Originally posted in The Business Post on 7 June 2022
Inflation is not only rising due to the increasing commodity prices in the global market and hikes in dollar prices, but also because of market manipulation and mismanagement, Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), told The Business Post’s Talukder Farhad in an exclusive interview
Mustafizur has suggested reducing inflation through necessary investment allocation in the coming budget to improve market management.
He went on to say that in the coming budget, tax evasion should be stopped, social allowances should be increased, subsidies should not be reduced, and dependency on foreign sources should be increased to meet the budget deficit.
Inflation control is said to be the biggest challenge in the upcoming budget. What is your opinion on the matter?
To keep inflation under control, the import duty on various consumer goods must be adjusted (lowered). Along with this, we must now concentrate on market management.
Inflation is rising as a result of mismanagement from the import level to the consumer, from the import level to the producer level, and from the import level to the export level.
We have no chance of claiming that commodity prices are rising solely as a result of higher prices on the international market and a change in the exchange rate.
To improve market management, we must therefore increase capacity. In order to do so, market-monitoring institutions should expand their capacity.
Is it enough to simply increase the capacity of the organisations associated with market management?
We need to focus more on the overall institutional flaws that make it difficult for us to manage our economy effectively.
The budget has grown in size, but the government has not invested in improving the capacity of the institutions responsible for implementing it. We are approaching a point where we must consider it seriously. It’s time for more investment in this sector.
What are your thoughts on focusing on social safety net programs to control inflation?
The government has already said it will gradually increase spending on social safety net programs. In addition, the number of beneficiaries and the amount must be increased.
Because, in comparison to when the Tk 500 allowance was set, purchasing power has decreased by 2-3%. This needs to be revisited.
How will the government handle the subsidy pressure in the coming budget?
In this budget, the issue of subsidies will be a major topic. Subsidies should not be reduced at this time because people are already feeling the effects of inflation. Even if fuel and other commodity prices rise in the medium term, subsidies should be maintained.
At this time, it is best to keep a closer eye on things and refrain from reducing subsidies, as the prices of some products on the international market may be on the decline.
What are your thoughts on the budgetary issue of income and expenditure?
The mobilisation of resources will be under pressure. Some duties may need to be adjusted to account for inflation, as we did with edible oil.
In this situation, tax evasion must be stopped in order to increase revenue, with a focus on digitisation, particularly in the area of income tax collection.
The National Board of Revenue (NBR) needs to be strengthened in terms of enforcement and capacity. It is necessary to strengthen the transfer pricing cell.
Budget spending, on the other hand, should be reasonable and prioritised. More emphasis should be placed on social security, education, and health care this year.
What is your opinion on budget deficit financing?
The government should not be concerned with the size of the deficit. For deficit financing, foreign sources should be given more consideration than domestic sources.
If you take out a bank loan, you will be required to repay it quickly and at a high-interest rate. However, borrowing money from abroad takes a long time to repay, and the interest rate is low compared to borrowing money from domestic sources.
Besides, if the government receives more loans from foreign lenders, the supply of dollars will also increase.