Bangladesh budget focuses on how to bridle inflation in election year: Shamsul Alam

The government has no plans to slash subsidies for agriculture, social security, and employment, according to the state minister for planning

Efforts to keep inflation in check before elections have led the government to design the budget in a way that will ensure economic stability and spar growth, according to Dr Shamsul Alam.

In an interview with bdnews24.com, Alam, the state minister for planning, shared the government’s strategy on the budget which will be tabled on Thursday.

The government aims to bridle inflation within the next few months and has no plans to slash the subsidies for agriculture, social security, and employment sectors, he said. Rather, it plans to increase the subsidies for these sectors.

This will not be conflicting with the conditions imposed by the International Monetary Fund for a $4.7 billion loan, Alam said.

“The upcoming budget will be drafted for the same year of the general election. The relationship between the election and the budget is reflected in the worries about inflation. Hence, we’re focusing on that and trying to curb inflation,” said Alam, an economist who was picked up by the Sheikh Hasina administration.

“We’re not taking a separate programme targeting the election as we don’t feel that is necessary. All we need is to control inflation. This will be a gift to the people and this is what we need to convey to them,” he said.

But to keep inflation under control, the government has shunned any plans of designing a big, ambitious budget. “There’s a risk that inflation will increase further when government expenditure rises. The more the government spends, the more the public earns; and inflation increases alongside,” he said.

The government has taken a number of mega-projects and some of them will be inaugurated at the end of the current year. The state minister also called those mega-projects “gifts to the people on the occasion of the election”.

“These mega projects will be key to propelling and stabilising the national economy. They will be our election attraction,” he said.

IMPORTED INFLATION

Alam said the war in Ukraine, from where Bangladesh used to bring 40 percent of the imported wheat, was a blow to the South Asian nation’s economy. The war raging in Europe has caused commodity prices to skyrocket as it hampered the supply chain, he said.

But the key reason behind high inflation was the repeated and fast interest rate hikes by the US Federal Reserve, which ensured a torrent of dollars coming to the US and pushed up the dollar demand and price in other countries. Bangladesh experienced a price hike of the dollar up to Tk 110 from Tk 85.

That means the price increased Tk 25-30 per dollar in Bangladesh while the economy was still recovering from the ill effects of the COVID-19 pandemic.

The country had to continue selling imported goods at an increased price, stoking inflation.

However, one positive sign was that the inflation never crossed two digits. The highest inflation was recorded at 9.52 percent recently.

As the government took several initiatives, inflation dropped a little and stood at 9.24 percent for the last two months, Dr Alam said.

“This is basically imported inflation. It reached Bangladesh through imported goods.”

But Bangladesh, a smaller economy with a huge population, needs to grow fast as was the case in the past decade. So, efforts to control inflation cannot cut growth. “We have to be very careful in balancing so that we can reach our goals without going off-track. As a policymaker, I know that this is the focus of the upcoming budget,” said Dr Alam.

He gave examples of different international organisations forecasting a global economic recession but hoped that Bangladesh would not face it. “This is because our employment increased over the last few years.”

“According to the Household Income and Expenditure Survey 2016-17, Bangladesh had 4.2 percent of unemployment. The survey in 2022 showed it dropped to 3.6 percent even amid the war. This means more employment opportunities have been created which decreased unemployment.”

Dr Alam also claimed that Bangladesh had no chance to suffer from economic recession as unemployment was going down with the wage rate showing an uptick.

“We’ll be able to control the inflation in the next few months,” he added.

Recently, Bangladesh took a $4.7 billion loan from the IMF in a bid to maintain its reserves. The IMF imposed some conditions that included barring the government from providing subsidies.

“Whatever the IMF says, the government wouldn’t stop subsidies in the agriculture sector or social services sector where the poor receive the assistance. The 10 million people who received the ‘family card’ will continue to have the subsidies. Rather, we would try to extend the subsidies in those sectors,” the state minister added.

