Austerity measures announced to insulate economy

In the wake of dwindling forex reserve and dipping remittance income, the Finance Ministry on Sunday issued a string of austerity measures to insulate the local economy from the global economic headwinds.

While the Bangladesh Bank’s recent efforts of upping letter of credit (L/C) margins for luxurious products and enhancing the REPO rate to halt the rocketing inflation, the latest austerity measures targeting to revive the struggling economy are expected to yield positive outcome for the country, analysts believe.

With the directives the government has decided to stop releasing fund for less important ‘C’ category projects and asked all government, semi-government, autonomous and state-owned institutions and departments to stop purchasing further any kind of vehicles including motor vehicle, vessels and aircraft.

The directive said the replacement of even old cars would also be under the purview of new directives. The Finance Division under the Ministry of Finance issued three different circulars in this regard.

According to a circular, the government decided to stop all honorariums for meetings of all projects and schemes being implemented by local fund. The projects falling under semi-government, autonomous, statutory, state-owned company or financial organizations will come under the latest directive.

The directive will be applicable for the meetings of Project Implementation Committees, Project Steering Committees, Departmental Project Evaluation Committees, Special Project Evaluation Committees and Departmental Special Project Evaluation Committees, the circular elaborated.

The circular said the category ‘B’ projects cannot spend more than 75 per cent of the government expenses with conserving 25 per cent of its expenses.

However, the ministries concerned and bodies may finance the category ‘A’ projects (priority development projects) with priority basis without any changes as per the approval from the planning commission and Finance division.

The circular further says the government is taking into account the incumbent global economic strain with due importance while spending fund for the running fiscal year and the bodies have to follow Fund Release Procedure-2018 for developing projects while releasing fund.

At present there are 1,435 projects in the Annual Development Programme (ADP) for the current FY23.

The directive said the allocation on felicitation expenditure, travel expenditure, computer and related accessories, electric goods will be spent at most fifty per cent for the current financial year.

The allocation on training can also be spent at most fifty per cent if the training is conducted within the country. However, the directive will not be applicable for the training institutes.

A similar restriction on cars was imposed in 2020 for 6 months against the backdrop of the Covid-19 fallout.

The allocation on vehicle purchases was Tk9, 408 crore in 2021-22.

Debapriya Bhattacharya, Distinguished Fellow of the CPD said: “It is a positive sign from the part of the government while the shrinking of expenditure is inevitable because the government cannot have more revenue growth.”

He said the directives will play pivotal role as the government had taken strict decision from the very beginning of the financial year.

The government set its target of the total expenditure at 15.2 per cent of the GDP – up from 14.9 per cent in the revised budget of the FY22 while the revenue income was estimated to grow by 9.7 per cent – lower than 9.8 per cent of the revised budget of the FY22.

Public investment and GDP ratio in the FY23 has been assumed to be 6.7 per cent, lower than 7.6 per cent in the FY22.