In wait for a lifeline
Everyone from wage earners and farmers to entrepreneurs and industrialists, is now looking to the new budget for reassurance amid mounting cost pressure
Finance Minister Amir Khosru Mahmud Chowdhury is well aware of the unprecedented economic realities on the ground.
He knows he has embarked on a Herculean mission to revive the fragile economy and make it strong enough to offer some relief to people and businesses through the upcoming budget for the new fiscal year.
Persistently high inflation over the past four years has continued to wreak havoc on the living standards of the majority of people.
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The long-term consequences of the sustained erosion of purchasing power are also casting a shadow over their future.
To survive, many households have been forced to cut spending on healthcare, education and nutrition.
Those who have fallen below the poverty line, depleted their savings or reduced investment in their future will continue to struggle for years to recover from the damage.
The measures taken by three successive governments have so far failed to rein in rising prices amid declining real incomes.
Now, the most crucial question that the new budget needs to answer is: when will this curse end? Economist Milton Friedman once described high inflation as a "dangerous and sometimes fatal disease that can entirely destroy a society if it is not checked in time."
When the finance minister on Thursday will unveil the new government's taxation and spending proposals for the fiscal year starting in July, he will naturally command the spotlight.
The reality facing him, however, is far from pleasant. With most macroeconomic indicators remaining weak, the current economic situation offers little room for comfort.
Like many others, he understands that his government, elected in the high-stakes February election, must accelerate economic activity. Reviving the stagnant job market is an urgent priority.
Creating employment opportunities is one of the most effective ways to ease people's economic hardships.
Fresh investment is essential for generating new jobs, but energy shortages and policy uncertainty continue to stand in the way.
Everyone—from ordinary citizens to businesses, both small and large—is looking for a lifeline.
Given the government's fiscal constraints, satisfying all expectations will be difficult. Nevertheless, the finance minister is expected to announce measures in line with his party's election manifesto, including family cards and farmer cards, to strengthen the existing social safety net.
One thing is certain: there is no magic wand in the finance minister's briefcase that can dramatically boost revenue mobilisation overnight. Bangladesh's tax-to-GDP ratio remains the lowest in South Asia.
As a result, the government may have little choice but to increase borrowing from domestic and external sources, adding further to the country's debt burden.
The new budget will not be large in terms of the size of the country's GDP and population and needs of the time. But its implementation remains a major challenge.
Implementation of annual development programme is also sluggish, with most of the ministries failing to utilize even a half of their allocations.
Institutional weaknesses stemming from lack of reforms stand as barriers to both fronts of the government-- earning and spending.
Against all odds, one thing is noteworthy. Return of a senior politician of the ruling party as the guardian of exchequer may help to improve the health of the political economy and withstand unwelcoming pressures against strong reforms needed to restructure the fragile economy.
Amir Khasru Mahmud Chowdhury, who was commerce minister of the last BNP-led government in between 2001-2006, will place Bangladesh's 54th budget on Thursday in parliament.
Last time a senior politician as the finance minister, Saifur Rahman placed the budget in June 2006.
After two decades, it is now the turn for Amir Khasru Mahmud Chowdhury, a member of BNP national standing committee, the highest decision-making body, who played a key role in crucial political issues on behalf of his party during the past interim government-led by Muhammad Yunus.
His role in arranging meetings between Muhammad Yunus and Tarique Rahman in London was noteworthy.
The finance minister is considered the most powerful man in the cabinet next to the prime minister.
Among his predecessors since independence of Bangladesh, AMA Muhith and Saifur Rahman presented the highest 12 budgets each at different terms of their respective governments.
The state of political economy of their times took contrasting shapes.
Muhith who was neither a senior Awami Leader nor having any political clout, placed consecutive 10 budgets from 2009-2018 during the regime of Sheikh Hasina.
His successor AHM Mustafa Kamal placed five budgets from 2019-2023. During the period the political economy has been defined by a paradox of rapid economic growth, but the growth was seen as jobless growth. But the most ominous side of the regime was state sponsored crony capitalism which reportedly turned into kleptocracy before the fall of Hasina regime in a mass uprising in August 20024.
Both the finance ministers failed to prevent bad politics from distorting fiscal policy, influencing the economy, particularly the banking sector.
Saifur Rahman, who was a senior BNP leader having political clout, placed 10 consecutive budgets during Khaleda Zia's government tenures--1991–1996 and 2001–2006.
The state of political economy was characterized by a fundamental transition from state-led economy to a liberalized and market-oriented system.
During the period, the private sector emerged as the engine of the growth and export driven readymade garment industry gained the ground. Saifur was able to safeguard the economy from bad politics.
After the fall of Hasina, the interim government was able to stop the bleeding of the economy. But it could not bring necessary reforms for its recovery and rebuilding institutions largely damaged during the deposed regime.
Therefore, concerns remain that institutional weaknesses could lead to corruption and bureaucratic inefficiency like before, creating obstacles to achieving the budget's objectives through effective implementation.
Lack of transparency in government spending and fiscal policymaking remains a major concern too.
Take an example, in the Open Budget Index (OBI) of 2023 conducted by the International Budget Partnership, Bangladesh scored 37 out of 100 in transparency in fiscal policy.
The score falls well below the global average of 45. Bangladesh scored poorly on other indices like the rule of law, corruption and the press freedom, which indicates a poor and fragile governance system.
For the prevailing situation, the finance minister may put the blame on his predecessors who were in charge of the finance minister in the last two decades.
But this will not reduce the intensity of his battle. Like his predecessors, however, he will enjoy the "inherent blessing" of less scrutiny of his budgetary proposals due to structural weakness of the parliament.
Such blessing ultimately undermines fiscal transparency. He will feel the absence of strong institutions in his struggle to restructure the fragile economy.
For the last two years, businesses have been waiting for an elected government to help them revive and recover. They expect a lot from the first budget of the new government.
But rebuilding a country from the wreckage of institutions often seems more difficult than rebuilding a war-ravaged country. This is a litmus test for Amir Khasru Mahmud Chowdhury and his government.
What Bangladesh needs now is good economics to navigate the hard times the country is going through. Lest we forget, only a tree with strong roots can weather the storm.
