Govt coming out of ambitious budget

Zarif Mahmud: The government has set a target of bringing down the GDP growth to 6.5 percent for the current financial year (2023-24) by cutting down one percent from the apprehension of achievement. Out of ambition to deal with the global and domestic situation, the growth target for the next financial year is also being kept below 7 percent.
In the latest Co-ordination Council meeting on ‘Financial Currency and Currency Exchange Rate’ regarding analysis of the country’s economic situation, it has been estimated that the average growth for the next three fiscal years (2024-25 to 2026-27) will be around 7 percent. The finance department has said that this slowdown in growth has occurred due to various measures taken to control upward inflation.
However, its dynamics will increase in the medium term.
But economists fear the growth target, while realistic and acceptable, will be difficult to achieve. Because investment is the driver of Gross Domestic Product (GDP) growth. Investment is not happening at the desired rate due to various crises. The GDP growth target for the current (2023-24) financial year is 7.5 percent. Which is Tk 50 lakh 6 thousand 872 crores. A large part of this comes from foreign direct investment or FDI. But despite various measures taken by the government to increase FDI, new foreign investment is decreasing. It has been reported that the net foreign investment flow in the financial year 2022-23 was $ 324 crore 96 lakh 80 thousand. But in the previous year i.e. 2021-22 financial year this figure was $343 crore 96 lakh 30 thousand. According to the calculations, the investment decreased by 5.52 percent during the year. Mainly factors like dollar crisis, money laundering and corruption, instability of the economy, suffering in access to services and energy crisis are considered as the main reasons for the decline in foreign investment.
A senior official of Bangladesh Bank involved in this process said that the interest rate has increased in many countries of the world. A large part of the capital is being invested in those countries for good reason. If someone wants to invest here, he has to consider two factors. One of them is currency exchange rate risk, another is investment risk. Because of this capital flows to developed countries where there is no exchange rate risk.
In addition to the mentioned reasons, there is a negative impact on the investors due to various factors including high inflation, increase in bank interest rates. Besides, the finance department feels that the growth of the industrial sector will be negative in the current financial year compared to the previous year. These have had an impact on growth. Due to which the GDP size was revised and brought down to 6.5 percent at the end of the current financial year. Tk 50 lakh 24 thousand 817 crores has been fixed in the sum. Although the World Bank has further reduced, Bangladesh’s growth in the current financial year may be 5.6 percent.
Meanwhile, Finance Minister Abul Hassan Mahmud Ali has approved the estimated growth targets for the next three financial years in the government’s ‘Coordination Council on Fiscal Currency and Currency Exchange Rate’ meeting. There is 6.75 percent for the fiscal year 2024-25, amounting to Tk 55 lakh 97 thousand 414 crores. It will be announced in the next budget. Apart from this, a growth target of 7 percent for the fiscal year 2025-26 and 7.25 percent for the fiscal year 2026-27 has been set.
In that meeting, the finance department highlighted some logical reasons for achieving this growth. It said that despite the overall decline in demand, the global economy, stability of export and remittance source countries, and expected growth in food production. Apart from this, due to improvement in export, remittance income and import situation and development by increasing supply through implementation of Fast Track project, the growth trend of the current financial year will continue, it will increase gradually in the medium term.
If asked, the former caretaker government’s finance advisor ABM Mirza Azizul Islam told that the situation of expulsion is not satisfactory. There is no growth in remittances and exports. So, they are playing a significant role in our economy. Besides, investment in the private sector is not increasing due to various reasons. Credit flow to the private sector is decreasing due to banking sector problems. Imports of raw materials, primary products and capital components from abroad are decreasing to a large extent. It is clear that the investment is decreasing. As a result, the revised growth in the current financial year is relatively realistic. Regarding the draft growth target for the next fiscal year as well, he said, I think that is also very ambitious. Because of the current dollar crisis, exports and private sector investment are declining. As a result, the new targets will be acceptable but not achieved.
A finance department observation on growth says global growth is forecast to be 3.1 per cent in 2022-23, 3.1 per cent in 2023-24 and 3.2 per cent in 2024-25. Mainly in 2022, the inflationary situation emerged globally. To deal with that, if most countries in the world increase the policy interest rate, the growth slows down. However, inflation has already decreased in many countries. As a result, the growth trend is likely to remain stable in the medium term. Growth in emerging and developing countries in particular will remain above 4 percent in the medium term. Besides, the economic growth rate of emerging and developing countries in Asia will be close to 5 percent.
In that meeting, Finance Secretary Md. Khairuzzaman Majumder said that Bangladesh is returning to the trend of high growth through efficient economic management during the corona epidemic as a result of various measures taken by the government. In the fiscal year 2022-23, the growth rate is 5.78 percent, but its pace will increase gradually in the medium term. Besides, the production of Aman and Boro rice will continue to rise in the current financial year. It will help in achieving growth.