A challenging budget, for the rough road ahead

Bangladesh, and the world at large, always had their fair share of troubles, but the recent string of events in the past few years – from a global pandemic to the threat of a nuclear war – have us yearning for simpler times.

We live in an integrated world, and the ripple effect of catastrophes taking place thousands of miles away will always hit our shores. The current FY started out well for Bangladesh with promising signs of economic recovery, but the Russia-Ukraine war threw a wrench in that plan.

The budget for FY23 is just around the corner, and a number of economists and business leaders have pointed out that ensuring smoother supply of products, tackling the impacts of the Russia-Ukraine war and LDC graduation will be the key challenges for the government.

It is crucial for Bangladesh to keep the production going smoothly, the supply chain stable, and have better control over import expenses in the next FY. The war in Ukraine has had a domino effect on the global market, pushing the prices of fuel higher and higher.

Bangladesh is now grappling with rising inflation, supply shortages and essential commodity prices that are spiraling out of control – severely hitting the country’s low and middle income groups, and further deepening inequality. There is little a country can do when inflation rises due to the global economic situation, but the Bangladesh government can provide cash support to the victims of economic hardships through social safety net programmes.

The government should also take a firmer stance to ensure smooth supply of goods in the market, and lower duties and taxes if necessary.

Experience has taught us that though there was an effort to aid the marginalised amid the Covid crisis, many did not get the help they needed. The government, in the budget for FY23, should boost social safety net allocation, and issue firmer guidelines for proper disbursement.

Bangladesh has a Tax-to-GDP ratio of only 10 per cent, compared to 22 per cent in India and Nepal, and 15 per cent in Pakistan. We must increase this ratio to keep up with the ever increasing budgets year after year.

The budget must also focus on improving the ease of doing business. Industry insiders have lauded the Bangladesh Investment Development Authority’s (BIDA) “One Stop Service.”

Though Bangladesh has made some progress with individual investors, problems remain regarding the institutional ones. It is a must for the budget for FY23 to strengthen this vital lifeline of Bangladesh’s economy, which in turn would also help the country boost its FDI.

The government’s move to keep interest rates at a fixed level could damage the loan sector in the long run.

It is not profitable for banks to disburse loans to the small and medium enterprises (SMEs) at 9 per cent interest rate, and this issue has been discouraging the banks from disbursing loans to small and medium enterprises (SMEs).

The next budget should take necessary steps centring the interest rates to help support the SME sector.

Interest rates should be connected with the inflation rate, and instead of looking at the financial institutions’ deposits and loans, steps should be taken to bring back customer confidence in this sector.

To tackle the unemployment issue, the government must provide more facilities to the private sector to help generate jobs. Besides, government projects – where there is an opportunity to boost employment – should be prioritised.

The next budget can have policy support offering tax benefits to organisations for hiring and training fresh graduates, providing internship allowance, and paying a portion of employee salaries for a set period of time.

The budget for FY23 needs strong policies to better handle Bangladesh’s LDC graduation – estimated to take place in 2026. A major economic challenge every LDC graduate faces is the loss of specific international support measures (ISMs), such as preferential market access.

We must have policies in place to strengthen and diversify our exports – especially products produced by our readymade garment (RMG) industry – to go toe to toe with our competitors after our LDC graduation.

There is a crucial need to focus more on education and research. The government should plan beyond the annual average economic growth, and instead consider inclusive measures to sustain the development.