Issue 21

May 2024

As the discourse surrounding the impending National Budget for FY 2025 intensifies, the articles featured in this issue of Policy Insights provide an insightful exploration of the nation’s economic trajectory. Beyond the conventional focus on budgetary figures, these contributions delve into the complexities and hurdles inherent in restoring macroeconomic stability and charting a course towards sustainable growth.

The cover article outlines a strategy for fiscal rectitude, advocating for a reduction in the fiscal deficit to a prudent range of 2-3% of GDP. Through meticulous tax reforms, bolstering the finances of state-owned enterprises, targeted subsidy reductions, and a strategic realignment of expenditure towards social imperatives, the article articulates a vision of fiscal stewardship aimed at fostering macroeconomic stability while sowing the seeds of growth and prioritising poverty alleviation.

Article 2 emphasises the necessity for judicious trade policy directions in Bangladesh’s forthcoming FY2025 budget to address two pivotal challenges: diversifying exports beyond the Ready-Made Garment sector through tariff rationalisation to mitigate anti-export bias, and mitigating persistently high inflation stemming from exchange rate pass-through effects. The article posits that strategic tariff measures within the budget could effectively tackle both issues while aligning with impending Least Developed Country (LDC) graduation requirements.

A cross-country comparison reveals that while numerous nations managed to mitigate inflationary pressures at an early stage, Bangladesh grappled with persistently high inflation. The third article in this issue delves into this matter, critiquing Bangladesh Bank’s initial reluctance to tighten monetary policy. Given Bangladesh’s enduring inflationary challenge, the article advocates for a resolute embrace of tighter monetary reins, complemented by judicious fiscal consolidation and exchange rate harmonisation, heralding a call to reclaim the narrative of economic prudence and stability.

Similarly, Article 4 underscores the urgency of addressing distressed portfolios within the banking sector. It emphasises that tackling this ailment is not solely a matter of ensuring banking sector’s discipline but a critical prerequisite for cultivating an environment conducive to investment and economic resurgence.

Finally, Article 5 reiterates the imperative for swift and decisive action in mitigating inflationary pressures, which disproportionately burden the economically vulnerable. Attributing inflation primarily to the exchange rate pass-through effect stemming from significant taka depreciation, the article envisions strategic tariff modifications as a means to harmoniously align economic imperatives aimed at curbing inflationary pressures while bolstering export competitiveness.

In this nuanced examination of fiscal prudence and macroeconomic stability, the articles presented herein offer valuable insights and prescriptions essential for informed policy deliberations surrounding the FY 2025 National Budget.