Economic crisis may deepen further

The country's economic crisis may become more severe after one year, according to South Asian Network on Economic Modelling (SANEM), as the local think-tank said the proposed budget does not offer an adequate recovery plan for the turbulent macro environment.

"The economy is already in crisis. Our concern is that it will face even greater challenges after one year than it does now," said Professor Selim Raihan, executive director of SANEM.

Bangladesh's graduation from the least developed country (LDC) club in 2026 will present new challenges, possibly leading to a further crisis in the medium term, according to Prof Selim Raihan.

"Our economic fundamentals are actually very weak," he said at the SANEM Budget Analysis 2024 on Saturday in the city.

Dr Raihan, who is also an economics professor at Dhaka University, said, "It will be harder to recover from the crisis with this conventional budget that was recently proposed in parliament."

Due to some unjustified tax and fiscal measures, Professor Raihan warned that inflation is unlikely to ease in FY25 and may actually widen.

"The budget does not include any specific steps to bring down the current near double-digit inflation rate to 6.5 per cent and achieving 6.75 per cent economic growth next year seems highly unlikely," he said.

"Besides, how can the government expect the investment-to-GDP ratio to be boosted to 32 per cent within a year? What measures have been included in the budget to solve the issue of struggling private investment?" Professor Raihan questioned.

Meanwhile, SANEM's Research Director Professor Sayema Haque Bidisha presented the think-tank's analysis of the budget, saying there were not adequate measures for economic recovery from the ongoing crisis.

"The government has still set a high target for bank borrowing, which will negatively affect private investment through a crowding-out effect," she said. "Besides, higher expenditure could push inflation even higher."

"There are no steps in the budget to tackle non-performing loans (NPLs)," Professor Bidisha continued. "The budget should have outlined a clear plan for recovering from the ongoing economic crisis."

Professor Raihan also criticised the government's handling of non-performing loans (NPLs) and recent civil servant scams.  "The government has failed to tackle money laundering," he said. "Instead, it has allowed dishonest people to launder their illegal money."

"This is not only unjust, but it also discourages taxpayers from paying their taxes in the future," he added.

"Corruption, irregularities, NPLs, money laundering, and poor-quality development projects all go hand in hand," Professor Raihan commented. "The government needs to take urgent and decisive action to make the fragile economy stable."

He called for the formation of a powerful "parliamentary committee against corruption" to investigate and review corruption cases across the country.

The SANEM executive director also cast doubt on the budget's target of boosting foreign exchange reserves to $32 billion.

"Remittance and export growth are not performing well," he said. "Besides, you need to gradually open up imports to stimulate industrial production and job creation in the near future. How can you possibly increase foreign exchange reserves under these circumstances?"

Professor Raihan urged the government to implement reforms to expand the tax net and increase domestic income.

"For years, the National Board of Revenue (NBR) has relied on easy methods to increase revenue," he said. "This year, it has opted for raising indirect taxes like VAT, which is a simple approach. However, it has failed to take any better steps to widen income tax, which is a more complex task for civil servants."

The tax net needs to be widened and the "whitening of black money" provision should be scrapped, he added.

In her budget analysis, Professor Bidisha said targets like increasing foreign exchange reserves, revenue collection and investment were unrealistic. SANEM believes that if these targets are not met, future economic crises will become more severe.

Professor Raihan criticised the budget for failing to accurately assess the economic situation. "There is a lack of in-depth, strategic measures and no clear plan for institutional reforms needed to achieve the budget's targets," he added.

Professor Raihan argued that a two-year economic recovery plan is necessary given the severity of the situation. "The annual budgets are not bold enough in policy-making. Policies also change, and to prevent these changes, such planning is necessary," he added.

"Bangladesh has struggled to control inflation, unlike many other countries," he said. "This is partly due to the mistake of keeping interest rates steady for too long. Raising interest rates can reduce demand, but the delay has already dampened demand largely."

The SANEM executive director believes that mismanagement in domestic market management leads to price hikes. "Prices are rising for even minor reasons and the government is not taking action against these unjustified increases or against unscrupulous businesses," he added.

In her speech, Professor Bidisha elaborated on a range of economic worries beyond inflation.

She said, "Indicators like foreign exchange reserves, exchange rates, investment, exports and imports are all performing poorly. Even though remittances remain stable, their growth is not satisfactory."

"There are broader macroeconomic challenges, such as declining reserves and a weakening currency," she added. "Private sector investment is either stagnant or declining."

Professor Bidisha, who is also an economics professor at Dhaka University, said the budget does not have a detailed roadmap to promote job creation. "A detailed roadmap for employment generation is needed," she said.

"The government needs to decide how and where to provide incentives for private sector investment, especially in labour-intensive industries," she said. "Since there is a reluctance to invest in large-scale industries, incentives could be directed towards small and medium enterprises to create jobs."

Professor Bidisha called for more allocations for core social safety programmes in the budget. "While the budget allocates nearly 11 per cent to social safety programmes, excluding pensions and interest payments, this needs to be increased," she said. "The current allowance amounts are insufficient due to inflationary pressures."

"On the other hand, the number of trucks and the quantity and variety of products available in open market sales should be increased," she added. "Low-income earners in cities should also be included in social safety programmes, but there are no such initiatives in the budget."

Responding to journalists, Professor Raihan criticised the NBR for not disclosing data on money whitening from previous measures. He said it is important to understand why black money exists in the first place.

"Black money whitening policies discourage honest businesses and taxpayers," Dr Raihan added. "If paying less tax is seen as a legitimate way to operate, it incentivises money laundering."

Professor Raihan also expressed concern that the few exposed corruption cases might be indicative of a much larger problem.

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