The 51st national budget of Bangladesh has been announced on 9 June 2022. The budget has been presented at a time when Bangladesh’s economy has been undergoing a number of challenges and the macroeconomic stability is also under duress. Through the lens of macroeconomic perspective, Bangladesh has experienced positive growth in terms of various indicators such as growth in revenue mobilisation, growth in export earnings, and improved private sector. However, a number of negative trends—soaring commodity prices, increased demand for subsidies, sliding exchange rate, huge deficit in balance of payment (BoP), rising non-performing loan (NPL) in banks, and depletion in foreign exchange reserve—are observed putting the economy at a greater risk. In order to tackle the emergent shocks, the Centre for Policy Dialogue (CPD) feels that controlling inflationary pressure and surge in commodity prices needs to be placed at the core of concerns.
These observations were made at a CPD media briefing based on the analysis of the National Budget FY2022-23. The media briefing was held on Friday, 10 June 2022. 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. Dr Fahmida Khatun, Executive Director of CPD made the presentation titled, “An Analysis of the National Budget for FY2022-23”. Like every year, the media briefing was broadcast live by Channel i for a broader audience.
CPD’s analysis was based on a concrete set of recommendations as follows: (i) allow tax concession to essential commodities at both import and domestic stages; (ii) provide tax reliefs to middle income groups; (iii) allocate adequate resources for subsidies for keeping the administered prices of petroleum products, electricity, gas, and fertiliser; and (iv) expand social safety net provisions both in terms of coverage and the amount of per capita allocation.
In light of the negative trends in macroeconomic performances, CPD feels that the government has not yet come out of its obsession with gross domestic product (GDP) growth. In fact, GDP growth target has been set at 7.5 per cent for FY2022–23, which is almost the same as the previous year’s target (7.7 per cent). The government’s growth projection is higher than the forecasts by World Bank, IMF, and ADB, which is deemed contradictory to the current global growth rate. CPD also emphasised the issue of budget transparency. According to the Open Budget Survey 2021, Bangladesh has a transparency score of 30 out of 100, and this score has decreased over the years due to fewer number of budget documents and less data being publicly available.
CPD stated that the growth of credit to private sector has been set at 15 per cent in FY2022–23. However, Inflation is assumed to be stable at 5.6 per cent in FY23, but it has not been clear how that target would be achieved in the backdrop of a global inflationary pressure which may lead to mounting ‘stagflation’. Also, Bangladesh’s external sector is undergoing a challenging time. Up to April in FY2021–22, total import growth was a whopping 41.4 per cent. Export earnings are primarily volume-driven while import payments are price-driven which does not reflect a robust structure. During July–May in FY2021–22, remittance inflow posted a negative growth of (-)16 per cent over corresponding figure. Exchange rate is expected to appreciate and reach BDT 86.2/USD on an average in FY2022–23 which does not reflect the realities on the ground.
As for public debt, CPD opined that public debt as share of GDP is still at a reasonable state for Bangladesh which is a positive sign, but it may increase to some extent in FY2022–23 driven by higher domestic and external borrowing in view of the ongoing COVID-19 pandemic. Interest payments for domestic debt is already on an upward trajectory. The same will be true for foreign debt given the large number of foreign-financed large infrastructure projects and the rising interest rate on non-concessional loans on account of middle-income graduation.
In terms of broad fiscal framework, budget deficit has been projected at 5.5 per cent of GDP in the National Budget, although it is questionable how that plan would be implemented. CPD also expressed concern over the fact that development expenditure (17 per cent) is programmed to grow faster than operating expenditure (12.2 per cent). For subsidy, there is no doubt that the administered prices are set to rise in FY2022–23. CPD feels that the government should consider reducing import duties on subsidised commodities such as fuel before any upward price revision.
CPD also stated that utilisation of foreign aid will hinge on ability to implement the planned Annual Development Programme (ADP) projects since 96 per cent of foreign loans are tied with ADP. Top five sectors have received 74.4 per cent of total ADP allocation. They are—transport and communications, power and fuel, education, housing and community facilities, and health. CPD opined that utilisation of foreign aid will be critical for ADP implementation, and the problems of ‘carryover’ and ‘time-overrun’ projects will persist in FY2022–23. It is also observed that the progress of mega projects implementation is unsatisfactory. Moreover, the prioritisation exercise of ADP projects is confusing.
In this budget, tax exempt threshold for personal income tax (PIT) remains the same at BDT 300,000. In view of the skyrocketing prices of essentials, CPD had proposed earlier to either increase this threshold to BDT 350,000 in order to provide some respite to the general citizens or raise the range of the next tier (at 5 per cent tax) from BDT 1 lacs to BDT 3 lacs. CPD also proposed to increase the highest PIT rate, as raising this rate would have promoted tax justice and could have become an additional source of revenue. Reduction in CIT, without any upward adjustment in the tax exemption threshold for personal income tax, also raises questions as regards tax justice.
