– Dr. Atiur Rahman*
We are witnessing a national endeavor to revamp the state. These efforts are obviously stemming from the desire of the youth for positive change. Apparently, the majority of the population is supporting this noble venture. Yet, as a professional economist, I feel the need for an objective evaluation of the macroeconomic realities that we are facing. The rapid changes that are taking place are surely affecting our economy. The internet being disconnected, seaport operations being stalled, factories remaining shutdown, transport systems being disrupted, etc. have surely disrupted our supply chains. These have added to the pressure that was already there due to high imported inflation. One can surely feel optimistic about overcoming these hurdles as we have multiple eminent economists in the newly formed interim government. Yet we cannot deny that the restlessness that is bound to follow major changes are still visible.
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There is no alternative to creating an enabling business environment for potent economic recovery. Combined efforts from all stakeholders will be required to restore business confidence. Hence, maintaining social stability is of utmost importance. Given this context, the policy directives coming from the experienced and globally acclaimed economists in the interim government appear to be reassuring and realistic. Over the last year or so, we have repeatedly pointed out that under the prevailing circumstances, the policymakers ought to focus more on maintaining economic stability instead of burdening themselves with maintaining economic growth. We have also suggested curtailing public expenditure if needed. The need to create adequate employment has also been pointed out repeatedly. Therefore, we feel reassured that the newly appointed Planning Advisor has committed to prioritizing creating employment above growth rates. We must not forget that 40 percent of the 14 to 25 years old population are neither employed nor enrolled in education or training. That is, they are truly unemployed. They are most likely to be frustrated and agitated. If these young citizens are not effectively engaged in economic activities- not only desired economic transformation will be stalled, but also all the achievements of the hardworking people of Bangladesh are likely to be threatened.
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The policymakers must also remain confident about the resilience of our economy. We have inferred time and again that in terms of loan-GDP ratio- Bangladesh remains in a relatively safer zone. The country has a commendable track record of paying its international debts. Therefore, the challenge is not so much about Bangladesh getting (or not getting) the loans. Rather it is more about effectively using the loans. When reviewing the National Budget for FY 2024-25, we inferred that ensuring effective and efficient use of the credit available will be the most important challenge when implementing this budget. We are happy to see the Finance Advisor of the interim government has echoed the same line of thought. He has also emphasized rationalizing public expenditure.
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The words from the new Governor of the Central Bank have also reassured us. He is a professional economist who has ample experience of working with international development partners. His works and writings have also been reflecting his ability to potently analyze the macroeconomic challenges and ways forward for Bangladesh. I, when working with him, have found him to be an economist with a realistic vision. Additionally, when working as the Chairman of a reputed financial institution like the Brac Bank PLC, he has been able to closely observe the strengths and innovations of the small and medium entrepreneurs of the country. For quite a while, we have been urging the decision-makers to strengthen the inter-bank forex market to bring about stability in the foreign exchange market. Therefore, the new Governor’s initiative to allow a 2.5 percent band or margin in the inter-bank forex market appears to be a timely move (it was 1 percent previously). He has also opted not to revoke any of the financial incentives being given to the businesses. This will surely contribute to the desired economic recovery. It is also most likely that the Central Bank will remove the BDT 1 crore ceiling on investments for wage earners’ bonds. In that case, long-term big-ticket remittances will also start flowing along with the usual small-ticket ones. The Governor has also iterated his intention to maintain the contractionary monetary policy for the time being. This is a requisite for curbing the prevailing high inflation. It appears that the new Governor intends to avoid the populist traps and remain realistic.
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What we must not forget is that the country is going through a very tumultuous time. Therefore, we must not create any undue pressure on the policymakers. Instead, we must continue to support ‘slow and steady’ policy moves. The policymakers, in return, must also remain vigilant in communicating the need for prioritizing social and economic stability over populistic measures. Some key policy directives that require wholehearted support from all the stakeholders are given below:
- The Planning Advisor’s commitment to rationalize public expenditure must be realized. However, caution needs to be ensured so that business environment and employment creation is not hampered. The different development projects need to be prudently prioritized. To do so, a national level monitoring and reviewing committee may be formed with the right set of experts.
- Budget allocations for social sectors (e.g., education, health, social security) should be revisited. Given the current tumultuous context, the marginal segments of society need to be protected through appropriate investments in social sectors. Special allocations are required to ensure relief and rehabilitation of the people affected by this latest flood.
- There is no alternative to market-based solutions for maintaining stability in the forex market. Proper monitoring should be ensured through engaging all the stakeholders. The Central Bank Governor’s efforts to ensure good governance in the banking sector must be supported by one and all.
- Flow of remittance must be maintained. If required, new incentives should be introduced to bolster this flow.
- Finally, we must acknowledge the agriculture sector’s role as the vanguard of our macroeconomy and continue to protect and incentivize this sector.
*The writer is an Emeritus Professor of the University of Dhaka and former Governor of Bangladesh Bank.
