may raise political and economic hurdles against such a move. But the gains of long-term macroeconomic stability must guide the policymakers to overcome such pressures, said Dr Atiur.
“I think one must not look at IMF conditionalities negatively as the budget makers have also been flagging such reforms for quite some years. The local economists in general have also been arguing for a more balanced budget with manageable deficits,” he said.
Bangladesh, of course, has done pretty well in maintaining budget deficits of around five per cent. This year it may go above five per cent (5.3 per cent) which is not that bad.
“To maintain this level of budget deficit we need to raise our domestic resources by reforming our tax administration system through higher levels of digitalization and a more efficient tax system,” Dr Atiur said.
The banking system has been well-digitised in the meantime. Why should the NBR not take advantage of this modernisation of the money market and replicate a fully digital revenue administration system?, he questioned.
Since inflation remains very high, the fiscal measures for higher levels of social security for the extremely poor and lower income groups in terms of higher food subsidies and support for agriculture must continue in the upcoming budget as well. Strategic support for digital infrastructures for making the economy smarter must also be the cornerstone of the next budget, he pointed out.
“Simultaneously, we must keep our budget as cautious as possible to restrain the inflationary outlook,” he noted.
