While presiding over the meeting of the National Economic Council of Bangladesh on 17th May 2022, the Prime Minister of Bangladesh advised the ministries and divisions not to splurge at the time of implementing development projects and not to spend unnecessarily.

She emphasized implementing only those projects, which are urgent and shelving low-priority works for now so that the country’s economy does not face the pressure mostly stemming from the international crisis.

This directive is not an issue singly spoken, it is a continuation of several other policy directives and orders from the head of the government to address the COVID-hit economic crisis.

Policy initiatives include restrictions on foreign study tours of government officials, employees of autonomous bodies, state-owned banks, and the Central Bank of Bangladesh; imposing import tax on luxury items, reducing the expenditure on the development budget, power saving and so on. 

According to the orders, government employees are not allowed to attend training, study tours, seminars, workshops, or conferences with the coffers. It is expected to save huge money and utilize it for the country’s development.

During the last fiscal year 2020-2021 when the first COVID-19 hit, about 25000 million Taka was saved by postponing foreign tours of government officials.

However, economists suggest giving to the banks to decide based on the open market instead of a fixed rate. Primarily, the depreciation of the taka resulted in increasing the dollars because of higher remittance inflow, which again started decreasing in the next month.

The finance division of the Finance Ministry and Bangladesh Bank are jointly working for restricting foreign training programs.

In order to save dollars and increase foreign currency reserves, Bangladesh Bank issued an order that employees of banks and non-bank financial institutions will not be able to travel abroad.

The notice instructed to refrain from releasing foreign exchanges on account of registration or participation fee for attending training, seminar, and workshop abroad.

This will also restrict paying training fees in foreign exchange even for an online program. According to the present rules, foreign exchange currency can be disbursed for officers of public, autonomous/semi-autonomous organizations, employees of the bank and financial institutions, members of banking training institutes, companies register and operated in Bangladesh, farms, institutes, employees of NGOs to attend training, seminars and workshops.

The ultimate purpose of restrictive policy initiatives is to save money, and increase the forex reserve. It is noted that the country’s reserve went down to USD39.70 billion from a record hit of USD48 even after taking several significant initiatives. Continuous depletion of reserves influenced the government to undertake noticeable initiatives to address the COVID-hit economy. 

Stopping foreign tours of government officials

 Usually, a good number of government employees are sent abroad to attend training programs. As a process of saving the coffers, dollars, in particular, the government has restricted foreign tours of all level government officials.

To increase the forex and reduce costs, this declaration came before the budget. The restriction is not only for government officials but also applicable to different dignitaries to stop unnecessary spending.

All other government officials depending on their salary grades and visiting countries and regions can get daily hotel rent of USD116-280 and a cash allowance of USD 64-10.

Amassing this daily allowance, a ten-day foreign trip requires between USD1800 and USD6870. In addition to the daily allowances, every traveler is entitled to get a round-trip air ticket of either business or economy class depending on the designation.

Some training programs also require a fee in addition to airfare and daily allowance. Usually developed countries, which are expensive, are the trends of recent times for such visits. 

According to the government order, the speaker of parliament and the chief justice get hotel rent of USD 393-560 and a cash allowance of USD 101-127 daily depending on countries and region while traveling abroad for state work.

The daily hotel rent for ministers, deputy speakers and dignitaries of equal rank is USD 295-420 and the cash allowance is USD 101-127.

Similarly, state ministers, supreme court justices, chief election commissioners, election commissioners, deputy chairman of the planning commission, deputy ministries and other people of the same rank are entitled to get USD 230-312 daily for hotel rent and USD 87-101 as cash allowance. 

Overseas programs are arranged for government officials to acquire knowledge and best practices in different developing nations to utilize those in the country’s development.

Apart from professional development, foreign tours are a motivating factor for government officials to be financially benefited.

If these are stopped there is a possibility of government employees feeling discouraged which may lead to dissatisfaction and eventually lead to poor performance. 

Local Currency devaluation

The Bangladesh Bank, the Central Bank of the country, recently depreciated the taka per USD to encourage the remittance senders because remittance is one of the pillars of the Bangladesh economy.

Moreover, import-cost which is increased in recent times also met up by the dollars. After COVID-19, the export-import gap has been raised that needs to be addressed.

