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The budget for the fiscal year 2022-23 (FY23) is on way to get unveiled at a very sensitive and critical time. With the world economy finding itself in a state of turbulence at the moment, supply chains around the world are under tremendous pressure. The Russia-Ukraine war erupted just when Bangladesh's economy was recovering from the effects of the Covid-19. Initially it was assumed that the war might last a few weeks. But now that it seems to be a protracted war, there are signs of a recession all across the world on account of this war. The value of the US dollar is rising in many countries. Especially, external sector of developing world and the least developed countries is under tremendous pressure. Foreign exchange reserves decreased significantly in many countries. The prices of imported goods have increased because of the war.
The recession is looming all over the world and Bangladesh is not out of it. Decades later we are going through an unprecedented situation like stagflation because we see that there is high inflation, and according to the Phillips curve, when inflation is high, it creates employment in the economy in the short run. But now both inflation and unemployment are high. Many of those who lost their jobs and capital during Covid-19, could not return to their work and initial businesses.
Poverty and inequality that increased in the two years of Covid-19 were expected to come down again as soon as the economy regains normalcy. But now it appears that inflation and unemployment are set to hit the economy again. Marginalised people have become dependent on government's subsidised food. Then devastating floods have washed away homes of thousands of people in Sylhet region. More natural calamities are likely to strike this year. Therefore, a number of issues need to be prioritised in the upcoming budget.
Persistent inflationary pressures need to be reduced as the lives of lower-middle class, poor and marginalised people or even middle class are under tremendous pressure because of price hike. Their real incomes have plummeted due to high inflation. Therefore, the coverage of social security, the number of beneficiaries and the amount of assistance should be increased. If these vulnerable, poor and marginalised people cannot secure a square meal, the economy will deteriorate further. These people are the drivers of the formal and informal sectors of the economy. Subsidised food supplies should be ensured so that the pressure of inflation does not severely disrupt their lives. Budgetary resources have to be allocated accordingly so that their standard of living remains reasonably stable. A wide network of TCBs has to be set up all over the country. If the inflationary pressures can be tackled to some extent through TCB's continued and extensive operation, the country's economy will be much more stable, and macroeconomic management will be easier.
The budget must be investment-friendly and employment generating. Policy support and financial incentives need to be increased for micro, small, and medium enterprises (MSMEs). In addition, tax exemptions and policy support should be extended to all the enterprises that will create more jobs than before. Domestic and foreign investment must be increased. If necessary, new packages have to be announced to increase foreign investment. The government should try to attract investment in the IT sector and high value-added industries in the special economic zones through fiscal incentives.
Many MSME owners lost their capital during the Covid pandemic but the stimulus package announced by the prime minister did not reach many of them. Special allocation should be made for them, particularly in the backward areas, in the budget. It will help these entrepreneurs generate self-employment as well as livelihoods to thousands of people.
The most important objective of the country's macroeconomic policy and budget management should be to address unnecessary pressures on the economy, strengthen poverty alleviation programmes, reduce inflationary pressures on the lives of poor, marginalised and lower middle-class people and increase employment. Measures should be taken to reduce the economic inequality that has increased over the past two years during the pandemic. Initiatives should be taken to increase the productive capacity of export-oriented industries and search new markets. Priority should be given to innovation in export products and services, and diversified export basket.
The government will have to take a tough decision on the tobacco industry. Both tax and price measures have to be taken in order to make the tobacco products costly to mass population including the youth and poorer sections of society. Supplementary duty and prices should be increased at different tiers of each tobacco product so that their prices increase significantly. Specific duty should be introduced instead of ad valorem taxes. This will reduce the risk of premature death and diseases due to the use of tobacco.
We need to tackle this recession with our own innovative efforts. This requires a fine balance between the financial sector, the capital market and the real sector. This warrants a pragmatic and balanced policy. Initiatives should also be taken to overcome the Covid's menace and take initiatives to invest in new sectors. At the same time, we need to give impetus to climate resilience and allocate budgets to address the impacts of climate change on the economic and social sectors of the country. In particular, there is a need to formulate an adaptive, mitigating and disaster resilient budget to address the various natural disasters and catastrophes caused by climate change in coastal and other climate hotspots.
If the economy of the country survives, if a bare minimum standard of living of the common people, especially the poor and marginalised people is maintained, the economy of the country will remain on the right track. The Gross Domestic Product (GDP) growth we plan to achieve in the coming fiscal year will depend largely on macroeconomic stability and poverty alleviation. A budget founded on the principles of social security and justice, employment generation, enhanced domestic and foreign investment and prudent use of public money will be able to uphold the people's moral strength required to counter all adverse circumstances.
Dr Mahfuz Kabir is Research Director, Bangladesh Institute of International and Strategic Studies (BIISS), Dhaka.