Bangladesh should opt for expansionary fiscal policy

Industry Desk: Centre for Policy Dialogue (CPD) yesterdaysuggested the government opt for a focused and targeted expansionary fiscal policy reinforced by accommodative monetary policy.
“Given the current context, a targeted flow of fiscal resources towards the more vulnerable households alongside the relatively small (and informal) enterprises will generate more ‘aggregate domestic demand augmenting’ effect and offer some protection to the marginalised groups,” reads a report prepared under CPD’s Independent Review of Bangladesh’s Development (IRBD). It also urged the government for a downward adjustment of diesel price in order to decrease tillage, irrigation and transportation costs so that production cost is reduced.
The civil society think-tank shared its findings at a media briefing on “State of the Bangladesh Economy in FY2021-22 first reading”.
According to the titular report, the credit uptake growth is still below the government’s monetary target of 14.8% and the central bank should not be seen as crowding out the private sector from the credit market.
CPD advised to retain the 2% cash incentive on inward remittance and encourage investment in wage earners’ bonds to dissuade the transfer of money through informal channels.
The report reviewed the performance of key macroeconomic variables for the early months of the ongoing fiscal year.
According to CPD, trends of key macroeconomic correlates during the early months of FY22 show that many of them are in a recovery trajectory led by export-oriented sectors.
However, macroeconomic stability is not in a comfortable state anymore, their report said.
CPD IRBD team also observed that policy space for tackling the prevailing and emerging challenges has become comparatively limited.
“Since the pandemic is still not over and the resultant fallouts are still vivid, the Bangladesh economy will require a recovery package 2.0,” reads the CPD report.
It recommended ensuring execution of unfinished support agendas such as loans to smaller entrepreneurs and fuller implementation of programmed social protection programmes by the government.
Alongside, CPD urged for more reforms in the capital market listing to bring more big corporates and Small and Medium Enterprises (SMEs) to the market.
However, ensuring proper governance or management of enterprises mainly SMEs is a critical issue to address.
The report also advised Bangladesh Security Exchange Commission and Bangladesh Bank not to encourage banks to invest in the market for short term gain.