The budget for FY2023-24 comes at a crucial time, when inflation and IMF conditions have to be met.
The cost of living has risen quite high, caused by ongoing inflationary pressure.
Matters have been exacerbated by an import slowdown and the government's endeavour in complying with the International Monetary Fund (IMF)'s $4.7 billion loan conditions.
This year's budget was themed “Smart Bangladesh.” Finance Minister AHM Mustafa Kamal placed a Tk761,685 crore budget for FY2023-24 to attain a gross domestic product (GDP) growth rate of 7.5%, which economists consider overly ambitious.
In FY23, the government had initially set a target of 7.5% GDP growth in the budget for FY23.
The Finance Ministry then revised it down to 6.5%.
However, even with the revised target, the current projections from the Bangladesh Bureau of Statistics (BBS) put GDP growth in FY23 at 6.03% based on the first nine months of the FY23.
The latest budget is 13.29% bigger than the revised budget of FY23, which was originally proposed to be Tk678,000 crore and revised it to Tk660,000 crore.
Inflation woes
Before unveiling the budget, Kamal said it will be for the poor, while the social safety net will get a boost.
We have to wait and see how Bangladesh manages to rein in inflation from 9.24% (April) to 6% in the upcoming fiscal.
However, the finance minister didn't elaborate exactly how it would be done.
Regarding taming Inflation, he said: “Due to the decrease in the prices of fuel, food, and fertilizer in the global market, along with the adjustment of fuel prices in the domestic market and government initiatives to keep the food and supply systems normal, inflation will remain much controlled in the next fiscal year and annual average inflation is expected to stand at around 6%.”
But economists think that like last year this inflationary target is quite unrealistic.
Ahsan H Mansur, executive director of the Policy Research Institute (PRI) told Dhaka Tribune: “This budget doesn't really have much for the middle class. The middle class have jobs, they want job security. They want to buy more things from their limited incomes.”
“But the situation of inflation is very fragile even though the budget speaks of reducing it. But surprisingly there is no addressing of that. Reducing inflation from last year's average will not be possible in this case. It may go beyond 9.5% again, he added.”
Fahmida Khatun, executive director of the Centre for the Policy Dialogue (CPD), said: “It is impossible to implement all the proposals that have been made to tame inflationary pressures and upward trend in commodity prices and the proposal to keep the inflation rate at 6% is also impossible.''
Fiscal measures to curb inflation, such as some tax concessions on consumer goods, have not been implemented. The tax-free income limit has been increased to Tk3.5 lakh, which is good, she said.
But to get 38 government services one has to submit a tax return and pay a tax of Tk2,000 is an unwise decision and should be withdrawn.
“Both recognition of and solutions to the current economic crises are insufficient in the proposed budget. In view of the ongoing economic crisis, the macroeconomic indicators that were announced through assumptions and estimates seem to us to be detached from reality and not possible to achieve,” she added.
Selim Raihan, executive director of the South Asian Network on Economic Modeling (Sanem), also agreed with Mansur.
He said: “Had we seen a big success in this regard last year, then we could have understood that the government has been taking necessary measures to address this issue. But to be honest, we have not seen any such policies undertaken by the government to keep inflation in check.”
“We have witnessed no significant initiatives from the government in terms of currency policy, duty tax policy, or market management policy, which could have contributed to controlling inflation.”
“Considering the recently announced budget, it becomes essential to monitor how monetary policies will be implemented moving forward, especially given the IMF's inclusion of this issue as a condition. It is worth noting that neighbouring countries have already achieved success in reducing inflation, whereas we continue to struggle with elevated rates,” he added.
Deficit continues
The overall deficit in the proposed budget will stand at Tk261,785 crore, which is 5.2% of GDP.
It should be noted here that the deficit rate was 5.5% in the previous budget.
Economists also said that FY24 proposed revenue target is quite ambitious, which is Tk101,278 crore higher than the existing revised budget.
To meet the massive spending, a total revenue target of Tk503,900 crore has been set up, including foreign aid.
To do this, an additional Tk67,637 crore must be collected over the revised FY23 budget.
Foreign grants are projected to total Tk3,900 crore.
They are not required to be returned to the government. As a result, income has been linked to the revenues from this sector.
Economists and think tanks projected a deficit of around Tk55,000 crore against the NBR's revenue target of Tk370,000 crore in FY23.
Regarding a question on whether it is possible to generate revenue in the existing tax structure, Masrur Reaz, chairman of Policy Exchange Bangladesh (PEB), said: “The revenue target of Tk500,000 crore is unrealistic regarding the current economic situation, which is 15.4% more than earlier.”
Masrur Reaz said: “One of the prime priorities of this budget was IMF conditions. Bangladesh is now coping with IMF conditions, most of which are related to the budget, such as the process of formulating the budget, subsidies, revenue target, tax net expansion, tax-GDP ratio and much more.”
Although the government did not say anything about the conditions of the IMF in the budget, in an immediate reaction the Centre for Policy Dialogue (CPD) said that this budget tiptoed around IMF conditions.
However, at the same time, the think tank has termed the budget of the government as unrealistic.
Strategies
Ahsan H Mansur also thinks that most of the conditions given by the IMF against the loan of $4.7 billion will be impossible to fulfill in this budget strategy.
Of the total deficit, Tk155,395 crore are proposed to be financed from domestic sources and Tk102,490 crore from external sources.
To meet this deficit budget, the government has to borrow more from foreign loans and the domestic sectors.
On the other hand, the foreign loan target is being increased at a massive rate to meet the shortfall in the government's debt as a result of reducing the sale of savings certificates.
It has been anticipated that Tk18,671 crore higher foreign loans will be taken in FY24 than in FY23.
In addition, due to high indebtedness, additional money will be needed in FY24 to pay interest on domestic and foreign borrowing.
Tk115,395 crore is being borrowed from domestic sources.
However, under the terms of the agreement, a target of Tk17,000 crore less borrowing than the present aim has been set from the National Savings Certificates because the IMF requires a gradual reduction in borrowing through savings certificates.
Bank borrowing, another internal government borrowing source, is seen as a key weapon in combating the deficit.
The government chose to take out Tk132,395 crore from banks, which is Tk26,061 crore more than the original FY23 objective.
Economists believe if the government took more money from Bangladesh Bank then it will create an extra burden on inflation.
Miscellaneous
In the proposed budget of FY24, the social safety net has been increased by 11% to Tk126,272 crore, up from the current FY Tk113,576 crore.
The proposed budget allocated Tk35,374 crore for the agriculture sector (agriculture, food and fisheries and livestock) for FY24, which was Tk33,698 crore in FY23.
The allocation for the ICT sector increased by 22%.
The government is scheduled to introduce the Universal Pension Scheme from FY24. However, economists think that it will be quite tough as any structure regarding this is yet to be formulated.
According to the proposed budget, the tax-free income threshold for the general taxpayer has been proposed to be increased by Tk50,000 in the initial limit for tax exempt income.
Surcharge applicability limit has been increased to Tk4 crore from Tk3 crore.
Such reduction will give some relief to middle class taxpayers and will also encourage taxpayers to be more compliant.
However, individuals filing tax returns with no taxable income will suffer from a minimum tax burden of Tk2,000 which requires reconsideration.
This is the country's 52nd budget, which is likely to be passed on June 26 after long discussions as a proposed budget.
Once approved, the budget will be effective from July 1.
The budget for FY24 is the fifth consecutive budget of incumbent Finance Minister AHM Mustafa Kamal.