Budget should focus on inflation and macroeconomic stability

Strong recovery from Covid-induced fallout created demand-pull inflation while the Russia-Ukraine war caused somewhat of a cost-push inflation due to supply chain disruptions. Both have caused inflation to spiral at a level that is difficult to control.

There is no immediate sign of inflation coming down in the near future. So, it is time to take all-out measures to control inflation and provide necessary assistance to the hardest-hit people, particularly the poor.

In this context, both monetary and fiscal policies should work in a coordinated manner in addressing the detrimental impact of inflation on the welfare of the poor people in Bangladesh.

The current budget set a target of bringing down the inflation rate below 5.6%, but the rate reached 9.24% in April. Bangladesh has continued to see actual inflation surpassing that estimated in the budget over the past several years.

The reality is that even if the inflation target is announced in the budget, the issue of controlling inflation within the specific framework of fiscal policy is not discussed. The government's initiatives to reduce inflation and its effects are not properly presented in the budget speech.

Illustration: TBS

Since the impact of inflation is felt more by the poor, special assistance should be provided for them in the budget. The coverage and allocation of funds for the ongoing social safety net programmes need to be increased.

In order to make life easier for the poor day labourers and salaried individuals, arrangements can be made to provide cash allowance, low-cost food, and daily necessities. Women should get priority for old-age allowances, VGF, VGD, etc.

Temporary employment opportunities need to be created through infrastructure development in rural areas, and the scope of employment programmes for the extremely poor needs to be widened.

I think it is necessary to increase the salary allowance in both the public and private sectors to cope with the rising pressure of inflation.

Although in neighbouring India, subsidies have been used to reduce rice prices, the same is not happening in our country.

The only reason for this may be that farmers are not getting the benefits of subsidies properly. As a result, more transparency and accountability need to be ensured in subsidy management.

There is a need for an integrated system for monitoring the rice market. First of all, the actual demand has to be determined by collecting data on the actual population of the country and using the data on per capita rice consumption.

An effective mechanism has to be adopted for timely decision-making on market control, imposition of tariffs by the government, procurement of rice from the market under government management, import of quality rice, etc. This is also true for other essential food items.

In order to control inflation, the amount of money supply needs to be controlled at a reasonable rate in the coming days. In addition to maintaining foreign exchange reserves, steps should be taken to keep the exchange rate stable. Inflation due to the depreciation of the exchange rate needs to be taken into account.

The government may reduce import tariffs on certain goods and commodities to bring down inflationary pressure.

Above all, in the budget, all kinds of social security measures of the government can be delineated within the framework of containing inflation and poverty alleviation.

On the other hand, the central bank needs to do an assessment showing the extent to which inflation is being reduced by controlling the money supply and consequently to what extent the growth of the economy is sacrificed.

Dr Monzur Hossain is the Research Director of the Bangladesh Institute of Development Studies.