Dr Debapriya Bhattacharya, distinguished fellow at the Centre for Policy Dialogue (CPD), urged the government to review and reform the subsidy structure to encourage "good subsidies", eliminating the bad ones.
He advocated for enough subsidies in fertiliser, fuel and electricity generation to ensure food security through uninterrupted agricultural production and keeping commodity prices in control by reducing production cost in industry.
He also recommended withdrawing subsidies for capacity charges for underutilised power generation capacity.
In a virtual conversation with the media on Thursday, the economist proposed formulating a transitional policy to help the economy recover from the crisis and meet the challenges raised both at home and abroad.
Debapriya said all of the assumptions for the national budget of the current fiscal year and medium-term framework numbers are gradually becoming irrelevant.
Various uncertainties of the economy would not come under control in a single year and it may take up to 2024 for Bangladesh to come out of the crisis, he said, adding that a policy package for stabilisation and consolidation of the economy for 2-3 years was required.
Presenting a paper titled "Overcoming the Current Economic Challenges – Towards a Transitional Policy Understanding", Debapriya said an immediate consultative and participatory package is required to stabilise the macro economy, sustain production and employment, and protect vulnerable groups.
Participation of political leaders, public representatives, economists and policy makers should be ensured in the process to protect the economy from possible political distractions in the future.
Debapriya highlighted the glaring lack of discussion within the government during the crisis period.
"Where is the permanent committee? Where is the discussion among them?" he asked, saying the government should not exist only in name and instead work towards gathering public trust and credibility, but the people did not trust the government thus necessitating discussions.
Analysing the current crisis and future challenges of the economy, Dr Debapriya, also a public policy analyst, said external shock is blamed for the current discomfort in the economy, but it is just a symptom of the crisis.
"The real villain behind the crisis is weakness in the fiscal and monetary sector led by lack of reforms year after year," he said.
Pointing out that the revenue share in the gross domestic product (GDP) did not go up more than 10% in the last decade and share of income and asset tax in total revenue had also stagnated at around 30%, he said the government was increasingly relying on borrowing from banks to fund the budget deficit.
Credit growth of the government had been higher than that of the private sector last April and May, he said.
The macroeconomic stability was under high stress, particularly due to inflationary pressure and pressure on the exchange rate. At the same time, the global economy's prospects in terms of commodity price rise, supply chain disruptions, logistics and transportation costs were also murky.
"Since then, all these three features have become more relevant," said Debapriya.
He said the finance minister rightly identified six challenges during his budget speech, but there was no proper initiative to meet those challenges, making those even more difficult.
On subsidies and transfers, he said those had reached 6.4% of total public expenditure in the fiscal year (FY) 2023 from 2.7% in FY18. Furthermore, allocation for total subsidy increased by nearly 54.0% in the budget FY23 compared to FY22, mainly increasing by 33.3% for fertiliser and 50% for electricity. But the government failed to bear the burden of subsidy either due to its increasing volume or reduction in the fiscal space.
Despite the government attempting to reduce the subsidy burden in the fuel sector through a 50% price hike of fuel, Tk16,785 crore was given in capacity charges to power plants in the first nine months of the last year for 22,118 megawatts daily power generation capacity.
Speaking on the occasion, he said the government had to reduce subsidies to deal with the crisis in the financial sector at a time when more subsidies were needed to protect the poor from inflation.
The economist argued that if government revenue was reasonable, then the subsidy could have been adjusted without needed reductions.
In the virtual conversation, Debapriya said one of the reasons why there was so much discussion about the external sector was because of the availability of more information on it. For the financial sector, however, there was a comparative dearth in data.
He pointed out that the government expenditure accounts for the month of May are still not available, nor are the tax collection accounts for the month of June.
For this reason, there was not much discussion about the financial aspect, although a lot more discussion was geared towards the foreign sector.
Commenting that the current financial structure and spending capacity were not in line with the path of high economic growth, he said the government is now looking for financial resources and reducing subsidies.
Debapriya said the entire situation cannot be completely solved by the steps taken by the government to save costs. Coordinated action is needed alongside increasing tax collection and getting more assistance from the World Bank, the International Monetary Fund and other foreign sources.
Regarding the increase in the price of energy, he said, at the moment such a price increase was bad for the economy as it had been done without proper consideration.
"I do not see any role of the Energy Regulatory Commission in setting the price. The government is not giving any clear message about the losses that are being talked about and the previous surpluses. There is no transparency at all. If there was a functioning parliament, if a parliamentarian raised a question, the minister would have to answer," he said.