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Inflation, poverty-inequality elimination & employment generation needed to sustain ‘crises’: SANEM

Bangladesh Beyond
  • Updated on Monday, June 13, 2022
  • 310 Impressed

Inflation, poverty-inequality elimination & employment generation needed to sustain ‘crises’: SANEM

 

Dhaka June 13 2022:

 

The government should acknowledge the researches and surveys of the research organizations like SANEM, PPRC, BIGD and CPD on Covid19 effects at socio-economic sectors of Bangladesh, as government sources are lagging and lacking real time information on the issue, urged Dr. Selim Raihan.

He said the government sources and Bangladesh Bureau of Statistics (BBS) do not have updated statistics and real time data available for research and decision making. Thus, backdated data is creating illusion and taking decision of incentives, providing budgetary allocation and project implementation depending on such backdated information are misleading development process. End people as a result are not receiving the benefits of initiatives taken by the government.

Dr. Selim called the government for arranging a consortium aggregating SANEM, PPRC, BIGD and CPD’s research to help update the government information sources by recognizing those efforts immediately.

The call came from a Budget Analysis session organized by SANEM on Monday at BRAC Centre Inn in the city.

Dr. Selim Raihan, Executive Director, Dr. Sayema Haque Bidisha, Research Director, South Asian Network on Economic Modeling (SANEM), along with Farhin Islam, Tuhin Ahmed, Eshrat Sharmin, Md. Nadim Uddin,  Afia Mubasshira Tiasha,  Samantha Rahman, Kaniza Muhshina, Research team members of SANEM, among others, took part , in the programme.

 

 

The think tank observed that prime objectives of the budget should be, stabilize with macro economic conditions considering Covid-19 and war situation between Russia-Ukraine crises.

The government must pursue strategies to combat inflation and follow the growth momentum. Reducing poverty, inequality, generating employment and skilled human resource development should be on key focus of the government.

 Dr. Sayema Haque Bidisha presented the key note findings during the session where the researcher had suggested for reforming tax structure as an instrument to reduce inequality.

She also highlighted for detailed and specific plan of action for tackling inflation, through strengthening of market monitoring mechanism.

SANEM also suggested for both monetary and fiscal policies to be linked more specifically to inflation targets and macro stability.  A road map for employment generation is required. Allocation in social infrastructure must be increased. Per capita allocation of key Social Safety Net (SSN) programs should be raised and total allocation excluding pension and interest must be in line.

Besides, updated data base is needed for tracking the status of key indicators, especially in post COVID-19 backlashes on socio-economic aspects.

The importance of ministry-wise M&E exercise cannot be over emphasized.

Long term projects and projects with higher allocation should be opted carefully considering our development needs – detailed feasibility study must be conducted. Greater emphasis is needed in reforming the tax structure with emphasis on designing a progressive tax structure.

According to SANEM, in domestic market, balance of payment deficit caused supply shortage of dollar, leading to depletion of reserve and increased price of dollar vis-a-vis taka. Macro stability of the country is no longer in a comfort zone! The existing challenges of revenue mobilization and low rate of implementation of budget are still there. Despite satisfactory and consistent Gross Domestic Products (GDP) growth, in fronts of poverty, inequality and human capital development there remains concerns. It is expected that resource allocation and reforms as proposed in national budget will address these development priorities.

The think tank also suggested for budgetary initiatives for stabilizing macro economic conditions. The exchange rate of Taka against the US Dollar has to be kept competitive. Import of luxury and dispensable goods need to be restrained. Raise the incentive 0.5 percentage points (2.5%) for encouraging the remittance through legal channel. Maintain imports at a reasonable amount to reduce trade deficit and keeping foreign reserve stable should be a key concern of budget 2022-23. Import-dependency and less important government expenditure need be reduced.

In this context, SANEM supports the move towards market determined exchange rate. The Government can reduce the incentive to 1% given that the official and carb market rates are converging. It is important to check over and under invoicing in import. SANEM supports curtailing unnecessary government expenditure.

For Budgetary initiatives for containing inflation the policy makers should focus on the average inflation which will be 5.6% in the next fiscal year. The main strategy would be to increase the supply while reducing the growth in demand. The repo rate has been raised from 4.75% to 5%.

SANEM’s thinks, no specific direction is there for controlling inflation rate in the budget. It is not clear that how demand will be restrained. Both fiscal and monetary policies should work in tandem to contain inflation. Import tax from some essential items has not been reduced. Subsequent adjustment in energy price can create inflationary pressure.

