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Weak fiscal situation is main villain of our economy: Debapriya

12 August 2022

Staff Reporter :
Bangladesh is struggling to find fiscal resources to deal with the current economic challenges mainly due to a weak fiscal situation, said Debapriya Bhattacharya, a distinguished fellow of the Centre for Policy Dialogue (CPD).
Facing the challenges, he proposed for removing the subsidy on electricity capacity charge and increasing subsidy on fuel and fertiliser.
The eminent economist made the comments during a virtual conversation with the media titled "Overcoming the Current Economic Challenges: towards a Transitional Policy Understanding" on Thursday.
He further said, "The entire subsidy structure needs to be reviewed and restructured by withdrawing bad subsidies. At this moment, more effort is needed to reform the subsidy structure rather than controlling the level of subsidy."
The subsidy allocation for fertiliser increased by 33.3 per cent in fiscal year 2022-23 over FY22, while the subsidy allocation for electricity increased by 50.0 per cent during that time, he said.
Additionally, the government attempted to reduce the subsidy burden in the fuel sector by hiking the fuel prices by about 50 per cent on August 5, 2022, the economist added.
The government paid Tk16,785 crore in capacity charges to power plants in the first nine months of the last fiscal year  for 22,118MW daily power generation capacity.
The government shut down all diesel-fired power plants due to depleting fuel stocks recently, meaning 1,000-1,500MW remains unutilised daily but payment for the capacity continues.
Debapriya proposed for a transitional policy understanding to recover the economy from crisis and face challenges raised both in home and abroad.
"The various uncertainties of the economy would not come under control in a single year and all the assumptions for the national budget of the current fiscal year and medium-term framework numbers are gradually becoming irrelevant," he said.
A policy package for stabilisation and consolidation of the economy for 2-3 years is required, he recommended.
"An immediate consultative and participatory package is required to stabilise macro economy, sustain production and employment, and protect vulnerable groups," he said.
Participation of political leaders, public representatives, economists and policy makers should be ensured in the process to protect the economy from possible political distractions in the future, he added.
Analysing the current crisis and future challenges of the economy, Dr Debapriya said that the government is blaming the volatile global economy for the challenges it is facing, but weakness in the financial sector and lack of reforms has reduced the shock absorption capacity of the economy.
Stabilising macro-economy, he suggested liberalising interest rate with a band to protect real value of savings and moderate credit growth, making exchange rate more market based and do away with multiple premium rates for different types of foreign exchange earners, higher revenue uptake by reaching out to unregistered potential taxpayers, reviewing the subsidy package to protect "good subsidies" for agriculture (i.e. fertiliser and electricity) and liquid fuel (i.e. diesel and petrol) and removing all "bad subsidies" (capacity charges).
Besides, augment public expenditure austerity measures and ensure impactful implementation of the "A" and "B" category ADP projects, further streamline import control measures with an eye on price situation of certain consumer goods, expansion of fiscal space by accelerating utilisation of the high level foreign development finance received in FY21 and FY22, effective use of Budget Support received from the World Bank and ADB to ensure additional contractual disbursement, negotiation with IMF substantive balance of payment support and sustain production and employment in a subdued growth situation are required, he said.
"Production of Aman rice is anticipated to be affected this year due to drought and floods. This can affect food security as Aman is country's second-largest staple crop. Reducing costs of agricultural inputs, including diesel and fertilisers will be essential to safeguard the farmers, he said.

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