Home ›› 21 Jun 2022 ›› Opinion
Finance Minister AHM Mustafa Kamal perceives six issues as the main challenges for the country’s economy in the coming 2022-23 fiscal year. He mentioned these challenges in the proposed budget for the new fiscal year. The finance minister said discussions have been held with the country’s top business organizations, eminent economists and media personalities as part of the budget formulation like every year. Through these discussions, six challenges have come up in the next financial year. These include controlling inflation and increasing domestic investment, raising funds for increased subsidies due to rising gas, electricity and fertilizer prices, utilizing foreign aid and completing high-priority projects on time, timely implementation of education and health projects, and adding value added. Increase the amount of tax collection and number of individual income taxpayers; keep the exchange rate stable and the foreign exchange reserves at a satisfactory level.
To address these challenges, issues such as increasing agricultural and industrial production, ensuring food security, improving the quality of health care, improving human resources, reducing poverty through equitable distribution of resources, education, increasing the scope of social security and climate change have been given more importance in the budget.
The expectation was that the budget would be a document to protect the common people from inflationary pressures. The budget has been framed in the usual way, which many people feel is not enough to meet the current challenges. The increase in allocations to health, education, agriculture and social security is commendable, but not enough. Although the allocation has been increased considering the past experience, there are still doubts about its implementation. There is nothing special in the budget for tackling new challenges and overcoming old challenges. Challenges such as trade deficit, inflation, tightening of foreign exchange reserves, devaluation of money, lack of employment and income inequality. People want to hear what is allocated in the budget for those who are deprived. They want to know how to get rid of contemporary problems and how to improve their quality of life. The country will grow and the reserves will increase. These are just indicators of the economy. The main goal of this year’s budget should be to improve the quality of life and provide comfort to people with fixed incomes.
Fears of a prolonged Corona pandemic and the lingering Ukraine-Russia war have created a global crisis. Its negative impact has been felt in the country as well. There were several issues in the budget that needed to be taken seriously. First is the dollar crisis. The only reason for the dollar crisis is not the rise in prices of imported goods, but also money laundering. Surveillance needs to be stepped up to prevent over-invoicing of imports. There is no statement in the budget in this regard. The second challenge is to control inflation.
Burgeoning inflation is making people’s lives miserable. There is confusion in the official information regarding this. The government says inflation is 6.29 percent. But in reality, experts believe, it is 12 to 15 per cent. The state-run Trading Corporation of Bangladesh prices of some essential commodities, such as rice, pulses and oil, have risen by 40 to 60 per cent. So, without real information, no policy formulation will work. However, the finance minister sidestepped the issue of high inflation by calling it international. The third important issue is the energy crisis.
A large part of our energy sector master plan is based on imported liquefied natural gas (LNG). Late last year, fuel prices continued to rise in the international market. At one point in the spot market, the price of the product rose to $55 per Metric Million British Thermal Units (MMBTU). After the Ukraine-Russia war the fuel market became more volatile. In the end, the price of LNG rose to $88 per MMBTU. The industrialists say that if the government raises the price of fuel, it will be difficult to keep the factories running. This is especially the case in heavy industries such as textiles, ceramics and steel. The fourth challenge is the tax-to-GDP (Gross Domestic Product) ratio. Our tax-to-GDP ratio is very low. South Asian countries have an average tax-to-GDP ratio of 15 per cent, while ours is less than 6 percent. Researchers believe that this rate needs to be raised to at least 22 per cent. For this, the tax structure has to be expanded with the imposition of wealth tax. We need to increase efficiency in tax collection, as well as eliminate corruption and irregularities in tax collection. The budget does not mention any new initiatives to increase tax collection. In contrast to the four challenges mentioned above, the government also has an opportunity.
The demographic dividend is in our favor. About 66 per cent of our population comprises of the youth. If we can make them proficient through actual education and training, there will be significant changes in productivity. Opportunities for exporting skilled labour will increase instead of unskilled labor. This requires proper planning by the government. Although it has been said for years, no announcement has been made by the finance minister in this regard.
During the Corona period, there was a great loss in the education sector. But there are many areas with education to compensate them. In the field of primary education, where the government is responsible for enforcing the Right to Education Act, the allocation is much less than required. Strong political will is needed to try to improve people’s lives and to ensure their employment. Allocations to the social security sector have been increased. But economists say that’s not enough considering inflation. Again, the middle class is likely to go further down. Considering this, it was expected that the allocation in the social security sector would be further increased.
Luxury imports have been tightened to meet the challenges of inflation. Its continuity has been seen before. One of the intentions is to alleviate the dollar crisis by providing some kind of stimulus to the export sector and to hold on to the dollar by reducing imports, but it is not enough. The saddest thing is that the finance minister is adopting a policy of rewarding money laundering, just as he has given a chance to the owners of undisclosed money. No effective measures have been taken to eliminate inequality. There are declarations of universal pensions but no guidelines on the implementation structure.
There are many opportunities in the proposed budget to encourage a lot of business. Corporate taxes were reduced three times in a row. The important step here is that in the past there was an incentive in the readymade garments sector but now the incentive in the overall export sector has been increased. This will diversify exports. However, efforts to create a business-friendly environment are generally positive, but such initiatives have been seen in other years. Export growth initiatives to strengthen the macroeconomy may be successful, but overall, the benefits are given to traders for industrialization and job creation and there is no progress. For this, we need to improve the business environment. In addition to uninterrupted gas and electricity, infrastructure needs to be improved. Investment in the private sector will not increase unless the business environment is improved. And if the private sector investment does not increase, the chances of seeing something positive in terms of creating new entrepreneurs, creating jobs and new industrialization are slim.
The government has given importance to the agricultural sector. Expenditure on subsidies on fertilizers or agricultural implements was prohibited for farmers on the advice of the World Bank’s free market economy. Anti-agriculture and anti-farmer policies continued for a long time in Bangladesh. The positive change, started from the time of Agriculture Minister Matia Chowdhury. But more needs to be done. Agricultural land conservation and land distribution among the landless and therefore small and medium farmers and sharecroppers need to be organized.
By making a list of farmers, the money from loans and fertilizer subsidy needs to be delivered to them in cash through mobile banking with transparency. Sellers and buyers of specialized agricultural products and agricultural inputs should have integrated product-based cooperatives using those organizations. They will then be able to ensure a profitable price for their own agricultural products. The government can easily subsidize the material to the actual user.
Reducing the gap between producer prices and consumer prices will benefit both producers and consumers and establish live communication between the two through Information and Communication Technology (ICT). Village-to-city communication will create a complementary market system. Now the rural-urban inequality will then gradually decrease due to mutually beneficial transactions. Agriculture and industry will complement each other.
Abandoned properties and large properties of Bengalis were also nationalized after independence. Shops and rations were introduced at fair prices. Steps were taken to introduce a secular, scientific and universal education system. Health was also declared as a universal right in a welfare state. These policies were adopted in the interest of moving the country towards the goal of democracy and socialism, one of the four basic principles of the Constitution of 1972.
The main way to alleviate poverty and inequality is to remove corrupt businessmen, opportunist bureaucrats and unscrupulous politicians from the state power structure and remove obstacles to the free development of the productive forces. For this, we have to ensure transparency and accountability again.
Hiren Pandit is a columnist and researcher. He can be contacted at hiren.bnnrc@gmail.com
