Controlling high inflation biggest challenge of budget

The size of the proposed budget for the upcoming fiscal year (2025–26) has been set at Tk 7.90 trillion. The size of the ongoing fiscal year’s budget under implementation was Tk 7.98 trillion. Accordingly, the budget size will decrease by Tk 80 billion. For the upcoming fiscal year, an allocation of Tk 2.30 trillion has been made for the Annual Development Programme (ADP) which is Tk 350 billion less than the current fiscal year’s ADP allocation. In the new ADP, the target for foreign loans has been reduced by Tk 150 billion. In the upcoming fiscal year, Tk 850 billion will be taken in foreign loans.

No new expenditure has been allocated to mega projects in the budget for the coming year. A target has been set to reduce the overall inflation rate to 6.5 percent by the end of the next fiscal year. The GDP growth target has been set at 5.5 percent. The budget deficit has been kept below 5 percent of GDP. The revenue collection target for the upcoming fiscal year has been set at Tk 5.18 trillion. In the current fiscal year, the main target for revenue collection was Tk 4.80 trillion, which was later revised to Tk 4.635 trillion. In the current fiscal year, the subsidy allocation in the agriculture sector was Tk 170 billion. For the next fiscal year, it has been increased to Tk 200 billion.

This is the first budget during the interim government. Therefore, there has been considerable interest among relevant quarters regarding the proposed budget. The main point of interest was what measures the interim government would take in the budget to restore the economy. In a country like ours, budget formulation is quite a difficult task. I would like to say a few words about the inflation control target set in the proposed budget. For more than the last three years, high inflation has persisted in Bangladesh’s domestic economy. Due to the impact of inflation, people of all classes, especially the marginalised, have been experiencing severe hardship.

Over the past three years, the inflation rate has never fallen below 9 percent. In the last 10 months, inflation was highest in November. At that time, the overall inflation rate was 11.38 percent. In April of this year, the inflation rate declined somewhat to 9.17 percent. During this period, food inflation was 8.63 percent, while non-food inflation was 9.61 percent. Although inflation increased, wages did not rise proportionately. As a result, people’s suffering is increasing.

In this situation, the proposed budget for the upcoming fiscal year has set a target to reduce the inflation rate to 6.5 percent. Reducing the inflation rate to the desired level is not impossible, but it is difficult. After the Ukraine war, the inflation rate increased significantly in the economies of various countries. Even in the world’s number one economy, the United States, the inflation rate rose to 9.1 percent, the highest in the past 40 years. From that situation, they managed to bring high inflation down to a tolerable level through various measures. Most countries around the world were able to reduce high inflation to a tolerable level through different steps.

Even economically troubled Sri Lanka once experienced an abnormal increase in inflation. From that situation, they managed to reduce inflation. Sri Lanka’s inflation is now in the negative range. The same happened in Pakistan. Pakistan’s inflation had reached an unbearable level. From there, they managed to bring it down to a tolerable level.

But unfortunately, we have not yet been able to reduce inflation to a tolerable level. Effective measures must be taken to achieve the target of reducing inflation set for the upcoming fiscal year. If high inflation persists, various complications may arise in the economy. Investment will decline. Growth will be negatively affected. Effective measures must be taken to reduce inflation to a tolerable level.

Dr Mustafa K Mujeri: Economist and Executive Director, Institute for Inclusive Finance and Development
Transcription: MA Khalek