Fiscal space shrinking when money demand rising: CPD

The National Board of Revenue has put on a good performance in revenue generation with a 16% growth year-on-year in the first four months of the current fiscal year, but it will be a daunting task to meet the annual target, according to the Centre for Policy Dialogue (CPD).

The target set by the national budget can only be achieved if revenue mobilisation registers a nearly impossible growth of around 31% in the remaining months. The revenue board will also have to enhance its collection from local industries by over 38%.

With the revenue collection goal appearing to be unachievable this time as well, the government's fiscal space is now shrinking, the CPD noted while evaluating the state of Bangladesh economy in FY22 on Thursday.

Moreover, a slump in national savings certificate sales is another blow to the government's sourcing of funds.

On the other hand, demand for money is rising to ensure economic recovery, deal with potential impacts from the Omicron variant of Covid-19 and relieve low-income people of the burden of surging commodity prices, CPD researchers pointed out. 

And, the pressure of subsidies will increase several times owing to soaring commodity prices in the global market.

In this situation, the CPD suggested ensuring money supply by increasing expenditure and formulating an accommodative monetary policy. 

The think tank came up with a slew of recommendations, including withdrawal of fuel price hike, cash incentives to poor people, disbursing soft loans to pandemic-affected small ventures and introduction of universal pension scheme for all elderly people.

The CPD also proposed refixing figures of annual rice production and its demand.

Dr Fahmida Khatun, executive director at the CPD, said many indicators hint at economic recovery, but there are doubts as to how sustainable the recovery process will be because of risks in some sectors.

Despite 24% growth in export earnings, import payments have gone up by more than half. The sharp fall in remittance inflow is also putting pressure on balance of payments, foreign exchange reserves and exchange rate. If this trend continues, import costs may go up further, she noted.

Stating that rising commodity prices could be a big challenge for the poor in the future, Fahmida said rising prices of daily commodities, including rice, pulses, oil and vegetables, are on the rise, leaving limited-income, who suffered pandemic-led income erosion, in a tight corner.

At a time when commodity prices are shooting up, Bangladesh Bureau of Statistics claims that inflation is lower than 5.5%, she said, adding that calculation of inflation using the old base year does not reflect the actual market price in BBS data.

The government claims a record rice production every year, but its prices are rising constantly in the absence of accurate information on demand for the staple food, Fahmida pointed out.

In this situation, she demanded a proper assessment of the actual demand for rice in the country, urging to find out the amount of rice supplied every year.

Dr Khondaker Golam Moazzem, research director at the CPD, said following income erosion, poor people have now increased consumption of rice and reduced intake of other food items, contributing to a hike in rice prices. 

The rice market is now under the control of a few syndicates, but there is no activity of the regulatory authorities to rein prices in, he added.

Recommending launching new stimulus packages to help small entrepreneurs continue their businesses alongside keeping people's purchasing power intact, he said a large portion of the stimulus loans in the first phase was mainly disbursed to medium and large entrepreneurs.

Besides, direct cash transfers to the poor was very low owing to a lack of accurate information on the number of poor people. As per the government's announcement, 50 lakh poor families were supposed to get Tk2,500 each, but the number of recipients was even lower, the CPD research director noted. 

Various surveys show the pandemic-induced economic shocks have pushed around 2.50 crore people into poverty.

A four-member family needs at least Tk7,297 a month to meet its demand. And, to give this amount of assistance to all the poor people, it will cost 0.5% of GDP, he pointed out.

He further said as per the calculation of 2017, only 18.5% of the country's people with disabilities are getting assistance from the government. The government will have to spend 0.55% of GDP to cover all the people with disabilities with adequate allowances.

Proposing introducing a universal pension scheme for the elderly, he said 66% of people aged over 65 are still deprived of government allowances, he also said 1.3% of GDP will be needed to bring them under the allowance.

Mustafizur Rahman, a distinguished fellow of the CPD, said as the government's fiscal space has shrunk, the institutional capacity needs to be increased to meet the growing demand. Failure to do so could lead to major challenges in the future.

Export earnings in the United States and European Union are going up only because of a rise in the volume of export goods. Prices of knitwear items have risen slightly, but those of woven garments have fallen sharply, he noted.

If this situation continues, Bangladeshi entrepreneurs will lose their competitive advantage in the world market, Mustafizur added.

He suggested negotiations to increase export product prices alongside reducing production costs as the government may not be able to increase stimulus support. In this case, transportation costs must be reduced.

The rise in fuel prices would be a major factor in increasing farmers' spending during Boro season. Government subsidies will increase to ensure the supply of fertilisers at current prices. 

In this situation, he demanded that agriculture costs be reduced by increasing productivity, the CDP's distinguished fellow said.

The economist said Tk9,000 crore has been set aside as a subsidy for fertilisers that have now become costlier. So, it will now require around Tk22,000-Tk23,000 crore in subsidies.  He questioned, how will the government adjust it? Gas prices are rising as well.

Towfiqul Islam Khan, senior research fellow at the CPD, said there was no data on rice production in the current financial year. There is data on industrial production but only two months. There is export data, but growth data is not clear.

Moreover, the government has no information about the recovery of income and consumption. BSS surveys are not up to date either, he continued.

A lot of financial and economic data is not released in time. Again, there are questions about the quality of what is published, Towfiqul added.