A blending of fiscal and monetary measures to provide fixed income people with some relief from high living costs should be at the cornerstone of the next fiscal year’s national budget, said the Centre for Policy Dialogue (CPD).
Overcoming the economic problems aggravated by the Ukraine war-induced global unrest would require establishing good governance and reinstating economic discipline, it suggested.
The internal weaknesses of the economy are becoming evident, she said on Monday while presenting CPD's recommendations for the 2023-24 national budget.
"We have always cited the Ukraine war as the reason [for inflation]. This can no longer be the excuse. Lack of internal governance and reforms have increased the risk to the economy," she said, adding that while the war could be one of the reasons, it couldn't be the only reason.
CPD researcher Towfiqul Islam said, “Unfortunately, the economic infrastructure was not good enough to fight the storm,”
He explained that lack of good governance as well as economic discipline coupled with absence of necessary reforms led to the domestic economic crisis. Coordinated institutional and economic steps will be required to fix that.
CPD said that the good news for the economy is that global energy and commodity prices are on the decline, but its effects are not seen that much in the local market.
Dr. Fahmida Khatun, however, expressed doubts about how many steps the government would be able to take in the budget of an election year.
The think- tank urged the government to provide a special increment to both public and private employees to adjust with the inflation. It said the increment would help them reduce the stress
on maintaining a family’s monthly expenditures which have increased by 25 percent due to depreciated domestic currency, energy and electricity price hikes.
Referring to the cost of living, the CPD said that currently, a family of four in Dhaka city has a monthly food expenditure of Tk 7,131 without fish and meat or compromised diet, while a regular diet with fish and meat costs Tk22,664.
Considering this situation, the CPD recommended a 5 percent salary increment of workers in industries, as well as forming a new wage structure.
Dr. Fahmida Khatun said, “The socio-economic indicators of the country have become very weak. The revenue collection in the first six months of the financial year was not comforting, with negative growth. It will be very difficult to meet the target by bringing the revenue collection to a positive trend.”
She highlighted several disquieting developments, including negative growth in revenue mobilisation, slow implementation of the development projects, increased reliance on bank borrowing for deficit financing, skyrocketing prices of essentials, declining liquidity situation of banks, deteriorating external sector balance, and the state foreign exchange reserves.
The policymakers' scope of maneuvering policy measures has become rather limited due to the declining fiscal space, Dr. Fahmida Khatun said.
Considering the global and domestic situation the think-tank suggested that targeted fiscal measures should take centre stage, focusing on catering to the needs of the fixed-income earning and low-income population.
Such measures should be accompanied by monetary measures that focus on stability, such as market-based interest rates and exchange rates.
The think-tank emphasised that “good governance and discipline are essential for these policies to bring forth their intended results.”
It said that the reform measures proposed by the International Monetary Fund (IMF) might prove to be beneficial in this regard.
The CPD noted that while the current scenario might be unpopular for a political government in an election year, proper acknowledgement of the current situation should be at the head while formulating the budget for the next fiscal year.
“Failure to do so will result in a macro-fiscal policy stance that does not meet the needs of the time,” said the CPD in the proposals.