Trapped In Contradiction

Contradiction in stated policy May make the things messy.

Some recent decisions divulged the anomalies in pursuing the ongoing economic policy. Funding crisis has become acute as new commitment for budget support has dried up. So govt indulges in monetary fiscal expansion instead of pursuing the tightening policy.

Funding crisis led the govt to slash Tk 490 billion from the development budget. It is in line with the fiscal tightening policy, which complements the contractionary monetary policy.

But the Bangladesh Bank is unable to stay strict in its stated policy. In the latest move, it decided to print and inject Tk 20 billion into two trouble-ridden banks. The money will ease the liquidity crisis of the banks during this festival month of Ramzan when the clients need cash to spend. Earlier in November last year , it had printed and provided Tk 220 billion to some troubled banks. Later it also injected another Tk 125 billion into six more banks on the eve of new year. In total, this govt printed and injected Tk 345 billion into banking system since it took power.

Another news also divulges that govt is also mulling to "revisit" the corporate tax. The decision may further relax the corporate tax amid a revenue shortfall. This is happening when revenue deficit is widening. Instead of focusing more on direct tax revenue, the stand is similar to fiscal expansion. The IMF's revised revenue target for current fiscal year is Tk 4.55 trillion, which is unlikely to be met during the rest of the fiscal year.

Meanwhile, the National Board of Revenue (NBR) is determined to separate the policy department from the implementation department by July. It is one of the IMF's goals to get the next instalment.

Moody's downgrading of Bangladesh's credit rating from B1 to B2 makes foreign credit costly for the private sector. So govt has to take the next instalment of IMF credit package, scheduled to be released in June, to meet the budget deficit and provide the liquidity support to the private sector.

Contradiction in govt's stated policy is not convincing everyone about govt's ability to contain the inflation. That is why Moody's is projecting an inflation rate over 9.52% around the year. This is indeed a bad news as fixing the economy is the main reason why the govt is here. Yet the policies worsen the situation instead of improving it.