Swadesh Roy

On May 14, Prime Minister Sheikh Hasina, in a meeting at Ganabhaban with top policymakers from the Ministry of Finance, Bangladesh Bank, and NBR, emphasized the need for an austerity-focused budget to control inflation.

In 2020, during the COVID-19 period, I wrote in a portal suggesting that it might be beneficial to split the budget into two parts. This was because the dynamics of the economy could take on a new shape during the pandemic, and it was necessary to observe such aspects for countries like ours. Additionally, in 2021, I wrote about the need for an austerity-focused budget, as it had become clear that due to the rapid development journeys of several countries, they would purchase a lot more fuel, inevitably driving up fuel prices worldwide.

As fuel prices rise, the economies of smaller countries will invariably face pressure.

Additionally, while revisiting the history of global pandemics during COVID-19 it became evident that industrial and business transformations occur during such times. New economic powers emerge and use various means, including warfare, to gain indirect political power and control businesses across different countries.

Hence, from 2021 onwards, it became clear, not just from economic knowledge but from the history of economics, politics, and pandemics, that the global economy was taking a new turn. Thus, in 2021-22, I wrote about the need for an austerity budget, particularly emphasizing the importance of avoiding unnecessary projects.

Moreover, at that time, there was another looming threat to the domestic economy: the possibility of the general public withdrawing their savings from banks. COVID-19  has reduced job opportunities and business activities for many, prompting them to dip into their savings to manage their households, thereby withdrawing money from banks.

To ensure the strength of banks during this period, I suggested a stricter approach to recovering loans from defaulters.

However, the then-former finance minister took a different path. He significantly expanded the budget and allowed loan defaulters to reschedule their loans with a mere 2% payment, further restricting the recovery of money owed to banks. Concurrently, some economists holding key government positions began writing that COVID-19 had not harmed Bangladesh’s economy. Naturally, journalists like us had no option but to stay silent.

Suddenly, in 2023, those same economists advised the government on various austerity measures, including import restrictions. Regardless of their advice, the government adopted the import restriction policy, and soon, the state of banks and reserves became apparent.

Economists and those holding government positions can explain better, but the history of post-pandemic or post-war economic trends and the analysis of countries that adopted austerity policies from 2020 onwards indicate that if we had adopted austerity measures from 2020, our economy’s health would be better today. We might not have needed such stringent import restrictions, and the state of our reserves could have been healthier. Additionally, the nearly 25% of loans taken up to 2023 could have been better evaluated.

Switching abruptly to strict austerity measures now gives the impression of protecting dollars or reserves, but import restrictions also hinder production. If raw material imports are obstructed, production and exports will decline, reducing foreign currency earnings. Strict austerity measures eventually extend beyond luxury goods and affect raw material imports indirectly, leading to delays in production, which creates significant shortfalls.

Another danger is that a certain class will spend their money abroad. The class that buys luxury goods will buy them abroad when they travel for various reasons. Thus, if austerity policies are confined to imports, a significant drawback remains.

History shows that economists have never fixed a country’s economy. They analyze and explain it later. When the economy is in poor health, politicians or state leaders take responsibility for restoring it, with economists serving as their aides.

The Prime Minister has made two important points before this year’s budget. First, she advised against taking unnecessary projects in an ECNEC meeting. Second, in a meeting with budget formulators, she instructed the creation of an austerity budget.

Hearing about an austerity budget might initially suggest that this year’s budget will be smaller than the previous one. In reality, it will not be smaller because the economy has grown, so the budget will naturally be larger than last year’s. However, it will not be unnecessarily large.

At this moment, a real austerity policy means eliminating certain inconsistencies in the economy. For example, the previous finance minister allowed loan defaulters to hide their funds under the carpet. Bringing out that money will strengthen several financial institutions. Financial institutions are crucial for the economy’s flow right now. Secondly, the Prime Minister has herself advised against taking unnecessary projects. Just as loan defaulters have benefitted from wearing clean clothes at the expense of certain groups, unnecessary projects are also taken for the benefit of certain groups, both inside and outside the government. Deactivating these groups is a condition of a strict budget. A budget is not just an income-expenditure account—it is primarily a state’s governance policy. Additionally, another austerity issue now is to stop the pressure from certain public representatives who take projects out of indiscretion and self-interest. They exert political pressure on the Prime Minister. Is there a need to yield to such pressure? In reality, very few representatives currently have the political power to exert such pressure, as 90% of them wouldn’t have the power to enter parliament without the Prime Minister’s approval. On the other hand, the Prime Minister has repeatedly brought elections through her power. Therefore, without considering these representatives, the current economic crisis needs to be addressed through genuine strictness in this year’s budget formulation and economic policy adoption.

The biggest challenge now is to bring the country out of the economic crisis and ensure it continues on the track it was on.

The author is a nationally awarded journalist and editor, and publisher of Sarakhon and The Present World.