SANEM criticises govt's budget targets, calls for 2-year economic recovery plan

The non-profit research organisation proposes a 2-year plan for economic recovery

Researchers of the South Asian Network on Economic Modeling, or SANEM, have criticised the government's targets for controlling inflation and achieving growth in the proposed budget for the FY 2024-25, deeming them “unrealistic”.

The non-profit research organisation proposed a two-year plan for economic recovery during a post-budget press conference at Dhaka’s BRAC Centre on Saturday.

Their proposed initiatives are insufficient to control inflation, said SANEM Executive Director Selim Raihan.

Without appropriate actions, Bangladesh's economic condition will worsen by the end of the next fiscal year, he said.

Raihan also highlighted the increasing burden of foreign debt and the impending graduation from least developed country status.

This transition will introduce additional challenges to the existing ones, he said, emphasising the need for a strong focus on diversifying investments.

"The most important thing is to repay loans in foreign currency, so projects should be able to generate foreign currency. Otherwise, we can't make the payments.”

Diversifying exports is crucial for this, but the budget lacks initiatives for it, he said.

He added, "If we don't increase foreign investment, we'll face major problems repaying foreign loans."

Finance Minister Abul Hassan Mahmood Ali presented a new fiscal plan worth Tk 7.97 trillion to parliament on Thursday.

Professor Raihan also said the proposed budget does not address economic challenges.

"We need to control inflation and stabilise the macroeconomy. Raising interest rates can hurt investment, yet we need investment for employment and growth. The budget doesn't offer solutions for these conflicting issues," he said.

The tax rate will add pressure on the lower and middle class, said SANEM boss Raihan.

Higher taxes on essentials like mobile phones will burden low-income people, while many wealthy individuals will avoid these taxes, he said.

The new budget proposes increasing the supplementary duty on mobile services from 15 percent to 20 percent and raising the value-added tax on SIM cards.

“Secondly, instead of prioritising direct revenue collection efforts, more focus has been placed on indirect methods because it is easier to implement than direct methods,” said Prof Raihan.

He strongly criticised the policy of allowing black money to be legalised by paying a 15 percent tax.

Raihan expressed concerns about the increasing burden of debt in the future and stressed the importance of properly evaluating megaprojects financed by loans.

At the press conference, Sayema Haque Bidisha, SANEM's research director and economics professor at Dhaka University, highlighted several current economic challenges.

She identified high inflation as a primary concern, alongside macroeconomic issues such as declining foreign currency reserves and the depreciation of the taka against the dollar.

The inflation target has been set at 6.5 percent in the new budget.

"We feel the budget could have been slightly smaller considering the economic situation and inflation," she said.

"For instance, the government’s borrowing plans from the banking system could further increase inflation. By reducing the budget deficit further, there was an opportunity to protect ordinary people from inflationary pressures by cutting domestic financing."

Professor Bidisha also said that as long as there is a difference between the bank rate and the open market rate, people will continue to use the informal money transfer system known as Hundi.

Bidisha believes that remittance senders should receive both financial and non-financial incentives.

"For instance, we can arrange for their social acceptance by providing separate facilities at the airport, giving special recognition in their villages, and offering various non-financial incentives."

She questioned the need for allocating 22 percent of the budget for the public administration sector for effective expenditure.

"We should focus more on the comfort and convenience of ordinary low- and middle-class people by reducing spending on luxuries such as luxury goods, imported items, foreign travel, and hospitality."