The Centre for Policy Dialogue (CPD) has said that the proposed budget for the 2023-24 fiscal year fails to provide a blueprint for containing inflation, the key challenge facing the economy right now.
The think tank also said most of the targets for expenditure and revenue with inflation, GDP, annual development, and private investment in the proposed budget are over-ambitious and based on unrealistic assumptions.
Overall, the targets to be set for the macroeconomic framework for FY24 did not take into cognisance the current realities, and the macroeconomic targets and strategy outlook remained vague, the CPD said in their reaction during a press conference on Friday. CPD Executive Director FahmidaKhatun delivered the keynote presentation.
Finance Minister AHM Mustafa Kamal unveiled a Tk7,60,000crore budget for the next fiscal year on Thursday.
FahmidaKhatun in her presentation said: “The national budget for FY2023-24 has been placed at a time when the macroeconomic stability of Bangladesh has weakened significantly. Negative developments in both domestic and external fronts contributed to this.”
The economy is not currently in a position to stimulate investment for achieving a 7.5% GDP growth a recovery from 6%. To reach this target, private sector investment would need to increase from its current level of below 22% to over 27% of the GDP, according to the CPD executive director.
In FY24, Tk4,04,097crore will be additionally required for private investment, which is a 41.8% increase in nominal terms.
Private sector credit growth up to April in the current fiscal year was only about 11%, falling short of the target of 15%.
Inflation is expected to fall drastically to 6% in FY24 – (7.5% in FY24). As of April 2023, the annual average inflation (base year: 2021-22) was 8.6%.
The revenue target has been increased to Tk5,00,000crore, or 10% of the GDP. But public expenditure is projected to grow faster than revenue mobilisation, according to the CPD.
MustafizurRahman, a distinguished fellow at CPD, said: “When the current fiscal year budget was given in June 2022, it was clear in what direction the global situation was headed and what its impact on the country’s economy will be. But even then, we saw the GDP growth target set at 7.6%, Inflation at 5.6%, they assumed the reserve would stay at $46 billion as always, and the exchange rate is assumed to be within Tk86 only. And since we can’t estimate correctly, it is not worth telling how the state of the budget has been.
“This is what happens and will continue to happen when budgets are made on the basis of aspiration rather than reality.”
According to the presentation, the government plans to borrow over Tk1,32,000crore from the banking sector to finance the deficit, which CPD believes would escalate inflation and create an excessive money supply.
Public borrowing from commercial banks would also reduce growth potential by decreasing private credit availability.
Regarding the IMFs macroeconomic prescription, the presentation said: “The shadow of IMF conditionalities, although not explicitly mentioned in the budget speech (or other documents) for FY24, is visible. Curiously, no mention was found regarding the accumulation of external payments arrears or newforex reserve in this budget.”
Details about critical reforms, including shifting towards a market-based exchange rate and interest rate and adoption of periodic formula-based petroleum product prices, have not been elaborated.
The organisation did, however, laud the move to impose a carbon tax on people owning multiple vehicles.
It also praised the government for cutting the share of projects with a symbolic allocation under the Annual Development Program.
CPD’s Recommendations
The CPD has urged the government to withdraw its proposal of implementing a minimum tax of Tk2,000, citing concerns over its potential implications.
It also argued that the simultaneous increase in the tax-free income limit to Tk3,50,000 and the introduction of a minimum tax is contradictory and could result in discriminatory outcomes.
“We suggest the withdrawal of the proposed minimum tax. Such a move will burden low-income TIN holders and contradict the concept of tax-free income thresholds,” said CPD Executive Director FahmidaKhatun.
KhondakerGolamMoazzem, research director at CPD, said: “If you calculate the Tk2,000 mentioned on a monthly basis, it comes to Tk167. On the other hand, the calculation of the tax-free income limit stands at Tk2,500 (Monthly). Now if you exclude it from here, you will get a benefit of Tk2,333 only. That means the actual benefits of tax-free income are actually diminishing.”
The finance minister also proposed a 10% tax rebate for wealthy individual taxpayers and raised the ceiling of the total wealth to Tk4 crore. Currently, the minimum threshold for collecting a surcharge from an individual taxpayer stands at Tk3 crore.
The CPD described the move as a concession to the rich, which will leave a number of wealthy people out of the surcharge net.
The think tank also said the budget failed to acknowledge structural weaknesses in the domestic economy, with macroeconomic targets and strategy outlook remaining vague.
