In the first budget of the new government, plans are in place to eliminate tax exemptions in several sectors. Additionally, following recommendations from the International Monetary Fund (IMF), some tax exemptions may be cut or removed entirely. To boost revenue, there may also be increases in tax and VAT rates.
Finance Minister Abul Hassan Mahmood Ali is scheduled to present a proposed Tk7,96,900 crore national budget for FY25 in parliament on Thursday. This will mark the country’s 53rd budget and the 25th presented by the Awami League (AL) government over six terms. It will also be the first budget for the current Finance Minister.
However, the proposed budget is expected to have a deficit of Tk2,57,000 crore, grants included.
This deficit means that balancing government spending with lower revenue will ultimately affect the general public. With the rising cost of daily essentials, especially around budget day, the middle and low income brackets are already feeling anxious about the upcoming budget announcement.
Shakil Ahmed, a private sector employee, told Dhaka Tribune that: "We have been suffering from price hikes due to inflation since Covid-19. The prices of everything have increased so much that I am barely surviving. But now prices have gone up even further because of the budget, shops raise prices every year like this. After the budget, prices will go up once again."
The only request to the government is that daily essentials should be within the purchasing power of the masses, he added.
Faruque Ahmad, a small local grocery shop owner in Mohammadpur, said that as prices of goods are increasing, the profit margin of the business has decreased a lot. Goods have to be bought with more money, but due to the increased prices, buyers are not buying as much. They are forced to reduce the quantity.
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Economists predict that those already struggling with high inflation will face more pressure. They emphasize that the main challenge will be regaining macroeconomic stability, which includes curbing inflation, increasing tax revenue, mobilizing resources, managing debt, improving financial sector governance, and maintaining social safety net programs. These issues have been persistent since the Covid-19 pandemic.
Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), told Dhaka Tribune that reducing inflation was a key goal in the current government's election manifesto. While some measures have been taken, Rahman highlighted ongoing concerns.
He said that Bangladesh is going through a tough time, experiencing two years of inflationary pressure that impacted the lower and fixed-income groups severely.
Rahman emphasized the need for a balanced budget that aligns income and expenditure, suggesting that the government should ease the burden on the public by adjusting duties, taxes, and VAT on daily essentials. He also stressed the importance of creating decent employment by increasing private investment, while ensuring that an expanded tax net does not adversely affect common people.
Regarding IMF recommendations, Rahman acknowledged that the government is making several decisions based on IMF guidance. However, he suggested that subsidies should be adjusted according to Bangladesh's current economic conditions to ensure food security and support agricultural activities. He clarified that while IMF suggestions are not inherently bad, they must be tailored to the country's economic state and the needs of its people.
CPD Executive Director Dr Fahmida Khatun earlier remarked that the government should prioritize restoring macroeconomic stability over achieving higher GDP growth rates. She advised that the fiscal targets for the upcoming budget should be realistic, considering the current macroeconomic situation both domestically and globally.
Budget at a glance
Amid volatile global conditions, the finance minister is looking to a 6.75% GDP growth while containing inflation at 6.50% although the general point to point inflation is still hovering slightly below the double-digit mark despite various efforts from the government to tame inflation.
Finance Ministry officials said the possible budget size of Tk7,96,900 crore would be 4.60% or likely around Tk35,115 crore higher than the budget of the outgoing fiscal year (FY24).
Apart from the already approved Annual Development Program (ADP) outlay of Tk2,65,000 crore, the possible budget will see an estimated deficit of Tk2,57,000 crore including grants.
As the government wants to lower expenses, it is likely to contain the budget deficit to 4.6% of gross domestic product in the next fiscal year. The government usually keeps the budget deficit at around 5%.
In the current fiscal year (FY24), the budget deficit is Tk2,61,785 crore. In the coming one, the amount is likely to be Tk2,57,000 crore.
To meet the budgetary expenditure, the government needs borrowing of around Tk2.75 lakh crore, of which more than Tk1.50 lakh crore will come from the banking system. Besides, the government will also try to realize $1.17 billion from foreign sources.
The government will also earmark an allocation of around Tk1,20,585 crore for subsidies and stimulus alongside Tk1,08,000 crore for interest payments for local loans and another Tk20,000 crore as interest payments for foreign loans.
