The budget for FY2023-24 failed to fully acknowledge the ongoing macroeconomic challenges and, therefore, offered inadequate remedial measures. This is because the projections of the macroeconomic framework did not take cognisance of the current realities. The targets for private sector credit growth and inflation appear to be overambitious compared to the latest available figures as per official data. The proposed fiscal framework for FY2023-24 is unlikely to hold as it did not take budget implementation progress into consideration. An amount of BDT 132,395 crore, which represents 50.6 per cent of the total budget, will be borrowed from the central bank. The critical question will be how much will be borrowed from the central bank — if the liquidity situation in the banking system does not improve, the government will have no other option but to borrow from the central bank, and this will create inflationary pressure. Some of the budgetary allocations are questionable and allocations for priority social sectors remain business as usual.
These observations emerged at the Budget Dialogue 2023 organised by the Centre for Policy Dialogue (CPD) on Sunday, 18 June, 2023, under its flagship programme ‘Independent Review of Bangladesh’s Development (IRBD)’.
‘Given that it is an election year, the proposed budget appeared unrealistic, bureaucratic and apolitical, particularly due to the budget proposal of BDT 2,000 tax on Taxpayer Identification Number (TIN) holders and the imposition of a 0.6 per cent tax on non-profit organisations,’ said Dr Debapriya Bhattacharya, the Chair of the dialogue, and a Distinguished Fellow, CPD.
On behalf of the IRBD team, Dr Fahmida Khatun, Executive Director, CPD, highlighted some key observations of CPD on the proposed national budget for FY2023-24. She said, ‘Allocative priorities within the subsidies have also shifted’. The government allocated BDT 17,533 crore as a subsidy for the agriculture sector in FY2023-24, reduced by 34.3 per cent compared to the previous fiscal year. Besides, the depreciation of Taka and global price hikes led to a 61.5 per cent increase in allocation for agriculture in FY2022-23. The subsidy payments in the power sector are expected to increase by BDT 473.6 crore due to the devaluation of Taka against the USD in FY2023-24.
Despite the attempts, the Annual Development Plan (ADP) for FY2023-24 could not break free from the mould as it was unable to deviate from its previous pattern. It is evident that the five leading sectors have acquired a substantial share of 74.6 per cent, which is nearly 75 per cent of the ADP allocation, underscoring their significance. However, there is a noticeable decline in the allocation for the healthcare and education sectors.
Also, the proposed national budget for FY23-24 failed adequately to address curbing the inflation. It lacked clear fiscal measures aimed at addressing inflation and failed to provide any concrete initiatives to alleviate the prices of essential commodities.
Dr Fahmida also added that, some of the proposed fiscal measures will support domestic import-substituting industries, which is a positive step. This support will be implemented through two major channels: imposing duties and taxes at the import stage, and granting Value-Added Tax (VAT) exemption for domestic producers.
The desperation for revenue mobilisation undermines equity concerns. The pursuit of increasing tax revenue undermines considerations of fairness and equality in taxation. One of the observed desperate attempts to increase tax revenue is the imposition of a minimum tax of BDT 2000 on individuals below taxable income who are required to submit income tax returns to avail 38 government services. This move burdens low-income taxpayers and contradicts the concept of tax-free income thresholds.
The IMF conditionalities will largely dictate reform agenda. The influence of IMF conditionalities is visible in the FY2023-24 budget, despite not being explicitly mentioned. The proposed reforms align with the IMF requirements but lack concrete progress updates and timelines. Important details on critical reforms, external payments, and structural weaknesses are missing, leaving macroeconomic targets and strategy ambiguous.
‘Implementing the Universal Pension Scheme will be challenging, but we believe in our ability to accomplish it, as we have successfully implemented seemingly impossible schemes before’ said the Chief Guest, Mr M A Mannan, MP, Hon’ble Minister, Ministry of Planning, Government of Bangladesh.
Barrister Anisul Islam Mahmud, MP, Chairman, Parliamentary Standing Committee on Ministry of Expatriates Welfare and Overseas Employment remarked, ‘The government has now implemented certain reform measures, as advised by IMF, which local economists have been recommending for the past decade.’
Mr Amir Khosru Mahmud Chowdhury, Former Minister for Commerce opined the economy is in a state of severe crisis because the central bank broke the macroeconomic framework.
‘The proposed budget is neither big nor ambitious; yet, it will be impossible to implement it’ Dr Ahsan Habib Mansur, Executive Director, Policy Research Institute of Bangladesh (PRI).
Mr Shamsul Huq Zahid, Editor and CEO, The Financial Express, highlighted that although the budget did not address the soaring inflation, it increased the number of safety net beneficiaries and monthly allocations.
Professor Dr M Shamsul Alam, Energy Adviser, Consumers Association of Bangladesh (CAB) opined that the power and energy sector is now in a vulnerable state since the proposed budget failed to address challenges that this sector is currently facing.
While discussing the tax related issues, Barrister Md Sameer Sattar, President, Dhaka Chamber of Commerce & Industry (DCCI) remarked that the National Board of Revenue (NBR) needs to take measures, such as implementing automation, to minimise instances of harassment.
Commenting on the wages of the workers, Ms Taslima Akter Lima, President, Bangladesh Garments Sramik Sanghati said, ‘Despite the current inflation rate exceeding 10 per cent, there has been no discussions regarding wage increments for labourers in the national budget’.
The event was followed by an intriguing open-floor discussion. High-level policymakers, diplomats, foreign delegates, researchers, development practitioners, academicians, business leaders, civil society representatives, development partners, and journalists participated in the dialogue.