For employment generation the government need to ensure overseas employment of 0.81 million Bangladeshi workers and provide skill development training to 0.52 million workers. The allocation for the ‘Employment Generation Program for the Poor’ fell to Tk 18.30 billion in budget 2022-23 from Tk 19.25 billion in revised budget 2021- 22. Plans to raise ICT based employment to 3 million by 2025 and 2.5% reduction in corporate tax.

Detailed and specific road map for employment creation is required. With low employment elasticity of growth, it is not clear whether this tax cut will lead to required employment generation.

Studies by SANEM and other Think Tanks have found that many people have become ‘new poor’ during COVID19.  Vulnerability has increased during Covid-19. The vulnerability can be worsened by the recent Russia-Ukraine war and global price hikes. There is concern about ‘inflation poor’.

Budgetary Initiatives for SSN are 30 kg rice each month at the rate of Tk. 15 (previously it was Tk. 10) to be provided to 5 million low-income households.

 Allocation for social safety net is Tk. 1135.76 billion in total which is 16.75% of the total budget and 2.55% of GDP.

The number of disabled beneficiaries is planned to be increased by 0.36 million. The rate of monthly allowance will be increased by Tk. 100, from Tk. 750 to Tk. 850. Increase in the number of beneficiaries in mother and child benefit program by 2.09 thousand. 10 million families will get TCB family cards including the family who received 2500 cash assistants during the pandemic to combat price hike due to supply chain disruption.

SANEM suggested that without pension, interest, stipend, allocation to SSN reduced to 11.2% of proposed budget from 13.7% in revised budget 2021-22.

Given high inflation, it was needed to increase per capita allocation for core programs. Programs like old-age cash allowance is kept at Tk. 500.

Allocation to OMS has decreased in 2022-23 proposed budget to Tk. 17.20 billion from Tk. 19.43 billion in 2021-22. National Social Safety and Security (NSSS) should be implemented without any delay and digitalization can make the process more transparent.

Health allocation is around 5.4% of the total budget in 2022-23. Allocation in the Health Education and Family Welfare increased to Tk. 75.8 billion in budget 2022-23 from Tk. 61.1 billion in revised budget 2021- 22 .

According to SANEM, World Health Organization (WHO) suggests health allocation to be 15% of total budget.  High burden on the “Out-of pocket health expenditure” which is 68% still remaining.

Allocation for education is 12% of total budget and less than 2% of GDP).  Allocated Tk. 814 billion for the Ministry of Primary and Mass Education, Secondary and Higher Education Division, and Technical and Madrasa Education Division in budget 2022-23.

SANEM observed that it is far away from the UNESCO recommendation (20% of total budget or at least 4-6% of GDP should be allocated in education). Well planned guideline on how to address the loss in learning in education due to COVID-19 is needed.

The budget highlighted agriculture as one of its six priority sectors, and the second one in ranking. Tk. 336.98 billion has been proposed in the budget for fiscal year 2022-2023 which was Tk. 243.45 billion in fiscal year 2021-2022. The government proposed to provide Tk. 160 billion as subsidy, up from Tk. 120 billion, in the coming fiscal year.

Import duty was reduced from some products (wheat gluten, sugarcane molasses) with expansion of the concession facility for some others (test kits for poultry, molasses feed grade and cane molasses feed grade, cold storage freezers).

10-year tax break has been provided to the entrepreneurs/start-ups engaged in fruits processing, vegetable processing, dairy and dairy products, baby food products and agricultural equipment manufacturing.

SANEM appreciated the initiatives of The government to provide Tk. 160 billion as subsidy, up from Tk. 120 billion in the coming fiscal year. Such initiatives are welcomed as it will help contain inflation.

A total of 16.5 million farming families in the country benefited from the agricultural incentive package. So far, 3,14,000 agricultural farms benefited from the Tk. 80 million agricultural refinancing scheme set up to facilitate farmers to get loans. About 0.53 million low-income professional farmers and small traders have so far been benefited from the Tk. 30 billion refinancing scheme for low-income professional farmers and small traders.

The think tank observed that utilization process for agriculture related stimulus packages was not satisfactory and based on backdated information including loans disbursement for small and marginalized farmers.

Different researchers, social workers, economists and media took part in the post budget analysis session of the SANEM.

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