Originally posted in The Business Standard on 25 May 2022
Even though people of low- and fixed-income groups are hard-pressed by soaring prices, the government seems to have spent less than what it earned in the first half of the current fiscal year. The budget lacks measures to keep the cost of living within the reach of the masses, says economist Dr Fahmida Khatun as she shares her views on inflation and public deficit with TBS Senior Reporter Jahidul Islam
Keeping inflation in check needs to be given top priority in all government policies at this moment. Point-to-point inflation stood at 6.29% in April as opposed to the 5.5% target set in the current budget target. If we take the last 12 months into calculation, inflation is even lower at 5.81%.
Prices of all commodities were shooting up when the whole world was running in the recovery lane, with consumers starting to release their pent-up demand. The Russia-Ukraine war has led to frequent jumps in prices of all products, from food to fuel. As a result, inflation in the United States, the United Kingdom, and the European Union has surpassed all records.
In this situation, the accuracy of Bangladesh Bureau of Statistics’ 6% inflation is being called into question.
According to the government agency TCB, increases in prices of daily essentials, including edible oil, pulses, flour, garlic and eggs have reached close to 50%. Even prices of some products have risen at an even higher rate in one year. So, I do not think that the market situation is fully reflected in BBS data.
The Household Income and Expenditure Survey was last conducted in 2016, but an inflation report is being prepared using 2005 as the base year. That is why inflation reports do not reflect the changes in consumer income and spending patterns, as well as the arrival of many new products on the market.
No matter what the BBS data says, it is true that the country’s low- and lower-middle-income people are grappling with meeting household expenses owing to rising prices of daily necessities. Many people are forced to break their previous savings to make ends meet, while many others are maintaining livelihood with the money borrowed from others.
The government should take extensive measures to keep living costs within the reach of such people. But we hardly see anything like that in this year’s revised budget or in the ongoing fiscal policy.
There was a deficit amounting Tk214,682 crore in this year’s budget, which later was trimmed by Tk10,182 crore in the revised budget. This year an expansionary budget was formulated to facilitate the economic recovery from pandemic-induced losses. Has the situation in the country improved so much that the budget deficit has to be reduced?
The government has not yet released enough information to review the overall fiscal situation. The data for the first six months of the fiscal year shows that the government’s revenue collection outweighs the expenditure, resulting in a surplus of Tk1,130 crore in the budget.
At the same time last year, the budget deficit amounted to Tk17,897 crore, simply meaning that the country’s limited income people are suffering because of rising inflation but the government is not spending as much as it can afford.
The size of our budget in terms of gross domestic product (GDP) is already much smaller than in other countries, and the implementation rate is even lower. Yet, more than Tk10,000 crore has been deducted by revising the budget.
As a result, the size of the budget has come down to 15.1% of the projected GDP. This budget rate is much lower than neighbouring countries. In the present reality, the budget outlay should be increased to at least 20% of GDP.
Only 55% of the allocation under the revised Annual Development Programme has been spent in the first 10 months of the current fiscal year, which is about 50% of the original ADP. The ADP allocation has been trimmed by over Tk17,000 crore because of a poor implementation rate.
Expenditure in the non-development sector is increasing as opposed to a fall in development allocation.
We fear that such inefficiency in budget implementation will stand in the way of balanced development.
To safeguard people from being squeezed by rising pressure from commodity price hikes is far more important than limiting the budget deficit. The amount of cash aid from the government should be increased to keep the poor’s purchasing power intact. Besides, the distribution of food items at subsidised prices should also be expanded.