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Published : 06 Jun 2024, 06:57 PM
Finance Minister Abul Hassan Mahmood Ali has presented a new fiscal plan worth Tk 7.97 trillion to parliament as he seeks to chart a sustainable path towards a ‘Smart Bangladesh' amid global economic turbulence.
The proposed expenditure is 11.56 percent higher than the revised budget of the outgoing fiscal year (Tk 7.14 billion) and 14.24 percent of Bangladesh’s total GDP.
The previous budget, delivered by former finance minister AHM Mustafa Kamal, saw a 15.33 percent jump from the revised budget for the fiscal year 2022-23 and was equal to 15.21 percent of GDP.
At 81, Ali proposed the budget for the fiscal year 2024-25 at a parliament session chaired by Speaker Shirin Sharmin Chaudhury and attended by Prime Minister Sheikh Hasina on Thursday. Before that, it received the approval of the Cabinet and was signed by President Mohammed Shahabuddin.
This is the first budget by the Awami League government since it returned to power for a fourth consecutive term following the parliamentary elections. It is also the first for Mahmood Ali as finance minister. The responsibility of matching the figures to implement the government's election manifesto while keeping worrying indicators of a stressed economy in mind falls on his shoulders.
In last year’s budget, former finance minister Kamal decided to move ‘Towards a Smart Bangladesh'. But shifting global headwinds, global market instability, the dollar crisis, and the inflation spurred by the Ukraine-Russia war impeded his efforts.
Ali will not have the luxury of shifting away from the path of austerity that the government began walking on two years ago to tackle these problems.
Then there is the loan agreement with the International Monetary Fund. Bangladesh penned a $4.7 billion deal with the IMF to shore up dwindling foreign currency reserves. Under the terms of the deal, Bangladesh has to implement multifaceted reforms in the finance sector.
The Awami League government has remained unwavering in its commitment to the election slogan of creating a ‘Smart Bangladesh’. However, Mahmood Ali’s focus in the current budget seems to be ensuring a sustainable path to that goal through more pragmatic steps. The title of his budget this year is ‘March Towards Smart Bangladesh Following the Path of Sustainable Development’
In his budget address, he said:
“Awami League has formed the government under the leadership of Honourable Prime Minister for the fifth time in 2024 focusing on the vision of 'Smart Bangladesh where Development is visible and employment will increase this time'"
“Our main goal now is to build a smart, prosperous country for our future generations based on the solid foundation of Digital Bangladesh laid in the past terms of Awami League.”
He recalled the 11 key issues in this year’s election manifesto and said, “All these priorities will be the main basis of channeling of resources in the budget of this year.”
The development sector has always been a key focus in the budgets of the Awami League-led government. The party set a goal of raising Bangladesh to the ranks of the wealthy and developed countries by 2041. The shock of the COVID-19 pandemic in 2020 interrupted Bangladesh’s upward trend.
Despite this, former finance minister Kamal kept to the traditional style of planning by increasing the size of the budget every year. Mahmood Ali, by contrast, has to be more restrained.
Of the Tk 7.97 trillion in the budget, the expenditure on development has increased by 8.25 percent to Tk 2.81 trillion.
Of this, Tk 2.65 trillion goes to the Annual Development Programme or ADP. That amount has already been approved.
The operational expenditure (excluding loans, advances and debt payments, the food account and structural adjustments) has been estimated at about Tk 5.07 trillion, about 11.86 percent higher than the revised non-development budget of the outgoing financial year.
Of this, Tk 1.13 trillion – or 22.39 percent of total non-development spending – will go to paying interest on the government’s domestic and foreign debt. Another 16 percent of the non-development expenditure will be spent on the payment of salaries and allowances to government employees, amounting to at least Tk 815.80 billion. (The value of this yellow part should be written by looking at the budget)
In 2021, as the wheels of the economy started to turn after coping with the shock of the pandemic, import spending jumped. This created pressure on the government's foreign currency reserves. There was growing concern regarding the trade deficit as rising exports were unable to keep up with imports. These worries were compounded as remittance inflow slowed.
