Tackling inflation: Economists outline 3-point strategy 

If the Bangladesh Bank adopts a robust monetary policy, exercises caution in providing excessive liquidity support to commercial banks, and refrains from printing money to cover the budget deficit, the current inflation rate should decrease within six to nine months, said Ahsan H Mansur, executive director of the Policy Research Institute (PRI).

Global observations indicate that implementing a tightened monetary policy has led to a significant slowdown in inflation rates across major economies, he said while addressing an event organised by the Metropolitan Chamber of Commerce & Industry (MCCI) and Policy Research Institute (PRI) at MCCI Gulshan office today (12 June).

Using the US as an example, Ahsan said the interest rate dropped from nearly double digits (similar to Bangladesh) to approximately 3%. Similar outcomes were also observed in the United Kingdom (UK), the European Union (EU) and India.

Based on that, we anticipate that implementing similar measures in Bangladesh could result in a drop in the inflation rate to 6%-5%, he said.

Since March 2023, Bangladesh's average inflation has remained above 9.5%. 

During the keynote presentation, Ahsan H Mansur highlighted the macroeconomic context characterised by elevated inflation, reduced imports because of a shortage of dollars, and sluggish export growth.

He advocated a tight monetary policy stance to control inflation, achieve price stability, and maintain exchange rate stability while letting the market determine interest rates. 

He also emphasised the need to reduce government expenditure, particularly on administrative costs and subsidies, thereby limiting government borrowing from the banking system.

Zaidi Sattar, chairman of the PRI, said the budget was in the right direction, being much more pragmatic and realistic in terms of expenditure.

"Some are saying that it [the proposed FY25 budget] is contractionary, but it is moderately expansionary compared to the revised budget [of the current fiscal year]," he said.

While expressing his belief in the realism underlying the revenue target, Sattar also anticipated the need for significant reforms. 

"The budget deficit is at its lowest in the last 15 years. Ideally, budget deficits advocate contractionary fiscal and monetary policies," he said.

Regarding the "Made in Bangladesh" initiative in the budget, he described it as a nationalistic concept. He suggested that if policy backing for "Made in Bangladesh" is aimed at boosting sales in the global market, it could potentially lead to a growth of 7%-8%, possibly rising to 10%.

"There are no instances of any country achieving such growth solely through domestic sales," Sattar said.

Speaking as the chief guest, the Prime Minister's Economic Affairs Adviser Dr Mashiur Rahman said the liberalisation of the exchange rate was a good move to deal with the macroeconomic challenges the country is facing.

He also emphasised increasing productivity and focusing on product and market diversification. Given Bangladesh's unemployment level, he believed in the need for further government investments.

"The goal of bank mergers should be to improve the bank's capacity to lend and the suitability to borrow, thus increasing the banks' overall strength," Mashiur Rahman said.

In his opening statement, MCCI President Kamran T Rahman praised the decision to decrease corporate tax rates by 2.5% for unlisted and one-person companies and suggested extending this reduction to other listed companies as well.

But he regarded the chance to legalise undisclosed income by paying a 15% tax as discouraging for law-abiding taxpayers. The MCCI president said that simply increasing tax rates without broadening the tax base would not attain the targeted tax-to-GDP ratio.

Before wrapping up, Kamran Rahman emphasised the importance of conducting interim assessments of the budget every three months, deeming it highly beneficial.

Adeeb H Khan, member of the Tariff and Taxation Sub-committee at MCCI, highlighted some selected income tax and VAT provisions in the Finance Bill 2024-2025. ***