CPD stresses expediting government spending for recovery

Staff Correspondent | Published: 17:23, Feb 15,2021 | Updated: 23:38, Feb 15,2021


Centre for Policy Dialogue on Monday stressed the need for expediting government expenditure to stimulate domestic demand and ensure sustainable economic recovery from the COVID-19 fallout.

The independent think-tank termed the country’s ongoing recovery process uneven as large industries were recovering at a faster pace while small and medium enterprises were falling behind.

The economy requires a second round of stimulus packages that would prioritise the small and medium enterprises and focus on employment to attain a sustainable recovery, CPD said at a virtual press briefing held on the day.

The research organisation organised the briefing to present its review on the state of the Bangladesh economy in the 2020-2021.

‘If necessary, the government should take loans, preferably from low-cost foreign sources, to increase its expenditure to stimulate domestic demand and private investment and ensure sustainable recovery,’ CPD distinguished fellow Mustafizur Rahman said.

The country’s banking system also has surplus liquidity of more than Tk 2 lakh crore.

Lower levels of public investment will put negative impact on sustainable recovery, he said, adding that higher public expenditure will increase demand for goods and services, create new jobs and attract private investment.

In the analysis, the CPD said that macroeconomic stability was maintained to a large extent during the first half of FY21 as was reflected through a surplus budget, declining aggregate inflation, overall surplus in the balance of payments and stable exchange rate.

Mustafiz said that macroeconomic stability might also be maintained in the next six months.

‘But we don’t want such low level equilibrium as the country needs high-growth stability and sustainable recovery,’ he said.

The CPD also said that an expansionary fiscal policy was not in place, in contradiction with global practice, as total public expenditure dropped by 12.9 per cent year-on-year in July-October of FY21.

Only 24.3 per cent of the total annual development programme was spent in the July-December period of FY21 and the implementation status of eight mega projects remained much lower.

There is even a budget surplus which is unusual at a time of crisis due to higher falls in public expenditure, it said.

CPD senior research fellow Towfiqul Islam Khan made a presentation on the review.

He said that it seemed that the country’s economic recovery was following the K-shaped model where a segment of the economy pulls out of a recession while others stagnate.

In the K-shaped recovery, stimulus packages and liquidity support help large industries and public organisations recover at a faster pace while the SMEs lag behind and Bangladesh is likely to follow a similar shape, he said.

He said that the smaller firms, people belonging to the low-income category and the poor in general had been affected disproportionately and have not received adequate government support.

Slow recovery of the SMEs, which are important sources of employment, could lead to further rise in inequality and jeopardise the sustainability of the recovery, he said.

The CPD recommended that the budget for FY21 should be revised at the earliest for mid-course correction and public expenditure priorities should be revisited and adjusted accordingly to meet the immediate needs in view of the COVID-19 outbreak.

It also suggested that the weak and poorlygoverned commercial banks should not be allowed to provide COVID-19 related support packages.

CPD executive director Fahmida Khatun and research director Khondaker Golam Moazzem also spoke at the programme.

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