Taming inflation a big challenge for next budget

With the budget announcement around the corner, Policy Exchange of Bangladesh (PEB) Chairman and former economist at the World Bank Group Dr M Masrur Reaz in an exclusive interview with The Business Post’s Rafikul Islam has urged the government to focus more on inflation management, subsidies to control fuel market, ADP spending and reducing cost of running business in the next budget

The government is set to announce a Tk6, 77,864 crore budget for FY2022-23 in parliament on June 9. What should be the focus in the budget?

Inflation management is a big challenge for the next budget. The country’s current inflation rate is the result of the on-going global situation particularly the Russia-Ukraine war after Covid-19 pandemic as it disrupted the supply chain.

As all economic activities picked up steam in the globe after nearly two years of Covid-19 lockdown so did the demand for different products, labours and logistics markets leading to high inflation rate.

Now, cost of living is out of affordability and similarly cost of running a business has gone up enormously. The inflation rate will further increase if the government does not take short and long-time plan in the next budget.

The government must heavily subsidize the fuel sector and poor people in the budget. Besides, unnecessary Annual Development Programme (ADP) cost must be reduced and non-essential projects have to be stopped this year.

As Bangladesh is an import-dependent country, unnecessary payment should be avoided.

How, do you think, to address current economic situation through budgetary policy?

Amid the current economic situation, Bangladesh must focus on increasing local and foreign investment and diversifying trade.

In budgetary policy, public investment should be emphasised for encouraging private investment in our high potential sectors. So, we should develop infrastructures like land, road, port, warehouses and utilities. At least, 10 economic zones should be completed as soon as possible.

The government should connect trade communication with the entire country. We have to strengthen integrated logistics.

Buyers from different countries including EU and Germany want an improvement of export environment, governance and supply chain.

German won’t import products after 2023, if we don’t maintain minimum standards on the issues of environmental, social, quality and corporate governance including labour condition. To this end, we have to upgrade private sector soon.

So, the government can provide a special fund in the budget for private sector like export development and green transformation fund.

Private sector is crucial for employment. How do you think that we can attract more local and foreign investment here?

To bring more investments in Bangladesh, we have to improve investment environment, reform laws, modernize regulations and accelerate business programmes.

Tax system is a big obstacle to all investors here. High tax rate and sudden change in the tax system discourage investors. We have to widen tax net reducing tax rate, make a tax frame for a long time removing all complexities in terms of paying taxes.

The government should create more potential sectors and create congenial environment for investment in the potential sectors.The government should prioritise digital investment economy. Otherwise we will be deprived of investment here.

Besides, remittance flow must continue. The government should look for labour markets across the world and train up our labours to get higher earnings. We should reform regulatory bodies to strengthen its capacity.

What challenges may the government face in the FY2022-23 and how to address those challenges?

The government is set to announce the budget at a time when the country is recovering from Covid-19 pandemic, tackling impact of LDC graduation and overcoming global economic stagnancy. So, the budget is challenging one this year.

Generally financing is a big challenge for budget. The government must increase direct taxes to overcome the challenges and lay emphasis on budget implementation.

The government should identify all problems of different sectors quickly, do policy response timely and avoid unnecessary cost in projects.

The government has to look for most reasonable financing from foreign agencies including ADB and WB.

Which issue should be addressed in the next budget to tackle the impact of LDC graduation by 2026?

After LDC graduation, we won’t get GSP facilities. Those who will import our products, they have to pay taxes on products. So, prices of our products will increase by 8-11 per cent.

Apart from this, we can’t even provide incentive and subsidize different sectors. Which is why we have to reduce cost of production.Bangladesh needs to use modern technologies and improve labour skills for more production at reasonable cost.

Realtors have continuously demanded legalisation of undisclosed money investment in real estate sector in the budget. What’s your opinion?

The trend of black money whitening will discourage and dishonour honest tax payers. We need a taxpaying culture now for our economy. The trend will stand in the way of developing the taxpaying culture in the country.