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Issue 16

September 2022

Bangladesh faces two critical longer term development challenges— staying on course the growth path set out in Perspective Plan 2041 and tackling income inequality. In the short term, however, there are several sources of macroeconomic strains including inflationary pressures, unfavourable balance of payments and weak fiscal situations. The cover article in this issue of the Policy Insights underscores the significance of the Budget for FY22-23 in addressing current macroeconomic situations, highlighting the use of a set of three policy instruments that best relate to the each of the sources: monetary policy instruments to deal with the inflationary pressure; exchange rate policy to address the balance of payments difficulties; and tax/expenditure policy measures to ease the budgetary pressures. 

 Apart from discussing Budget FY 23’s success in mitigating the macroeconomic challenges, several articles also highlight the areas that have not been adequately prioritised and left unattended in the national budget discourse. One such article focuses on the concentration of government expenditure in the central government, posing the question if Bangladesh can sustain its developmental efforts without decentralising. It recommends the GoB to learn from the successful experiences of its East Asian counterparts. 

Another article discusses how the completion of the Padma Bridge can help in addressing the existing regional disparity. However, substantial investments in the promotion of cluster economies, SEZs, tourism industry among other measures are required to increase FDI and prevent further centralisation of the economy. Another article brings to attention the challenge of rising inequality in Bangladesh. It suggests that the main solution to this persistent issue of the market economy is government intervention to re-balance the initial shortcomings of the poor, low-income and vulnerable population through redistributive fiscal policy mechanisms. Another article in this issue deliberates the crucial role of remittances as the largest source of foreign earnings and how remittance earnings should be classified as export of factor services to recognise the contribution of migrant workers.

Bangladesh’s growth has been private sector led and it is paramount that the government plays its part through prudent and sound policymaking to ensure an environment which is conducive for businesses to grow and create jobs. An article in this issue discusses whether the FY22-23 Budget will be beneficial for the private sector with a keen eye on the digital economy sector.

Bangladesh has made remarkable economic progress since its independence and has shown great resilience against macroeconomic challenges of the past. Navigating around the emerging macroeconomic challenges while also being on the growth trajectory set out in Vision 2041 is however a daunting task that will require proactive and judicious policies. An article in this edition assesses the efficacy of FY23 Budget in addressing the emerging issues and discusses how it missed out on the opportunity to reduce tariffs and the consequent nominal protection rates, which could have eased the inflationary pressure on the economy.