Reducing the budget deficit will lead to less government borrowing from the domestic sector which can help control inflation, according to economists.
The remarks came from the teachers and researchers of Dhaka University’s Economics department at a discussion on National Budget FY 2024-25 held at Muzaffar Ahmed Chowdhury Auditorium of the Social Science Faculty of the university on Monday (10 June).
Dr Sayema Haque Bidisha, a professor in the Economics Department at Dhaka University, said the government could have reduced the budget deficit further.
She emphasised, “Given the contractionary nature of the budget, keeping the deficit lower would have been prudent. Now, if the government resorts to borrowing from the domestic sector to cover the deficit, it will only exacerbate inflation.”
In the proposed budget, the government has set a target of reducing inflation to 6.5% within the next financial year. To achieve this, a contractionary budget has been formulated in accordance with the monetary policy. However, at the same time, the government has also set a GDP growth target of 6.75%.
Professor Selim Raihan, executive director of South Asian Network on Economic Modeling (SANEM) and professor at the Economics Department of Dhaka University, believes that while such targets are positive, they may be less realistic.
He observed, “Despite efforts over the past two years to curb inflation, there has been limited success, largely due to a lack of coordination in decision implementation.”
“We are currently experiencing a heated economic situation. It is crucial to allow the economy to stabilise. Even if growth is modest, it should not pose a problem,” he added.
Salim Raihan emphasised the need for special attention to stabilise the exchange rate.
“Crawling pegs should be allowed to adjust without being static. Otherwise, they will not fulfil their intended purpose,” he added.
The economist further said the government is more inclined to indirect rather than direct taxes to boost revenue, which will inevitably burden the common people with higher taxes.
Salim Raihan expressed concern, stating that honest taxpayers could face a tax rate of 30% or more, while a 15% tax rate is proposed to legitimise black money, which he deemed unfair.
He hoped this issue would be thoroughly debated and considered during the budget discussions.
In his closing speech, Dhaka University Vice Chancellor ASM Maksud Kamal raised a critical question whether all our ministries possess the capability to effectively utilise the allocated budget? Highlighting the escalating wastage across various sectors due to inefficiencies, Maksud Kamal stressed that minimising this wastage could lead to greater benefits from the budget.
