Bangladesh economy has entered a dark tunnel and there is little flicker of light at its end.
A badly prolonged global depression, dipping investment, galloping inflation, slowing exports, a looming election and the tight embrace of the IMF -- they all make a messed up wool ball which offers a daunting task of straightening things out.
This is a situation through which Finance Minister AMA Muhith will present his penultimate budget of this government.
On one shoulder he will carry the weight of being populist because this is basically the last budget of the government which it will have time to implement. On the other shoulder, he will have the responsibility to undo, even if to some extent, the economic mismanagement that he had allowed to take place.
Only time will say how he will balance both. But it is true that he will get very little policy space to take his own stride. The discipline of the IMF will be there to maintain macroeconomic stability through conservative fiscal management because he had to accept $1 billion, only $1 billion and that too to be received in seven tranches from the Fund. Of course, he can jump the line any time and say “sorry”. But that would be another ball game too.
Meantime, Muhith has set some quite lofty goals for the next year. First, he has set a 7.2 percent growth rate. Then he wants a 34 percent higher ADP spending from this year's revised ADP. He wants to curb inflation to 7.5 percent. His revenue collection target is 22 percent higher.
Each of these goals has been precariously balanced and one miscarriage will put the other in jeopardy. One can be rest assured there will be more than one lapse.
Take growth for example. Muhith has achieved a 6.3 percent growth this year (although IMF feels it would be 5.5 percent). To take it to 7.2 percent from there would require quite a bit of dust raising. Private investment has declined quite a bit this year. And this can not be dismissed as "rubbish"!
In an uncertain political year with no solution to the lingering power and energy crisis, there is no reason for investment to pick. Still the growth could be attained by increasing efficiency in terms of capital output ratio. But grounds have not been laid for that too. Leave aside energy crisis, decision making has not improved, rather regressed in most cases. Knots of traffic on roads have even tightened. Corruption and nepotism are rampant. So it is better not to think of efficiency enhancement out of the blue.
If efficiency does not come, exports may suffer because cheap labour is being exploited for too long and too much.
For investment you need savings. And savings have eroded too. In an age of persisting high inflation, such erosion is natural. People have in fact been withdrawing savings and spending to retain living standards.
When private investment is uncertain, you need public investment and that may be why the finance minister aims such a high ADP. Whether we can implement it and with what quality is a hackneyed question. The IMF condition that bars the use of local component if foreign aid comes slow will also throw a spanner here.
If exports get a beating because of the continued depression, that would have a big effect on the GDP. This is more so because our economy is 25 percent export dependent.
Reining in inflation can any time go haywire when international market heats up or the grip on credit loosens. Today's high inflation is an outcome of loose monetary management and in election years, how restrained the Bangladesh Bank can be is a question. The IMF condition that any increase in energy price will have to be passed through will also have immediate inflationary pressure.
But then a major challenge that Muhith will face is how he will arrange financing in view of the huge subsidy requirement. He is aiming for a big growth in revenue on top of impressive growth over the last two years. The challenge here becomes all the more stiff.
And if he cannot synchronise his subsidy and financing many apple carts will be toppled.
