Economy facing greater challenges than ever before: CPD

The Bangladesh economy is experiencing several severe crises, including high inflation, a volatile exchange rate, dwindling foreign exchange reserves, and a massive trade deficit, the likes of which have never been seen before, according to the Centre for Policy Dialogue (CPD).

The think tank made the statement in a report on the state of the Bangladesh economy in FY22, which was released on Sunday.

To combat inflationary pressures, the CPD has proposed limiting domestic market manipulation, lowering commodity taxes, implementing measures to reduce pressures on foreign exchange reserves, and devaluing the taka against the dollar rather than depreciation.

It also suggested that the number of social safety net programs be increased, that food be sold at subsidised prices be maintained, and that the minimum wage be raised.

Inflation

Professor Mustafizur Rahman, a distinguished fellow at the CPD, said that inflation is rising due to price hikes in the international market and rising dollar prices. “We can’t stop it right now. But we have two things in our hands.”

“One is to reduce import duties. The other is to stop the manipulation of the domestic market. As VAT is reduced in the case of edible oil, the same should be done for other food items. ”

To tackle inflation, Mutafiz suggested, the government needs to focus on overcoming the weaknesses of internal management. Good governance, surveillance, and vigilance must be increased.

Apart from this, the amount of assistance to the poor people who have suffered the most under the pressure of inflation will have to be increased.

An emphasis should be placed on increasing purchasing power. In this case, CPD has recommended raising the minimum wage.

“It is the proper time to increase the minimum wage,” suggested Khondaker Golam Moazzem, research director of CPD.

External sector and the dollar crisis

CPD said, Bangladesh’s external sector has never been under so much pressure due to increased import payments and has experienced so much volatility as in the recent past.

It assumes the trade deficit will widen to the $30 billion mark, the current account deficit will be $18 billion and the negative overall balance will cross the $5 billion mark by the end of FY22.

According to CPD, free-floating of the exchange rate is the right decision, but in the context of Bangladesh, the Central Bank should monitor the market or the market will become even more volatile.

Incentive and subsidy

The CPD thinks it is time to reconsider the government’s incentives for exports and remittances as the dollar price has increased and the country’s economy is under pressure. Towfiqul Islam Khan, senior research fellow at the CPD said, “No incentive structure is permanent. The goal of this framework should be to address short and medium-term challenges.”

In the context of energy subsidies, CPD said that Bangladesh Petroleum Corporation’s (BPC) has been taken away by the government as it faces a subsidy crisis.

The think tank suggested the government not take away the money if the state-owned enterprise makes a profit.

The good side of the economy

Despite rising inflationary pressures due to rising import costs, the government’s revenue has increased.

However, the CPD estimates that the revenue deficit could reach Tk 30,000 crore by the end of this financial year.

On the other hand, due to low expenditure on annual development programs, there was no budget deficit till July-December of FY22. There is a surplus of Tk 1,130 crore. Also, another good aspect of the economy is the increase in manpower exports. CPD suggested an increase in awareness programs for new expatriates to send remittances in the proper and legal way.

Banking sector

The problem is getting worse in the banking sector due to irregularities and corruption. CPD has further demanded the formation of a banking commission again to ensure good governance.

According to the CPD, the government has injected a total of Tk 15,705 crore into state-owned banks between FY09 and FY17. With this amount, four Payra Deep Seaports could be built.

Recommendations

The coming budget should focus on increasing employment by increasing investment. To increase investment, CPD has emphasized coordination between revenue and monetary policy. Emphasis should be placed on increasing internal resource mobilisation.

The government should avoid unnecessary expenses and be cost-effective. No project can be undertaken which is less necessary. Internal demand must be maintained and supply of products must be ensured, said CPD.