These instructions include no extra money beyond budget can be spent, the money allocated should be spent through austerity in compliance with the prevailing financial and administrative rules of the government and a report along with the cost statement has to be sent to the ministry by 15 July at the end of the fiscal year.

As a result, the central bank of Bangladesh continuously depreciated the taka against dollars, seven times in one year.

However, economists suggest giving to the banks to decide based on the open market instead of a fixed rate. Primarily, the depreciation of the taka resulted in increasing the dollars because of higher remittance inflow, which again started decreasing in the next month.

Moreover, the devaluation of taka increases the import cost, which is higher than the export. As a result export-import gap is still higher and needs special attention.

It is found that taka appreciated after the seventh devaluation once it was given to the open market. However, the Bangladesh Bank is continuously depreciating taka against the dollar amid volatility in the country’s foreign exchange market. 

Tax on luxury items and emphasizing ‘made-in-Bangladesh’ products 

Bracing for the COVID-hit economic crisis is an important and much-talked issue in the budget that the government took the contractionary policy to control inflation and impose a higher tax on luxury items.

The government imposed higher import duty on 135 luxury items such as cars, air-conditioning, cosmetics, flowers, fruits, and furniture.

However, Bangladesh still finds a rising trend in imports overshadowing the export growth. The total value of import letters of credit (LCs) opened from July 2021- May 2022 was USD84.85 billion, which is 43.43% higher than that of the same period of the previous year.

To boost local products and discourage imported goods, the government is likely to impose high taxes on the import of finished goods to benefit the local manufacturers by providing tax benefits on ICT products.

Thus, the imports of raw materials for ICT products would be facilitated through awarding of tax waivers while completely built units of laptops, desktops, printers, etc would have to bear higher import taxes from the fiscal year 2022-2023.

It is believed that an exponential increase in ICT usage would build a big market of local products along with new employment opportunities. 

Power saving and cost reducing 

The country’s electricity entirely depends on rental powers, exported gas and oil to run the power plants. As the Ukraine-Russia war continues for more than four months, the rising oil and gas price severely hampers electricity consumption and its prices.

Because fifty-two percent of the country’s electricity is produced from natural gas whose prices have gone up to an extent because of the Ukraine crisis.

In order to save electricity prices government has taken some initiatives including shortening office hours, not-setting air-conditioners below 25 degrees in offices, reducing the use of air conditioning in religious establishments like mosques, and ending weddings and other social events by 7 pm. 

Although the depletion of the foreign reserve is not a worrying issue at present as the country has a reserve to the minimum three-month import payment, which may be an issue of concern if it goes down.

Since the main target is to save money and stable the market, the government recently circulated an eleven-point declaration of reducing costs in development initiatives at the Upazila level.

The government has instructed the Upazila nirbahi officers, the bureaucrat at the local level, to spend money through austerity, refraining from the propensity of hasty spending at the end of the fiscal year.

These instructions include no extra money beyond budget can be spent, the money allocated should be spent through austerity in compliance with the prevailing financial and administrative rules of the government and a report along with the cost statement has to be sent to the ministry by 15 July at the end of the fiscal year.

Earlier, the government also curbed its expenditure banning fresh vehicle purchases under development projects or revenue in a bid to tackle the surging inflation.

Conclusion

Restriction of foreign tours of government officials, devaluation of taka, cash incentive to remittance, and tax on luxury items contribute to increasing the forex reserve so that Bangladesh can easily meet the demand for imports.

Meanwhile, the government’s policy of increasing export and decreasing imports positively influences the economy to revive.

It is an undenying fact that COVID-19 has impacted the economy, which is further constricted by the Russia-Ukraine war.

The latter has intensified the economic crisis across the world along with more difficulty for developing countries like Bangladesh.

Bracing the COVID-19 and war-hit economy, the country needs to prioritize controlling inflation along with the improvement of the export-import ratio.

Although the depletion of the foreign reserve is not a worrying issue at present as the country has a reserve to the minimum three-month import payment, which may be an issue of concern if it goes down.

Here comes the necessity of a comprehensive economic plan to control and restore the economy by adopting strategic interventions at all levels of budget management.