Now it is time to deliver on election pledges

In June last year, when the then finance minister AHM Mustafa Kamal was unveiling budgetary proposals for the 2023-24 fiscal year (FY24), the country was already in a national election mood. Yet, the then government that would face an election in the next six months, dared to take some unpopular measures to increase revenues and keep the budget deficit in check. 

That venture worked well.

Six months down the line, the party then in power got an easy sailing in the January parliamentary election, thanks to a boycott by the BNP and some other opposition parties. All out efforts by the administration and the ruling party also contributed to making the election day largely peaceful. 

In the last 11 months since the beginning of the current financial year in July 2023, the revenue administration has been able to earn as much revenue as possible in spite of a slowed down economy.

The substantial depreciation of taka has been a blessing for the revenue administration to show a stronger earning than the last year and it has been able to stay on the path of growth. But the big fall of taka accompanied by plummeting forex reserves has become major reasons behind untamed high inflation, which remains close to 10% for more than a year now. 

When the government administration and the party in power were working with all-out efforts to hold the election in January, the country was already in the grip of stubbornly high inflation. No efforts were able to bring comfort for the low and middle-income people struggling hard to cope with the skyrocketing cost of living. 

As many as 70% households were forced to change their food habits to cope with the high prices, said the South Asian Network on Economic Modelling (SANEM) after conducting a field survey in previous months. "Such a large cut down on food consumption habits puts households at risk of food insecurity," the think-tank said in March. 

The government policymakers were well aware of the situation. That was why the Awami League in its election manifesto did not overlook the issue affecting people's lives and promised to take some measures to tame the inflation. 

"Policy interest rates will be the main means and instruments for controlling money supply and inflation," read the AL manifesto, also stating about measures like extension of credit schemes for self-employment of youths, balancing import-export trades and reducing foreign exchange uncertainty. 

Unveiling the manifesto, AL chief Prime Minister Sheikh Hasina explained how global events and domestic issues fueled inflation and caused people's sufferings.

"We are trying to reduce the plight of the lower and lower-middle-class people through various initiatives, including expanding social safety net coverage. We hope that we can overcome this obstacle very soon…," she had said.

Inflation still remains a key concern for the government and will dominate policy actions in the next budget too.

The finance ministry has prepared the budget for FY25 and the revenue administration has detailed out the plans for earning to meet the expenditure for next fiscal year beginning on 1 July.   

The NBR has been given a target higher than the one for the current fiscal year which will end on June 30. The proposals drafted and already published in different dailies signalled that the revenue administration would try to earn more from the existing sources of its earnings with less expansion of tax net resulting in continuation of over dependence on consumption tax in the form of VAT — value added tax. 

This means that people must pay taxes on whatever they consume regardless of their income, social and professional status. In this system a super-rich and a rickshaw puller pay the same amount of consumption tax for the same product be it essentials or non-essentials. 

If this continues and custom duty remains unchanged on imported commodities it will disproportionately hurt lower and middle income people who are already tightening their purse strings under the inflationary pressure. And the social safety net is not strong enough to catch them when they fall. Low earning capacity — tax-GDP ratio at 7.51 — does not offer the government much space to do something more for the people.   

The presence of the IMF at home should not be overlooked. The global lender has been insisting on Bangladesh to reduce the burden of subsidy for power and energy. Yet, the government has to plan for further increase in subsidy and incentive allocation by nearly Tk10,000 crore to more than Tk1.20 lakh crore for the coming fiscal year to support agriculture, energy and food security. 

That means the energy subsidy burden remains despite tariff hikes for several times so far that has increased the cost for industries and households and also fueled inflation further. The government has planned to fight food inflation in the upcoming year by various measures such as slashing regulatory and customs duties on 28 essential and food items. But it will have little option to reduce non-food inflation as power and gas tariffs may see further hikes as part of the government's plan to bring down subsidies on these items to zero. 

Finance Minister Abul Hassan Mahmood Ali knows his priorities. Businesses expect fiscal support to stay afloat. Consumers expect the price of essentials to come down. He needs to offer businesses breathing spaces. Import restrictions have appeared to be a major obstacle to the expansion of the industries and creating employment. That is why unemployment still remains a major cause of concern in the economy.

But to tame the monster — unbridled inflation — the finance minister needs to walk extra miles. Like inflation, the toxic assets in the banking sector keep surging which is, according to former Bangladesh Bank governor Dr Mohammed Farashuddin, contributing to fueling the inflation.

Although a roadmap was formulated to reduce default loans of state-owned banks to 10% of total disbursement by 2026 in line with the IMF's conditions set in January 2023, it increased to 27.42% within a year due to frequent rescheduling of classified loans at banks.

"The frequent rescheduling of classified loans has led to a growing shortage of money, prompting the central bank to print more currency. This is why inflation is not cooling down," he said on 2 May. "So, defaulted loans must be recovered with an iron hand. We need someone to effectively communicate these issues to policymakers."

The AL election manifesto also announced that "laws will be strictly enforced to recover defaulted loans. It will be ensured that the bank will maintain the prescribed provision for defaulted loans."

It also pledges to establish order in the financial sector and combating financial crime through various measures as it says effective action will be taken against money launderers, eradication of bribery and corruption at all levels of the state and society, prevention of unearned income, and punishment of debt-tax-bill defaulters and corrupt persons will be executed through the judicial system. 

Their illegal money and property will be confiscated, it asserted.

Problems have piled up over the years. There is no quick fix to heal economic ills. But there are ways to repair the economy. Some ways have been cited in the AL election manifesto as we mentioned above. So, now is time to deliver on election pledges.

In every crisis lies an opportunity, as Noble Laureate economist Milton Friedman says, "Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable."

In his first budget, the finance minister may kick off the process of turning the crisis into an opportunity.

Shakhawat Liton, Deputy Executive Editor, The Business Standard. Sketch: TBS