However, mandatory proof of submission of tax return to avail 38 various services was a welcomed move. Source tax on bank interest for company taxpayers is to go up to 20 per cent from the prevailing 10 per cent which will mobilise additional revenue. Rate of source tax raised to 1 per cent from 0.5 per cent is also a welcomed move but whether it can be enforced that remains a question. Besides, from FY2022–23, all export-oriented industries will start enjoying a reduced tax rate similar to that of readymade garments (RMG) industries—12 per cent for general industries and 10 per cent for green industries. And textile sector will continue to enjoy 15 per cent tax rate till FY2024–25 which will provide some competitive advantage and encourage backward linkage in export oriented apparels sector.
On the other hand, CPD strongly urges for removal of the provision regarding Special Tax Treatment in respect of undisclosed offshore assets. According to the proposed provision, no authority, including the income tax authority, shall raise any question as to the source of any asset located abroad if a taxpayer pays tax on such asset. Such an initiative is ethically unacceptable, will discourage honest taxpayers, and unlikely to generate the intended revenue.
CPD pointed out that the dependence on indirect tax has continued in this budget. Fiscal proposals to raise the share of direct tax in total tax were felt needs. Also, the budget did not offer any significant respite through fiscal measures from the inflationary pressure originating from high import prices and recent significant BDT depreciation, particularly as far as the low-income people were concerned. There was no strong move to go for import duty reduction of essential commodities to signal a lessening of imported inflation burden on low- and fixed-income groups. However, there was a welcomed attempt to provide support to domestic import-substituting industries through: (a) imposition of import duties and supplementary duties on import of finished goods, and (b) reduction of duties on imports of raw materials and intermediate inputs.
Total budget allocation for health has increased only by 13 per cent. Still, the budget allocation on health in FY2022–23 is only BDT 2,158 per person per year whereas, on average, each person in Bangladesh spent at least BDT 8,334 per year on health from their own pocket in 2019. Allocation for social safety nets has increased from BDT 111,467 crore in revised budget for FY2021–22 to BDT 113,576 crore in FY2022–23 which represents an increase of only 1.89 per cent which is lower than the average rate of increase of 17 per cent between FY2009–10 and FY2021–22. Moreover, allocation has been cut for open market sales (OMS) which would harm low income and fixed income households who are already suffering immensely due to high inflation. As for agriculture sector, this sector is the second highest priority sector this year (third in the last year). CPD welcomes the initiative of increasing subsidy in the agriculture sector as the retail prices of fertilisers, pesticides and other ancillary raw materials, but this is needed to be stabilised at farmers’ level.
In terms of employment generation, the focus of the government in employment and decent work is not evident in this year’s budget, at least in terms of allocation to three selected employment generation related ministries—Ministry of Industries, Ministry of Labour and Employment, and Ministry of Expatriates’ Welfare and Overseas Employment. On a positive note, budget FY2022–23 has mentioned about gradual initiation of Unemployment Insurance, Maternity Insurance, Sickness Insurance, and Employment Injury Insurance. Unfortunately, allocation for Employment Generation Programme for the Poorest (EGPP) has been decreased by 5 per cent to RFY2021–22. As for the youth group of population, the budget does not seem to pay a distinct attention on youth and no significant increase has been proposed in the allocation for the Ministry of Youth and Sports this year.
In terms of education sector, education budget as a share of total budget decreased from 14 per cent in RBFY2015–16 to 11.7 per cent in RBFY2021–22. Additionally, the education budget as a share of GDP decreased from 1.9 per cent in RBFY2020–21 to 1.8 per cent in BFY2022–23. Regrettably, the government didn’t produce the child budget report for the last three fiscal years (FY2020–21, FY2021–22, and FY2022–23). As a result, it is difficult to tell how much the government did spend for children to compensate adverse impact of the pandemic on the children of Bangladesh.
As for power and energy, the allocated subsidy has further increased (Tk 17,0000 crore). In the revised FY2021–22 the subsidy has been raised to Tk 12,000 crore from BDT 9,000 crore for power sector. This is because of higher expenditure for imported fuels and capacity payments for rental power plants in Bangladesh. Such high fiscal pressure may continue unless we move away from expensive oil and LNG-based power plants, which CPD had already recommended. Proposed FY2022–23 budget has also not given due importance towards renewable energy.
This year’s budget has increased allocation for management of urban waste from BDT 192.89 crore in FY2021–22 to BDT 275.98 in FY2022–23. However, the budget for FY2022–23 has withdrawn the existing 5 per cent Supplementary Duty (SD) on all types of plastic and polythene bags in FY2022–23. CPD recommends that single use plastic such as cutleries including forks, spoons, cups, plates, and food containers, should be subjected to an excise duty of BDT 1 per piece, while food containers made of expanded polystyrene should be subjected to an excise duty of BDT 2 per piece. Transport and communication is still burdened with large number of “carry over” (43 per cent) projects. However, the gender budget as a percentage of GDP has decreased from 5.71 per cent in FY22 to 5.16 per cent in FY2022–23.
Overall, CPD considers that the budget for FY2022–23 needed to be innovative in terms of approach, flexible in terms of allocative priorities and target-specific in terms of budgetary measures. In her presentation, Dr Fahmida pointed out that the budget could have implied better identification of contexts and challenges as it lacks actions regarding the continuation of fiscal measures to protect domestic industries and the harmonisation of tax structure in case of export-oriented industries. Most importantly, the budget comes short in terms of addressing inflationary issues. CPD feels that the budget provides more support to higher income group while keeping the low and middle income groups at bay.
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.