The government, however, will try to curtail subsidies in the energy sector, the state minister said. “The energy sector needs subsidies but not everyone consumes energy a lot. Energy is needed in the industry sector. Rich people use more fuel for their private vehicles. Hence, we need to coordinate the fuel price to some extent.”

Similarly, electricity is mostly used by the upper class in society and therefore, the subsidy in the power sector will be rationalised accordingly, the state minister said.

INEQUALITY

bdnews24.com asked Alam if the government had any plan to reduce the economic disparity in the upcoming budget. “The recent income and expenditure survey showed the economic disparity increased at an annual rate of 0.03 percent. As an economist, I wouldn’t call it intolerable, because when the economy gets stronger amid growth, the upper class and the upper-middle class get stronger too,” he said.

“The upper class and upper-middle class bring economic growth to the country through investment, import, and export. Therefore, we can’t halt economic growth only to address the economic disparity. That shouldn’t be done.”

The government, however, took some measures to address the economic disparity, he said. “Those who made a lot of fortune would have to pay taxes which will be distributed among the poor so the disparity cannot widen further.”

This is why the government has been running around 120 programmes for poverty reduction. It is providing family cards, increasing allowances, and providing free textbooks and scholarships to students.

As many as 30,000 to 40,000 people from the marginal groups in each upazila receive different allowances. The government also constructed different infrastructures across the country which have created employment opportunities for the people. Thus, people are earning more because of their employment and enjoying a better living standard, he explained. “You can calculate the economic disparity but it is not so visible.”

The poor in the country do not have the same life they used to have in the past, the state minister said. ”No one would be found bare-bodied. Even a beggar wears clean clothes and a poor person owns a small fridge. The thatched roof huts we saw earlier as a shelter for the poor, are almost gone. They live either in a tin house or a single-storey building.”

Claiming a change in the type of poverty, Dr Alam said children from the lower income group are now attending schools wearing uniforms and carrying mobile phones. “This proves that visible disparity is very vague.”

“Unemployment exists only in the urban areas and not in the rural areas. This means the poor are getting jobs. They are getting the benefits of the government’s inclusive growth strategy. “

The ongoing policy of the government provides a lot of aid to the poor. They receive support in the agriculture sector and also get skill development training. All these are designed to curb the economic disparity, said Alam.

In response to a question, the state minister said the export will not drop in the next fiscal year despite the ongoing global economic crisis caused by the Ukraine war. “Sometimes the export rises or drops just the way remittance flow increases or decreases. I believe both will increase in the upcoming fiscal year.”

When asked if the government’s austerity measures would push down investment in the country, Alam said he did not believe it would. “The government is controlling foreign trips of its officers to curtail expenses and ensure the reserves do not drop. Earlier, government officers used to go on Hajj trips in big teams, which isn’t allowed anymore. But it has no impact on the investment. Traders and the business community have no bar on travelling abroad.”

When asked about the government’s measures to ensure foreign reserves in the upcoming budget, the state minister mentioned the newly found gas reserves as one of the measures. “We’ll bring the gas to Dhaka in cylinders. Also, we signed a contract with Qatar. So, we’ll have no issues. Recently, some coal power plants were also inaugurated. Hence, we won’t face any trouble regarding fuel.”

“We were a bit cautious about fuel due to the temporary dollar crisis. We slashed the fuel import as part of the austerity measures. Altogether, we were able to manage it and currently, we don’t foresee any fuel crisis with our present preparation.”

Bangladesh got over the foreign reserve crisis. It is stable now and would not drop below $30 billion but will increase further, the state minister said.

In response to a question, Alam said the government did not spend more than 2 percent of the GDP for the health and education sector, though the Eighth Five-year Plan allocated 3 percent of the GDP for those sectors.

“We feel that we need to develop our skills to spend the money rather than having more allocation. There’s no point in increasing allocation when every year 20 percent of the allocations remain unused. We must focus on expenditure.”

No project will be implemented properly if the stakeholders are not skilled, he said. Among ministries, the education and health ministry received the highest education.

[Writing in English by Sabrina Karim Murshed and Taif Kamal]