The budget for FY2024-25 has been presented by the Finance Minister of the new Government. This is also the last budget of the Eighth Five Year Plan of Bangladesh. The FY2024-25 budget has been prepared amidst significant economic challenges which the country has been experiencing for almost two years. Economic strains are evidenced by subdued revenue mobilisation, resulting in a shrinking fiscal space, a high reliance on government borrowing from commercial banks to finance the budget deficit, tightened liquidity in scheduled banks, elevated prices of essential goods, and a deteriorating external sector balance and foreign exchange reserves. The immediate challenge of the economy is to tame inflation and improve foreign exchange reserves. At the same time, the government also needs to restore macroeconomic stability and adjust to the new reality where economic stability will have to be given priority over growth for the time being.
In this context, the Centre for Policy Dialogue (CPD) organised a media briefing titled ‘CPD’s Analysis of the National Budget FY2024-25’ on 7 June 2024. Following the presentation of the budget by the Hon’ble Finance Minister at the National Parliament on the day before, this analysis was prepared by the CPD team. The team presented an assessment of various proposals made in the budget for FY2024-25 in the context of ongoing economic challenges. Dr Fahmida Khatun, Executive Director of CPD, made the keynote presentation titled, ‘An Analysis of the National Budget for FY2024-25’ on behalf of the CPD research team.
In her keynote presentation, Dr Fahmida Khatun, echoed ‘The FY2024-25 budget failed to provide concrete measures to overcome the ongoing economic concerns. The measures for curbing inflation and providing relief to the poor and fixed income people are inadequate’. She added that projected macroeconomic indicators for FY2024-25 including inflation rate, GDP growth and investment are overambitious, and do not take into account the current realities. Hence, many budgetary targets for FY2024-25 will be missed. More importantly, due to the limited acknowledgement of the ongoing economic challenges, the proposed budgetary measures remain inadequate and weak.
‘On the whole, FY2024-25 budget is an ordinary budget during an extraordinary time’ highlighted the Executive Director of CPD. The targets set for the macroeconomic framework for FY2024-25 are overly optimistic. A similar approach was taken in the FY2023-24 budget.
Dr Khatun highlighted that the fiscal framework projects revenue growth at 13.2 per cent and public expenditure growth at 11.6 per cent, with total expenditure remaining at 14.2 per cent of GDP, mirroring the revised budget of FY2023-24. Revenue is expected to marginally increase to 9.7 per cent of GDP. Development expenditure is set to grow slower at 8.2 per cent compared to operating expenditure at 11.9 per cent. The ADP received 33.2 per cent of total public expenditure, slightly lower than the revised budget of FY2023-24. The budget deficit is projected at 4.6 per cent of GDP, down from 4.7 per cent. However, concerns arise as the FY2023-24 revised budget did not consider implementation progress, risking the credibility of the FY2024-25 fiscal framework. Foreign loans and grants are expected to cover 37.1 per cent of the budget deficit, up from 33.8 per cent in the revised budget of FY2023-24.
While commenting on the allocation in the Annual Development Programme (ADP), she underscored ‘In FY2024-25, the ADP is set at BDT 265,000 crore, equivalent to 4.7 per cent of GDP, a slight increase from the previous fiscal year. Assuming an 80 per cent implementation rate for FY2023-24’s ADP, FY2024-25’s allocation is expected to be nearly 26.0 per cent higher than the likely actual spending in FY2023-24’.
The top five sectors received 71.1 per cent of the total ADP allocation. Transportation and Communications had the highest allocation at 26.7 per cent with 220 projects, followed by Power and Energy with 15.4 per cent. Combined, these two sectors account for about 42 per cent of the total ADP allocation, with the Rooppur Nuclear Power Plant alone taking 25.8 per cent of the Power and Energy allocation.
It is encouraging that health and education have entered the top five sectors of ADP. The education sector’s share increased to 11.9 per cent in FY2024-25 from 11.4 per cent in FY2023-24, while the health sector’s share rose from 6.2 per cent to 7.8 per cent, a 27.6 per cent increase in monetary terms. However, project implementation in these sectors has traditionally been challenging.
The fiscal proposals in Budget FY2024-25 include several positive measures, but some areas have not been adequately addressed. The structure of income tax has been revised to be more sensitive to the middle class and to ensure equity by raising the highest tax slab. Tax proposals will be valid for the next two years, providing predictability for taxpayers. Despite high inflation, duties on only a few essential items have been reduced, and it is uncertain if this will lower consumer prices.
Efforts to align the VAT structure with the VAT and Supplementary Act, 2012, have been made, though this may increase the tax burden on consumers amid high inflation. Fiscal measures aim to support domestic import-substituting industries through exemptions on import duties for intermediates and high tariffs on finished goods. However, the practice of allowing money whitening with greater immunity sends a wrong signal to tax evaders and poses a moral hazard for honest taxpayers. It will be a test of the commitment of the MPs to see whether they choose to forego the privilege of duty-free car imports in order to share some tax burden with ordinary people.
The budget seems to inadequately address the risk of employment deterioration amid the ongoing economic crisis for several reasons. First, although the FY2024-25 budget mentions an employment injury scheme at a pilot level, it does not commit to expanding this programme. Second, there is no mention of any commitment to initiate unemployment insurance. Third, while the budget mentions establishing a minimum wage for 43 industrial sectors, it does not show a strong commitment to increasing this number in FY2024-25. Fourth, despite the higher risk of unemployment, the allocation for relevant safety net programmes in the FY2024-25 budget remains inadequate. Additionally, apart from making it mandatory for new government employees to enroll, the budget does not mention any specific steps for the national pension scheme, which has already been introduced but has failed to attract subscribers.
The Executive Director also highlighted the details of budget allocations for various sectors such as health, social safety net programmes, agriculture, youth, education, power, energy, climate change, transport and communication, overseas employment, gender, defence services, and public order and safety.
Professor Mustafizur Rahman, Distinguished Fellow, CPD; Dr Khondaker Golam Moazzem, Research Director, CPD, Mr Towfiqul Islam Khan, Senior Research Fellow, CPD, Mr Muntaseer Kamal, Research Fellow, CPD, and Mr Syed Yusuf Saadat, Research Fellow, CPD were also present at the event. They shared their views through responses to the questions from media.