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Budget FY2024-25 : Curbing inflation, achieving GDP growth targets unrealistic: SANEM

Budget FY2024-25 : Curbing inflation, achieving GDP growth targets unrealistic: SANEM

Staff Correspondent

The government's target of reducing inflation to 6.5% and achieving 6.75% gross domestic product (GDP) growth as set in the proposed national budget for the FY2024-25 is blatantly unrealistic.

South Asian Network on Economic Modeling (SANEM) came up with the observation during a post-budget press conference held at BRAC centre in Mohakhalia area of Dhaka on Saturday.

With a visionary target to control inflation, Finance Minister Abul Hassan Mahmood Ali unveiled a proposed national budget of Tk7.97 lakh crore for the fiscal year 2024-25 on Thursday.

In the proposed national budget, the finance minister set a target of reducing inflation to 6.5%, despite it averaging more than 9% over the past two years.

Besides, achieving 6.75% gross domestic product (GDP) growth has been fixed in the proposed budget which is much higher than the current estimate of 5.8% for the current fiscal year.

“Controlling inflation will be the biggest challenge for the government,” Sayema Haque Bidisha, research director of SANEM, said.

Regarding the inability to reduce inflation, SANEM Executive Director Dr. Selim Raihan said that the conventional method of reducing inflation, for example, monetary policy, is not fully effective in reducing inflation.

When it was realised that the fixed interest rate policy such as the 9/6 policy, was not effective efforts were made to adopt market-based interest rates. However, even with this method, it is not possible to control inflation, Raihan, also a Prof of Economics at Dhaka University, said.

He said One reason is that the policy was taken too late. The main reason for adopting a contractionary monetary policy is to reduce overall demand.

However, due to the delayed adoption of the policy, it had diminished effectiveness. At this moment, further changes in interest rates would collapse the financial sector.

Therefore, the effectiveness of raising interest rates was lost due to not adopting the policy at the right time.

Another question remains, how realistic are the measures taken for private sector investment? There are coordination issues with our financial and monetary policies.

Unjustifiable price hikes are suddenly imposed in the market. Even after such anti-competitive actions, no measures are taken. Although the budget's intention is good, there is no coordination, he said.

The second point is that where emphasis was needed on direct tax collection, more emphasis has been placed on indirect taxes because it is comparatively easier to do so.

"On the other hand, if we cannot collect taxes from the ultra-wealthy, then the tax will not be fair. We strongly condemn the 15% tax on whitening black money. Specific measures should be taken and we hope that this will be removed in the revised budget," he said.

There has been a significant shock in the macroeconomic balance and it has not yet stabilized.

"In the future, our debt burden will increase. The mega projects undertaken with loans need proper evaluation. The loan repayment period is also short. However, we have to repay the loans in foreign currency," he said.

On the other hand, the amount of defaulted loans in banks is increasing. Why can't we take measures against them? The Perspective Plan, the Eighth Five-Year Plan, does not seem to align with the budget.

The government seems to be contradicting itself. He questions why the budget for the health and education ministries has not increased even after so many years.

“Our pathway for transitioning to renewable energy in the energy sector is not yet specific in the budget,” he said the renowned econom

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