A local think-tank Saturday questioned the justification behind setting the economic growth target for the upcoming fiscal at 8.2 per cent. In a virtual post-budget analysis on Saturday, South Asian Network on Economic Modeling (SANEM) said export and remittance, the two major pillars of the economy, have already been affected by the coronavirus pandemic, and such unexpected reality is likely to prevail in the coming days also.
Simultaneously, higher deficit projection coupled with poor revenue earning activities will undoubtedly put abnormal pressure on the struggling banking system, thus further squeezing the available sources of formal credit to the private sector. The government’s goal of doubling private investment as percentage of gross domestic product or GDP, in fiscal year 2020-21 is unrealistic as it seeks to raise the private investment to GDP ratio to 25.3 per cent from the outgoing fiscal’s 2.7 per cent trajectory.
Taking the coronavirus effects into consideration, the government for FY2020 has slashed the investment-GDP ratio estimates to 12.7 per cent from its earlier projection of 24.2 per cent. But the new private investment target in the next fiscal is like daydreaming when the global economy is set to dive into the deepest recession after the World War-II.
It’s obvious to all that certain provisions in the budget indicate inconsistencies in facts and data. This should be dealt cautiously, as incorrect assessment can lead to over-confidence and wrong policy choice. The budget has not addressed the existing mismanagement, corruption, and institutional weaknesses in health sector. Besides, the government skipped the issues concerning availability and accessibility of Covid-19 vaccines.
The Finance Minister’s policy of spending first and earning later is very interesting as though it may slightly stimulate growth its impossible that the rate will be at 8 per cent. Expansionary fiscal and monetary policies may stimulate growth slightly in the short term but the methods of doing so –spending on big projects and printing money, comes at a cost.
In the long term the nation will be saddled with both higher levels of debt while experiencing high levels of inflation if the policies are not fine tuned. We have been unable to contain Covid-19 — it seems highly unlikely that we will be able to contain the damaging effects of a worldwide recession. After all Bangladesh is not in the same low economic position as it was in 2008 — stimulating growth now is a much harder task than it was then.
