Preparations for the budget for the 2023-24 fiscal must balance expectations in an election year with the conditions of the International Monetary Fund (IMF), and tackle inflation, foreign exchange crisis and revenue shortfall.
Balancing public satisfaction and protecting the economy is a major issue. Economists say it has been seen in the past that election year budgets often prioritise public satisfaction over the improvement of the economy.
As such, the opportunity to deliver a budget that is satisfactory is very limited, said macroeconomist and public policy analyst Dr Debapriya Bhattacharya, who is also a Distinguished Fellow at the Centre for Policy Dialogue (CPD).
He told UNB, “Before the election, all governments want to give a budget that satisfies the people. But due to the financial situation, fiscal deficit, and trade deficit, the opportunity is very limited for the government. If such a big effort is made, it will have a negative impact on the overall economy.”
“It is important to remember that this budget will be implemented by two governments. In this budget, flexibility must also be preserved. Because, if the government makes any big promises, there is doubt as to how much they can implement,” he pointed out.
Dr Debapriya said that the budget is coming at a time of political uncertainty in the country. Plus exit from LDC, and the Covid-19 response revival are issues hanging over the budget.
“Compared to any other year, this year’s budget has to be prepared in a very complicated situation. Because earlier, there would be a deficit in terms of income and expenditure in the country, but there would be comparative relief in terms of foreign transactions. But this time it is not,” he opined.
Dr Debapriya said, “There has been a major disruption in the growth rate. It is going down further because there is no money, no dollar. There is a huge deficit in both areas to be dealt with together.”
So the government has to control imports and limit its investment program. As a result, next year’s growth target should also be moderated.
“The financial structure has actually weakened,” he said.
Executive Director of the South Asian Network on Economic Modeling (SANEM) Salim Raihan, also a professor of economics at Dhaka University (DU), said that in the previous election years, the economy was not in such a crisis as this time.
“As a result, no new major pressure was created in the economy despite budgeting for public satisfaction at that time. But this time, if the budget is made considering only public satisfaction in view of the election, it will create new pressure on the economy,” Professor Raihan said.
He thinks that there should be a balance in this field in the budget. That’s why he advises not to take up development projects that will not be needed now, to avoid extra costs.
Both economists said there are some major challenges to controlling inflation, increasing revenue collection and reducing expenditures, reforming the financial sectors, the balance of payment, and making a balance in foreign exchange supply.
Professor Raihan said, “Although the Russia-Ukraine war is blamed for the current financial crisis, the economic policies and strategies that have been taken for a long time in our country have many effects.”
“There are loan defaults, lack of good governance, and managerial errors in the financial sector. Reforms that have been called for at various times have been neglected for a long time,” he pointed out.
Although the IMF talks about reforms, only some of them are being implemented, he said.
Particularly banking and financial sector defaulted loans have taken an alarming shape. The IMF’s conditionality has placed special emphasis on reducing non-performing loans and reforming the financial sector. Along with this, the government’s borrowing from the banking sector has also increased, which affected the private sector investment, Raihan said
