Reducing budget deficit will bring inflation under control: Economists
At the discussion, Prof Salim Raihan emphasised the need for special attention to stabilise the exchange rate
Reducing the budget deficit will lead to less government borrowing from the domestic sector which can help control inflation, said economists.
"Given the contractionary nature of the budget, keeping the deficit lower would have been prudent. Now, if the government resorts to borrowing from the domestic sector to cover the deficit, it will only fuel inflation," said Dr Sayema Haque Bidisha, a professor of economics at Dhaka University, at a post-budget discussion at the university's Social Science Faculty yesterday.
The teachers and researchers of DU's Economics Department talked about macroeconomic stability, effective governance, and the allocation of funds across diverse sectors, including agriculture, education, and healthcare.
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Around 30% of the overall allocation in the social security sector is directed towards subsidising interest on pensions and savings bonds
In the proposed FY25 budget, the government has set a target of reducing inflation to 6.5% within the next financial year. To achieve this, a contractionary budget has been formulated in line with the monetary policy. However, at the same time, the government has also set a GDP growth target of 6.75%.
Professor Selim Raihan, executive director of the South Asian Network on Economic Modeling (Sanem) and DU professor, believes that while such targets are positive, they may be less realistic.
"Despite efforts over the past two years to curb inflation, there has been limited success, largely due to a lack of coordination in decision implementation," he said.
"We are currently experiencing a heated economic situation. It is crucial to allow the economy to stabilise. Even if growth is modest, it should not pose a problem," Selim said, emphasising the need for special attention to stabilise the exchange rate.
"Crawling pegs should be allowed to adjust without being static. Otherwise, they will not fulfil their intended purpose," he said.
The economist further said the government is more inclined to indirect rather than direct taxes to boost revenue, which will inevitably burden the common people with higher taxes.
Selim Raihan expressed concern, stating that honest taxpayers could face a tax rate of 30% or more, while a 15% tax rate is proposed to legitimise black money, which he deemed unfair. He hoped this issue would be thoroughly debated and considered during the budget discussions.
Economists have highlighted the importance of increasing social safety net allocations for both rural and urban populations.
Professor Firdousi Naher said, "Around 30% of the overall allocation in the social security sector is directed towards subsidising interest on pensions and savings bonds."
In his closing speech, Dhaka University Vice Chancellor ASM Maksud Kamal raised a critical question of whether all our ministries possess the capability to effectively utilise the allocated budget.
Highlighting the escalating wastage across various sectors due to inefficiencies, Maksud Kamal stressed that minimising this wastage could lead to greater benefits from the budget.
