The government has imposed restrictions on land acquisition but withdrew the suspension of funds for less important development projects while revising the austerity strategy adopted a year ago amid a shortage of dollars and hikes in prices of essentials.
According to economists, the government was apparently forced to retract the suspension of fund allocation for low-priority development projects because of the pressure from ministries and divisions in the year of the general election.
‘The provision should continue to prevent the fund flow to the unnecessary projects in order to curb inflation,’ said executive director Selim Raihan of the South Asian Network on Economic Modeling.
He doubted that the austerity measures were followed properly as there was no improvement in economic downturn in the past one year despite a lot of talks by the government policymakers.
The Bangladesh Bureau of Statistics recorded 9.94 per cent inflation in May, a record high in the past one decade and also higher than the 9.5 per cent inflation recorded in August 2022.
The shortage of dollars has, meanwhile, deepened as the foreign currency reserve has depleted by around $10 billion in the past 12 months because the austerity steps have hardly contributed to improving the country’s macroeconomic situation.
Besides, the flow from the lenders as budget support has increased recently, but that was not enough to halt the economic slide and restore the spending power of the new poor, sandwiched between the Covid-induced hardship and the current economic downturn, said economists.
Classifying the development projects into three categories, the Finance Division had suspended the allocation of funds for the less important projects under Category C.
But the provision has been dropped in the revised strategy although almost all other cost-cutting steps, including the ban on foreign tours of government officials and the restriction on the use of fuel oils and power, have been retained as per a statutory regulatory order issued by the Finance Division on Sunday within 48 hours of the beginning of FY24.
According to Finance Division officials, it has been made mandatory for the ministries and divisions from now on to receive prior approval from the finance ministry for the acquisition of land under the development budget as per the new austerity strategy.
The Finance Division has, however, imposed a total ban on the acquisition of land under the operating budget.
It has also retained steps such as a maximum 75 per cent fund use by the ministries, divisions and others bodies, the budgetary allocation for electricity, and a maximum 80 per cent use of the fund for fuel oils.
The suspension of fund for public housing has also been retained.
Besides, the Finance Division retained the suspension on the procurement of new vehicles, vessels and aircraft under the operating budget with a provision for replacing 10-year-old vehicles with consent from the finance ministry.
But such provisions will not be applicable to the Annual Development Programme budget, said the statutory regulatory order, adding that the suspension on foreign tours by government officials with some relaxations for very special cases have also been kept.
Finance minister AHM Mustafa Kamal, while announcing the FY24 budget on June 1 in the parliament, said that the austerity strategy helped reduce expenditure in some sectors in FY23, but the subsidy and interest expenditure went up.
‘The increased subsidy and interest expenditure and a part of the accumulated subsidy arrears are being met from the fiscal buffer created through austerity measures,’ he said.
Economists, however, noted that the finance minister did not explicitly elaborate the impact of the austerity strategy, highlighting its importance by quantifying the overall savings with breakup in his budget speech for the benefit of the people, especially the poor.
Former economics department chair MM Akash at Dhaka University said that the fuel price hike by 50 per cent for availing credit from the International Monetary Fund had deepened the economic woes of the poor after the Covid pandemic.
Withdrawing the fund suspension for less important projects will be effective only when those would be targeted to generate employment and help new poor, he said.
Growth-centric projects will not bring any good to the current economic predicament, he added.
The Covid pandemic has pushed up the poverty level in the capital, with the new poor accounting for 51 per cent of the city’s poor people, said a study released by the Bangladesh Institute of Development Studies in May 2023.
The study, conducted between 2019 and 2022, also said that self-employment played a major role in reducing poverty in the post-Covid period.
