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He warns that inflation control efforts could hinder economic growth
Published : 30 Jun 2024, 04:30 AM
Finance Minister Abul Hassan Mahmood Ali has told parliament the contractionary policies adopted to bring down inflation to 6.5 percent could slow down the pace of growth.
He shared the concerns in his closing remarks during the general discussion on the proposed budget for FY 2024-25 on Saturday.
To build a prosperous Smart Bangladesh by 2041, the minister addressed the challenge of balancing contradictory goals for economic stability, stressing the need for sustained high economic growth.
In the proposed budget, the finance minister has prioritised achieving macroeconomic stability alongside controlling inflation.
He outlined the contractionary measures in the monetary policy aimed at controlling inflation, including raising the repo rate to 8.5 percent, aligning bank interest rates with market dynamics, encouraging exports and boosting remittance income.
He also spoke about implementing the crawling peg method in the exchange rate regime to increase foreign currency reserves.
"Through our policy measures to cut the budget deficit, limit discretionary spending, and implement austerity across sectors, we aim to bring inflation down to 6.5 percent in the next fiscal year," said the minister.
However, Mahmood Ali is sceptical about maintaining growth momentum despite low inflation.
He said, “It is undeniable that this approach in the long run can slow down growth. We need sustained high growth to build a developed, prosperous and smart Bangladesh by 2041.”
He noted Bangladesh is now the 33rd largest economy in the world as of 2023, with an average GDP growth exceeding 6.7 percent over the past one and a half decades.
He expects the growth to reach 6.75 percent in the next fiscal year and 7.25 percent in the medium term.
The minister said there is a favourable environment for both domestic and foreign investment, aiming to maximise employment creation.
He claimed in 'Smart Bangladesh' by 2041, the per capita income would reach at least $12,500.
“Extreme poverty will be eradicated, and fewer than 3 percent of the population will be below the poverty line.”
MORE FUNDS FOR EDUCATION AND HEALTH
The finance minister said the proposed budget prioritises education and health, with allocations increased by 11.6 percent compared with the revised budget for FY 2023-24.
“The allocation for education and technology has been increased by nearly 25 percent, while the health sector sees a 39 percent increase,” said the minister.
"In the proposed budget, we have tried to provide necessary allocations to education, health, agriculture, local government and rural development, power, communication, science and technology, etc. with the aim of building a smart Bangladesh. At the same time, we have given due importance to ensuring food security,” he added.
The minister said the national customs policy should be reformed keeping in mind Bangladesh’s scheduled graduation from the least developed country bracket in 2026.
"Dependence on import duty is being reduced so that it helps reduce apathy towards exports," he said.
To boost revenue and make the tax administration more effective and taxpayer-friendly, the minister outlined significant legal framework changes and plans to automate revenue collection processes.
He said, "We have also focused on increasing the non-tax revenue collection as much as we have on tax revenue.”
"We have taken the initiative to create an online database of all non-tax revenue, or NTR items, detailing their fees, charges, or values and dates of assessment. This will rationalise the charges and fees for these services and increase non-tax revenue income," he added.
