Bangladesh
a year ago

Domestic prices high despite global price downturn

CPD focuses paradox while presenting budget proposals

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Prevailing inflationary pressure in Bangladesh seems largely to be a domestic phenomenon of market anomalies rather than stemming from price escalation of essential commodities on the international market, says CPD while presenting its budget recommendations.

As such, average monthly food expenses for a household increased 25 per cent in a year for a four-member family in the capital city, Dhaka, it said at a pre-budget press meet Monday.

Analysing the recent prices of rice, soybean oil, sugar and beef, the private think-tank says those items were selling at consistently higher prices in Bangladesh than their international prices.

For instance, average monthly food expenses for a household of four individuals in Dhaka city with regular diet have increased to Tk 22,664, or 44.31 per cent in four years. Cost of compromised diet -- dishes sans fish and meat -- increased to Tk 7,131 as of February 2023.

The meal costs were Tk 15,705 for regular diet and Tk 4,712 for compromised one in February 2019.

Dr Fahmida Khatun, Executive Director of the Centre for Policy Dialogue (CPD), placed the analysis of the overheated-market situation while presenting recommendations for the forthcoming national budget for fiscal year (FY) 2023-24 at a press conference on the CPD premises in Dhaka.

"Common people are bearing the brunt of price hike -- they must get some fiscal space in the budget for the upcoming fiscal year," she said.

Considering the increased pressure of the commodity-price hike, particularly those of food items, the tax-free threshold for personal income should be raised to Tk 350,000, she said as the CPD suggestion for one of the macroeconomic budgetary parameters.

Dr Khondaker Golam Moazzem, Research Director of the CPD, said a special increment should be given to public-and private-sector employees to offset the pressure of price burden.

Dr Moazzem also suggested scrapping the much-debated capacity charge for power plants and introducing 'no-electricity, no-pay system', as it is believed to be adding up to electricity bill with its cascading impact on life and business.

"Why the common people should shoulder the cost of excess capacity of electricity?" He questioned.

Dr Fahmida recommended a 5.0-percent increase in the wages of industrial workers alongside framing a new wage structure.

The CPD also recommends amendment to the existing Competition Act 2012 to directly address monopolies and incorporate specific anti-trust clauses bolstered with concrete penalties for violators.

"Maintaining macroeconomic stability in prudent way becomes more important now as external factors have already started cooling down," Dr Fahmida said in presenting their policy on crafting the next budget in tune with the global rebound.

Their finding depicts a paradox of commodity prices declining on the international market while not moving down on the domestic market.

"The government should frame fiscal measures, accompanied by monetary measures, giving priority to the fixed-and low-income group of people in the upcoming budget," she said, also placing CPD suggestion for market-based interest rates and exchange rates.

The recommendation package, titled 'weathering the storm, containing the risk', underscores the need for taking some immediate short-term measures to stabilise the macroeconomic situation.

Dr Fahmida estimates that the shortfall in revenue collection might stand at Tk 750 billion in the current financial year in the end if current trend persists.

As such, the CDP revised upward its earlier deficit projection worth Tk 640 billion, made in December 2022, following a negative growth in tax-revenue collection until December by 4.0 per cent as per data of the Ministry of Finance (MoF).

Its projection now says the tax collection by the National Board of Revenue (NBR) might come to Tk 3.58 trillion by the yearend, June 30, against its target for Tk 3.70 trillion.

Poor growth in mobilisation, import restriction and slow implementation of Annual Development Progrmme (ADP) are cited as decelerators.

"Shrinking fiscal space forced the government to go for restraining public expenditure," she told the press about the government belt-tightening trying to make two ends meet.

The think-tank suggests setting revenue-collection target for the upcoming FY in a realistic way keeping the country's economic context in consideration.

Cutbacks on subsidies, checking "misuse" of benefit in quick rentals, allocating higher funds on education and health, not imposing price burden of LNG on common people, imposing high tax on tobacco, soft drinks, and energy drinks, and promoting green energy are also among its budget recommendations.

"Political will would be required to implement the suggestive measures in the budget which might seem disincentivising for a political government in the election year," the CPD presentation says.

Towfiqul Islam Khan, senior Research Fellow of CPD, said monitoring tax exemptions is necessary to ensure whether its benefit passes on to the commoners.

Dr Moazzem further focused on the market distortions and said market-monitoring mechanism was not working properly as large businesses are grabbing small ones to stifle competition.

He feels that the country would have to take some reform steps beyond suggestions of the IMF, put forward during loan negotiations.

Dr Fahmida said reform in banking sector can bring back confidence of the depositors which could be done by forming a temporary 'banking commission'.

The CPD recommended withdrawal of the provision that let well-off taxpayers receive higher tax rebate while deprive those having annual income below Tk 1.5 million.

In the budget proposals, the CPD further recommended setting time-bound tax exemptions, discontinuing black money-whitening facility to bring back offshore money, offering tax exemptions on education, supporting green transition and reducing air and plastic pollution with fiscal measures, withdrawal of VAT on medicines from FY 26, offering tax benefit to sanitary napkins, imposing heavy tax on soft drinks and energy drinks, increasing health-development surcharge on cigarettes and other tobacco products to 5.0 per cent from the exiting 1.0 per cent etc.

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