Finance minister signals dissatisfaction with contractionary policies to curtail inflation

It is undeniable that contractionary policies to control inflation can in the long run slow down economic growth, Finance Minister Abul Hassan Mahmood Ali said today (29 June).

"While there is a need to adopt contractionary policies to control inflation, it is undeniable that in the long run this approach can slow down growth," he said, while addressing the parliament in his winding up speech on the proposed budget for the 2024-25 fiscal.

He, however, said to build a developed, prosperous, "Smart Bangladesh" by 2041, Bangladesh needs continuous high growth.

"In this context, we framed this budget with the difficult challenge of balancing the seemingly contradictory goals of achieving economic stability and sustaining growth," he said.

He strongly hope that under the able, experienced and wise leadership of the prime minister, the government can bridge the gap between means and capabilities and return to the path of high growth soon.

The finance minister said in the proposed budget, the government has tried to provide necessary allocations in education, health, agriculture, local government and rural development, electricity, communication, science and technology sectors with the aim of building a smart Bangladesh.

"Besides, we have given due importance on ensuring food safety," he added.

Therefore, in this year's proposed budget, the government has given the highest priority to bringing macroeconomic stability along with inflation control, he said.

"Monetary policy has already taken various contractionary steps to control inflation; The policy rate [repo] has been raised significantly to 8.5% and bank interest rates have been fully market-based."

Moreover, a crawling peg system has been introduced in the dollar exchange rate to increase foreign exchange reserves by encouraging exports and accelerating remittances, he added.

"In line with the contractionary initiatives of monetary policy, we have also adopted supportive policies in fiscal policy, such as reducing the budget deficit, discouraging non-essential spending and austerity initiatives in various sectors."

As a result of these policies adopted by the government, the finance minister expects inflation to come down to 6.5% in the next financial year.

In the proposed budget, he said the government has planned to mobilise resources on a priority basis for investment and employment-supporting infrastructure development.

"As a result of these initiatives, we expect GDP growth to reach 6.75% in the next financial year and 7.25% in the medium term."

He mentioned that the government is also taking multifaceted steps to collect resources to meet the government expenditure.

"Before deciding the revenue collection policy, we have reviewed in detail the proposals received from discussions with various public and private organisations, business organisations and stakeholders."

Mahmood Ali said to sustain the pace of development, the government has adopted various strategies to increase tax collection, including reducing tax evasion, with an emphasis on increasing the tax-GDP ratio.

"We are undertaking various reforms in revenue management to increase revenue in the medium term by solving existing challenges in revenue collection."

At the same time, he said the government is reforming the national customs policy keeping in mind the reality of the post transition from the list of least developed countries in 2026.

"Reliance on import duties is being reduced to help reduce anti-export bias."

The finance minister said Prime Minister Sheikh Hasina, who is the inheritor of the Father of the Nation's eternal ideals, is carrying out the unfinished tasks of the Father of the Nation one by one, taking all the people of the country with invincible conviction after overcoming hundreds of thousands of setbacks.

"With the hands of the prime minister and the path shown by him [Father of the Nation], we will achieve the sustainable development goal by 2030 and join the ranks of high-middle income countries by 2031 and we will be able to establish a developed-rich-smart Bangladesh by 2041, Inshallah," he said.