The budget should focus on reducing inflation

‘The main goal in any economy is to balance three factors: Interest rates, exchange rates, and inflation. But in our country inflation is rising and the value of money is declining’

The next budget should focus on how to bring down inflation to stabilize the macroeconomics of Bangladesh, said Dr Debapriya Bhattacharya.

He also said that the poor, lower middle class and the middle class will suffer the most if macroeconomic stability is lost as their income does not increase in line with the price hike of the essentials.

“The main goal in any economy is to balance three factors such as interest rates, exchange rates, and inflation. But in our country inflation is rising and the value of money is declining,” he added.

Debapriya Bhattacharya, convenor of Citizen’s Platform for SDGs, Bangladesh, and distinguished fellow at the Centre for Policy Dialogue (CPD), was presenting the keynote at a press conference on “The current socio-economic situation, the national budget and the expectations of the disadvantaged people” in the capital on Monday.

He also mentioned that now the average interest rate on money deposits is 4.4% but the inflation rate is 6.22%.

“In other words, if you keep money in the bank, the real value will decrease by 2% every year, which will discourage people from saving. The value of money will definitely go down in the future. So, the interest rates should increase,” he added.

To increase private investment, government-approved interest rates at 9% and 6% but there is no evidence of increased investments in the previous years.

“The formula that investments can be increased by lowering interest rates is not applicable in Bangladesh,” he added.

In his presentation, he also said that according to the government, the inflation rate is 6.22%, which does not match the reality at all. 

“The inflation rate can be 12% and this trend will continue in the coming days,” he added.

He also said that the rate of inflation for essential commodities is much higher, where the price of cooking oil and palm oil have risen above 61% and the price of commodities like flour has also gone up by 58%.

Moreover, the price of oil, pulses, eggs, poultry and fish are not consistent.

“We don't think it's unusual that the inflation rate is maybe 12%. The prices of the products that have gone up in the international market have not come into the country yet, and when they do, the prices of the daily necessities will go up again,” he added.

He also said that there have been tensions within the macroeconomy as the financial income and expenditure accounts for the past year have always been weak. 

“The major sign of weakness is that our tax-to-GDP ratio has not surpassed 10% yet. At the same time, the management and operating costs are much higher than development costs,” he added.

Moreover, the investment (as % of GDP) has been decreasing between FY19 (32.21%) and FY21 (31.02%), whereas the private investment decreased to 23.07% in FY21, which was 24.94% in FY18.

He also said that the national savings are declining due to rising inflation. It fell to 30.8% in FY21 from 32.1% in FY16 and the domestic savings also fell to 25.3% in FY21 from 27.3% in FY16.

According to him, declining national savings reflect the economic fragmentation of a country and suggested that the budget should emphasize creating jobs and increasing investment.

“The current growth is only protecting large industries, while the SME sector employs more workers with less capital. We need to look at investing in the SME sector and in industries that are compatible with the domestic market,” he added.

“The budget should introduce special arrangements for the marginalized people through food and financial aid. Not GDP, but job creation should be given priority in the budget.”

“Education loans for the young and special allowances for the unemployed should be arranged,” he added.

The government should give more importance to agriculture and should ensure health insurance of workers, a database for all beneficiaries, raising all allowances to a minimum of Tk1000,” he added.

Moreover, the tax-free income limit should be Tk3.5 lakh instead of Tk3 lakh, he also said.

At the conference, Tony Michael Gomes, director of World Vision Bangladesh, discussed children and education, whereas Rumana Haque, professor of Dhaka University, discussed health and protection. 

Sanjeeb Drong, general secretary of Bangladesh Indigenous Forum, presented the proposal on indigenous rights, and Ferdous Ara Begum, CEO of BILD discussed SME and business-related issues.

Farah Kabir, country director of ActionAid Bangladesh discussed climate issues.

Anisatul Fatema Yousuf of Citizen’s Platform coordinated the conference which was presided over by Mustafizur Rahman, a distinguished fellow of the CPD.