Then Russia invaded Ukraine in 2022, causing food and fuel prices across the world to rocket up. As inflation climbed ever higher, the government turned to austerity measures and tried to curb the import of luxury goods.
When this seemed to have little effect, the government had to turn to the IMF for a dollar loan to bolster reserves. As a condition of that loan, the government is under pressure to increase the revenue it generates from taxes.
The National Board of Revenue is currently lagging behind the revenue collection target for the outgoing fiscal year. Nevertheless, Finance Minister Mahmood Ali expects to raise about 68 percent of the total government spending from tax revenue in the coming fiscal year.
In his proposed budget, the tax revenue target has been set at Tk 5.41 trillion. This is 13.18 percent higher than the revised tax target in the outgoing fiscal year.
Ali hopes that the NBR can collect Tk 4.80 trillion in taxes in FY2025, a 17 percent jump in its tax collection target. It is also 60 percent of the total budget.
Like last year, the target for the highest source of revenue is Value Added Tax or VAT. VAT is expected to bring in about Tk 1.83 trillion in the coming fiscal year, a 15.63 percent jump from the revised target in the outgoing fiscal year. The target of revenue collection from VAT was set at around Tk 1.64 trillion in the budget for FY2024. It was then revised down to about Tk 1.59 trillion.
The budget expects to raise Tk 1.76 trillion in revenue from income tax, up from Tk 1.46 trillion in the revised budget for the outgoing year.
The finance minister plans to collect Tk 491.46 billion from import duties, Tk 642.78 billion from supplementary duties, Tk 700 million from export duties, Tk 58.05 billion from excise duties and Tk 19.80 billion from other taxes and duties.
Ali also expressed his hope that Tk 44 billion could be raised from foreign grants.
In the original budget of the outgoing financial year, the total revenue target was set at Tk 5 trillion before it was revised down marginally to Tk 4.78 trillion. Only 70 per cent of the target was collected as of March.
The finance minister said in his budget speech:
“If we want to enhance public expenditure of the government, there is no alternative to the growth of the revenue collection. Bangladesh stands far behind compared to the comparator countries in revenue collection. The Tax-GDP ratio is below 8% in last one decade in Bangladesh. The same ratio is 16.98%, 11.59%, 14.03% and 15.57% in India, Indonesia, Vietnam and Thailand respectively. If we want to fulfil the development targets in the medium term, it is extremely important that we achieve the Tax-GDP ratio over 10%.”
The original budget for 2023-24 was Tk 7.61 trillion but was later revised down to Tk 7.14 trillion.
The deficit between income and expenditure in the new budget is Tk 2.56 trillion, which is 4.6 percent of the total GDP.
Usually, attempts are made to keep the budget deficit below 5 percent of GDP. But, due to supply pressure, the deficit has been above 4.9 percent since the 2013-14 fiscal year. It was 5.2 percent in the outgoing fiscal year. But Mahmood Ali looks to be reversing that trend.
As always, Bangladesh has to rely on internal and external borrowing to cover the budget deficit.
The finance minister hopes to meet the deficit by borrowing Tk 1.27 trillion from abroad and nearly Tk 1.61 trillion from domestic sources.
Within the domestic sector, a record of about Tk 1.38 trillion is being sought from banks, Tk 154 billion from savings certificates and another Tk 80 billion from other sectors.
Former finance minister Kamal had set an ambitious GDP growth target of 7.5 percent in the outgoing fiscal year. Based on the six-month forecast, the government expects growth to be 5.8 percent at the end of the fiscal year. Meanwhile, May saw inflation climb to 9.89 percent.
It is Ali's hope that with the implementation of the new budget, Bangladesh can achieve 6.75 percent GDP growth while keeping inflation tamped down to 6.5 percent.
