Trying to see the best through a black cloud

Such times seldom come in history. First, a frightening pandemic sweeping over the world shutting down life and livelihood. Humanity overcame it with its scientific valour. But then as life started getting itself back to normal, a sudden uptick in demand upended economies while supply chains broke down and prices spiralled. And then as if it was not enough, a war started in Ukraine leading to a commodity shock, food grains the foremost. The world has been served a perfect storm with inflation and a spectre of recession.

It is not an easy thing to roll out a budget in such a hard time. For Finance Minister AHM Mustafa Kamal, a sound macroeconomic balance would have served as a breather, but that was not to be. Several indicators are deteriorating. Balance of payment for one, a dwindling foreign exchange reserve for another, and pressure on the exchange rates, eye-watering fuel import costs, among others, are darkening the horizons. A frail banking system is no relief in such a situation.

As the finance minister presents his budget, he has to show his dexterity with two hefty issues on his hands fast. How he would face the inflation – officially still in single digits, but many doubt the veracity of that number as people have to lower their consumption. Continued growth with employment is the other. Curbing money supply for the former can hurt the latter. So he has to find other ways to keep both on the right path. Easy fixes like increasing import duty can fuel inflation and harm manufacturing.

An obsession with growth numbers would not fill empty stomachs of those down and out just as the latest Mercedes GLS series on the roads does not mean anything to those sitting for hours in falling apart jalopies we still like to call buses.

So a bigger safety net is now in demand. But it will be easier said than done. For sure, resources will be in short supply if the economy slows down. Less imports would mean less revenue collection, though perversely the high costs of commodities should keep up the tempo of money flowing into the coffer. Here the sheer challenge would be how to shield the poor from imported inflation.

So the finance minister can turn his attention to saving money.

How he would deal with runaway cost escalation of mega projects is a major challenge.  Besides inefficiency, such cost overruns are a simple indication of corruption, the spillover of which is large scale flight of money abroad.

Few options of increasing revenue without reforms remain. Reining in costs and cutting out lofty projects such as launching satellites that serve little purpose is now the key. Amending rules had served for quick project implementation but also bred corruption.

The other steep challenge that Bangladesh faces today is to increase efficiency of the economy and create high-value jobs now that we have achieved the middle-income country rung. The current state of efficiency, both in private and public offices, will no longer work here. Our main port is now the least efficient in South Asia, our productivity is dismal, our education system is way out of touch with reality. Such a state can no longer keep us in the race while other countries are putting in their highest efforts to improve efficiency and get new kinds of growth.

Inam Ahmed. Illustration: TBS

India, for example, now sees a new kind of growth after the pandemic backed by a huge tech effort. It has rolled out a national "tech stack" – a set of state-sponsored digital services that link Indian citizens with an electronic identity, payments and tax systems, and bank accounts. The rapid adoption of these platforms is forcing a vast, inefficient, informal cash economy into the 21st century.

India is having a bonanza in renewable energy investment, and with the world getting weary about China, India is now a new destination for foreign investment with continuous reforms an order of the day.

The new fiscal year also sees the need for heightened subsidy as energy prices will spike. Will the finance minister pass the higher costs to the people or will he lighten their burden at this juncture with subsidy? Can the fiscal position support such backstopping measures?

All these questions and many more will loom large as we get the new budget proposals today.

Inam Ahmed is the editor of The Business Standard.