Zaidi Sattar, chairman of Policy Research Institute of Bangladesh (PRI), said on Sunday that the proposed national budget for fiscal year 2022-23 missed an opportunity to cut inflation with tariff cuts, without under-cutting protection or revenue.
As the poor were hurting because of the inflation, monetary management would not be enough to sort this out, he also said, according to a press release.
Sattar made the remarks while speaking at a joint post-budget reaction organized by the PRI and Metropolitan Chamber of Commerce and Industry (MCCI) on the day.
Regarding deficits and debts, he said: "IMF-WB Debt Sustainability Analysis, reported in April 2022, gave Bangladesh a clean bill of health. But the Sri Lanka debacle should keep our policymakers on their toes to stay clear of a Sri Lanka episode in the future."
Public debt declined from 50% of GDP in 1990 to 40% in 2022, while external debt is also down from 25% of GDP in 1990 to 14% in 2022. The debt service ratio (external debt payments as ratio of foreign exchange earnings) is a low 5.5%, he further said.
On balance of payments, he said that the FY23 proposed budget signalled the end of Covid-19 pandemic management and focused on economic recovery which remained strong with robust exports (35%+ growth) and imports (45%+) expected to continue for the upcoming fiscal.
Exports finally reached the $50 billion milestone but import surge has put pressure on the BOP causing the exchange rate to depreciate nearly 8%, he also said.
It is a good thing that the Bangladesh Bank finally decided to bite the bullet and let the exchange rate be flexible. This measure will prevent the loss of foreign exchange reserves, Sattar commented.
Tariff adjustments in the budget revealed persistent protection, said the PRI chairman.
Adverse recent global trends presented a golden opportunity for tariff rationalization. But the opportunity appears to have been missed, he observed.
The inter-linkages between the two strategies – export diversification and tariff rationalization – ought to have been recognized, the economist opined.
Persistent high protection policy has won, putting a damper on export prospects. Tariff rationalization is an issue waiting to be addressed and resolved, now more than ever, said Sattar.
"It is not just that we need to prepare for LDC graduation in 2026. Properly done, it is the most effective instrument for lowering domestic prices of consumer goods as well as to eliminate the unique Bangladeshi situation of anti-export bias of trade policies that is preventing export diversification," he further said.
A slew of industrial products have been identified for “infant industry” protection, as many of these are new and rising industries. But using supplementary duty for protection might not be a good idea under the WTO rules-based system, he warned.
Such protection should be made time-sensitive and performance based. Monitoring performance should be part of the strategy, he added.