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7.5% GDP growth target amid high inflation unrealistic

Staff Correspondent
08 Jun 2023 00:00:00 | Update: 08 Jun 2023 00:20:26
7.5% GDP growth target amid high inflation unrealistic
Business leaders, journalists and experts at a post-budget discussion at the ERF in Dhaka on Wednesday– Courtesy Photo

Attaining 7.5 per cent GDP growth in FY24 would be very difficult for Bangladesh because of the soaring inflation, high bank borrowing target and economic headwinds, experts said on Wednesday.

Economists made the remark at a post-budget discussion in the capital’s Economic Reporters Forum (ERF). The event was jointly organised by the Research and Policy Integration for Development (RAPID) and ERF, with the support from The Asia Foundation.

Planning Minister MA Mannan attended the programme as the chief guest.

Presenting the keynote, RAPID Chairman Dr Abdur Razzaque said, “Trying to achieve a higher target for GDP growth when inflation is high will be like adding fuel to the fire. The question remains whether target GDP growth is realistic?

“If focus on achieving a high growth target, we may not be able to rein in inflation. Moreover, if we fail to tackle inflation, the growth target will remain out of reach. Inflation cannot be controlled by keeping the interest rate static.”

He added, “If we don’t leave the USD exchange rate on the market, we will not be able to tackle inflation and the greenback crisis. But we could not make the decision even in a year.”

Razzaque then said, “The proposed budget was unveiled against a backdrop of formidable inflationary and foreign exchange reserve pressures. The government managed to correctly identify inflation as a key challenge, but no concrete measures have been taken in this regard.

“We must also improve our current account balance situation and stabilise the foreign exchange rate. May 2023 inflation rate is 9.94 per cent, and the government has set a target to bring this figure down to 6 per cent in FY24. This is too optimistic and unrealistic.”

He continued, “The budget deficit next year will be larger, and it will be difficult to curb inflation. However, if the supply of goods in the country increases, inflation may decrease. Amid such a situation, if the government takes money out from banks, inflation will go up further.

“Restoring macroeconomic stability should be given the utmost and urgent priority.”

Razzaque said the high growth target of GDP should be rationalised. If GDP projection is not calculated correctly, growth projection will not be correct either. This in turn will create more inflationary pressure.

He added that considering inflation, reducing budget allocation in some sectors and increasing the allocation for social protection by Tk 10,000 crore will help rein in inflation. “A six-month delay in making this decision could lead to a black hole that we may not be able to come out of.”

6% inflation target unrealistic

At the discussion, Planning Minister MA Mannan said, “The target of keeping the inflation within 6 per cent in the proposed budget is not realistic given the current situation. It would, however, be possible in FY24.

“The government has announced withdrawing some subsidies, but agriculture and food subsidies will be retained as those are beneficial. There is a problem somewhere in the Bangladeshi market regarding the price of onion.”

Mannan continued, “Prime Minister Sheikh Hasina is also in favour of building stocks of import-dependent products. She has given a directive to build the stock under the Trading Corporation of Bangladesh (TCB).

“Due to adequate stock of rice, the market is now normal. Similarly, other products also need to be stocked.”

Anarchy in USD prices

Federation of Bangladesh Chambers of Commerce & Industries (FBCCI) President Jashim Uddin said, “The banks are charging higher than the exchange rate set for USD, and it is like looting. We have to pay about Tk 115 per USD during payment of our import bills.

“Despite facing a bad situation, we are still posting growth. But under current circumstances, the backward linkage industry will be destroyed due to some of the NBR policies.

“Although the industries get tax exemption on its own production, it has to pay taxes while buying from the local backward linkage industry. For example, we have to pay 15 per cent VAT for buying garment waste, and this is unrealistic.”

Dhaka University Economics Department Professor Abu Yusuf, BUILD CEO Ferdous Ara Begum, Head of Prothom Alo’s Online Department Shaukat Hossain Masum also spoke during the discussion.

ERF President Refayet Ullah Mridha delivered the welcome address, while ERF General Secretary Abul Kashem moderated the event.