What are the challenges of the upcoming budget?
The challenges that are emerging in this year’s budget are unique and the same challenges were not in earlier budgets. Inflationary pressures are currently rising. It is expected to grow further. There is also a shortage of foreign trade.
The lack of foreign exchange and the rising value of the dollar in the currency market are tied with the same formula as you have to pay in dollars to buy products in the international market.
On the other hand, our domestic demand is increasing rapidly. After Covid-19, human movement increased. As cases of Covid-19 have decreased, so has the fear of the people. As a result, people are buying extensively. Adapting to this situation is one of the main challenges.
From which sectors of subsidy and incentive can price adjustment be made?
According to the current market situation, the government cannot continue to absorb the prices. So, there have to be price adjustments and there will be inflationary pressure.
The government could have avoided the scenario if they retracted the export subsidy and 2.5% cash incentive for remittance and redirected those to tame inflationary pressure. The dollar price is already up a lot, so I think cash subsidy for remittance is not necessary at all now. Neither is the export subsidy.
The government has to think about the loan repayment system for the large industrial sectors. The amount could have been re-routed as cash transfer to the neediest members of the society to help them manage the impacts of inflation. Everyone benefits from subsidies but a price hike does not have the same impact on everybody. The rich can take the hit, but the poor cannot.
What kind of budget should be announced in the current context?
In this situation, there is no opportunity to be expansionary. The size of the budget is increasing by about 20%. Right now, the budget needs to focus on macro stability.
There are two main areas. One is inflation. If it is not possible to reduce inflation, there should be a plan so that it does not increase. If the subsidy on food, fertilizer and electricity increases, everyone will benefit. Secondly, we need to find a way out of the dollar crisis.
What kind of initiatives need to be taken in this budget?
The problems that exist in the international market cannot be solved with this budget. However, there should be specific guidelines for reducing domestic demand and inflationary pressures. And for that, the government has to make the right decision about subsidies.
What will be the impact of increasing the pressure on bank borrowing to meet the budget deficit?
Banks are currently facing a liquidity crisis, and the call money rate has risen too. If the money supply increases to meet a huge demand for borrowing from the government, it will further stoke inflation.
There is not much of a tradition of borrowing by printing money in Bangladesh and it is not good. Zimbabwe has always done this, and so has the Sri Lankan government. We have seen the impact of that.
Finally, if the government depends on bank borrowing now, SMEs will suffer the most. This might even lead to a lack of new investments.