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Dhaka Tribune

National Budget FY25

CPD: Next budget should focus on macroeconomic stability

Revenue shortfall at the end of FY24 could reach Tk82,000 crore, CPD says

Update : 16 Mar 2024, 09:59 PM

The Center for Policy Dialogue (CPD) has said that Bangladesh’s macroeconomic stability is under great pressure, particularly rising inflation, which has led to a cost of living crisis. The think tank advocates prioritizing the restoration of economic stability in the fiscal year 2024-25 budget. 

Speakers emphasized the imperative for the government to address these challenges by restoring macroeconomic stability, enhancing fiscal space, and optimizing the utilization of public resources in the upcoming FY25 budget. 

Citing various persistent macroeconomic challenges, the CPD projected a substantial revenue shortfall of Tk82,000 crore by the end of the ongoing FY24.

The views came at a media briefing, titled:  "Recommendations for the National Budget for the Fiscal Year 2024-2025," held at the CPD's office in Dhanmondi on Saturday.

CPD Executive Director Dr Fahmida Khatun, said: “Instead of focusing on achieving a higher GDP growth rate, the government should focus on restoring macroeconomic stability.”

In her keynote presentation, she also said that the fiscal targets for the upcoming budget should be realistic, taking into cognisance the emergent macroeconomic scenario at home and abroad.

With a shortfall in revenue collection and budget implementation, high inflation, a liquidity shortage in banks, and declining exports, remittances, and foreign reserves, Bangladesh's economy is going through various challenges, as the CPDs report highlights.

The report stated that: The three guiding principles for the national budget for FY25 should be firstly, restoring macroeconomic stability while protecting the interests of vulnerable and disadvantaged groups. Secondly, enhancing fiscal space. And thirdly, ensuring the best use of public resources through appropriate prioritization and by ensuring good value for money.

Fahmida highlighted CPD's concerns during its presentation of the “Analysis of the National Budget for FY2023-24” in June 2023, noting that the targets set for the macroeconomic framework for FY2024 didn't accurately reflect the current realities. 

The resulting fiscal plan for FY24 was somewhat generic and assumed a business-as-usual scenario, leading to overly ambitious targets that are likely to be missed by a significant margin by year-end. As FY24 approaches its conclusion, many of these concerns unfortunately seem to be materializing. 

Drawing from this experience, Fahmida Khatun emphasized the importance of setting realistic fiscal targets for the upcoming FY25, considering both the emerging macroeconomic situation domestically and internationally.

In addressing the ongoing inflation, it's crucial to prioritize public spending effectively. For the FY25 budget framework, policymakers must acknowledge the persistent rise in essential costs. 

The focus should be placed on boosting food production, strengthening social protection (including public works programs), providing subsidies for agriculture, energy, and healthcare, as well as enhancing the education sector. 

Continuation of previous government directives to curb "unnecessary and luxury" expenditures, like government vehicle purchases and international travel, is recommended. Furthermore, there's a need to prioritize the implementation of all foreign-funded projects within the Annual Development Programme (ADP), while deprioritizing projects with low implementation rates (below 10% as of March 2024). 

Maintaining balance in terms of budget deficit financing, in this point CPD said, In FY25, a major challenge will be to cater to the envisaged financing from foreign sources. Non-bank borrowing targets are unlikely to be met. 

Sale of NSD certificates may continue to be sub-par owing to lower levels of savings by people, and the rising interest rates for deposits with banks. Bank borrowing will likely be under pressure to finance the budget deficit. 

With a liquidity crunch in the commercial banks and the government’s commitment not to opt for borrowing from the central bank, the fiscal space available for the government will be somewhat limited, if private sector borrowings are not to be crowded out. 

Despite these challenges, the CPD executive director highlighted a positive note, with the budget deficit reduced to Tk7,885 crore in six months, a significant decrease from the previous year's Tk20,000 crore.

Even though the deficit has decreased, the government's borrowing from the banking system has increased. This will hurt the growth of private sector loans, she added.

However, CPD also said that the revenue collection has yet to meet the target for the first six months of the ongoing fiscal year. To meet the overall target in the remaining six months, revenue collection must be around 54.4%, which is exceptionally challenging. The revenue collection target for the past six months was 36.3%. but only 13.9% of the target had been achieved by December.

During the Q&A session, Mustafizur Rahman, executive director at CPD, emphasized that reducing inflation was a key goal outlined in the current government's election manifesto. 

While the government has initiated some measures to address it, Rahman highlighted concerns: “if individuals can easily profit Tk50 crore within a week through market manipulation and receive only a fraction of that amount as fines—such as Tk50 lakh or Tk1 crore—then controlling inflation becomes challenging. Strict enforcement of existing laws is essential to combat this issue effectively, and it must be visible to the public.”

Adding to such concerns, Khondaker Golam Moazzem, research director at CPD, noted a lack of target-oriented activities aimed at restoring the economy during the first 100 days of the new government. Despite repeated calls for reform, Moazzem stressed the importance of seeing these reforms reflected in the budget to effectively address economic challenges.

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