Unrealistic budget doesn’t acknowledge major economic challenges, says CPD

CPD Executive Director Fahmida Khatun says the budget has failed to address the recovery of an economy currently under pressure

The Centre for Policy Dialogue has criticised the inflation and foreign reserve targets set in the budget for the 2024-25 fiscal year, claiming that the government’s plans lack implementation guidelines in both sectors.

The private research organisation also claimed that the newly proposed budget has failed to address ways to bring an economy currently under pressure into a state of recovery.

The CPD organised a press briefing over its budget reaction at the Bangabandhu International Conference Centre in Dhaka on Friday.

CPD Executive Director Fahmida Khatun said, “Every area of the economy is stressed. Indicators are in disarray. In such a situation, immediate action was needed to control inflation and improve foreign currency reserves that are running out.''

“The targets set for implementation in the FY25 budget are ambitious. They are not consistent and realistic.”

The CPD executive director claimed the government has not dug deep into the reality as it’s reluctant to accept the problems, stating the budget had set targets but had not outlined plans to bring them about.

Finance Minister Abul Hassan Mahmood Ali presented his Tk 7.91 trillion budget for FY 2025 in parliament on Thursday. This year’s budget was titled ‘March Towards Smart Bangladesh Following the Path of Sustainable Development’.

The government has targeted a 6.75 percent growth in Gross Domestic Product (GDP) and to curtail inflation to 6.5 percent by June next year.

In a PowerPoint presentation, Fahmida said, “The budget should have been targeted to decrease the pressure of inflation and increase reserves.

“We do not know how it is possible to bring down the inflation rate to 6.5 percent in the next 12 months. It’s ambitious.”

However, she praised the decision to consider a less expansive budget size this year.

“This year’s moderate budget is positive.”

OPPOSED TO ‘WHITENING MONEY’: CPD

The budget for FY 2025 proposed a path to the legalisation of undisclosed income by taxing it at a rate of 15 percent. The general and individual tax rate is capped at 30 percent.

Mustafizur Rahman, the CPD honourable fellow, opposed the plan.

“This is the first time that a clause has been added to the Income Tax Act that if an undisclosed amount is legalised, no organisations or agencies can question it at a later time. They will be unable to take action.”

Asking whether this would apply to the Anti-Corruption Commission too, he said: “This discourages good governance and encourages tax evasion. If money earned through corruption can be legalised through taxation, will they be free from punishment for their corruption and irregularities? How acceptable is it to offer such an opportunity?”

“There is a political element to this economic decision. The owners of black money are getting pats on the head.”

CRITICISM OF RESERVE PLANS

The budget estimates that total foreign currency reserves at the end of the next fiscal year will stand at $32 billion. Commenting on the gross calculation by Bangladesh Bank, Khatun said, “It has not been stated how much the reserves will be using the BPM6 calculation method used by the IMF. By the Bangladesh Bank’s calculation, the reserves stood at $24.20. The dollar exchange rate in the budget is Tk 114, which was Tk 117.95 on Jun 5. Even if the point was to increase reserves, the value of the taka is being inflated, which is incomprehensible.”

Bangladesh may have plans to increase the value of the taka against the dollar in future, she said.

“How the value of the taka could increase during the current crisis is not comprehensible.”

AN ‘ORDINARY’ BUDGET IN AN ‘EXTRAORDINARY’ TIME:

The various economic indicators are not in a good place, Khatun said.

“The budget was presented at a challenging time. An ‘ordinary’ budget was delivered at an ‘extraordinary’ time. We hoped the budget would be very innovative. That it would be creative and make some bold moves.”

She said that a traditional budget cannot solve any kind of problem during challenging economic times.

“The strong action that needs to be taken to cope with the ongoing economic concerns has not been laid out in the budget. To us, this year’s budget seems to be much the same as the previous budget.”

“Unable to understand the economic challenges, the steps taken in the budget to address these challenges are weak and inadequate.”

CONFLICT WITH GOVT'S ELECTION MANIFESTO

Before coming to power, the government had vowed to reduce inflation in its election manifesto.

When asked whether the Awami League government had taken steps to bring some respite from the soaring inflation, Mustafizur Rahman told reporters, "There is no reflection of this in the proposed budget. The government has not taken any drastic measures to dent inflation. Traders will benefit from the duty exemptions while importing. This will also increase the supply of goods. However, consumers will not be able to benefit from it. Nothing will happen unless the trading system is supervised."

While speaking of good governance in the financial sector, Mustafizur said, "The election manifesto stated that the government will have zero tolerance against criminality and corruption. However, the new budget proposes the reduction of tax rates to bring money into the economy by targeting tax and loan defaulters. This goes against the Awami League's election manifesto."

PROGRESSIVE PERSONAL TAX RATE REVISIONS

Although the finance minister's newly proposed budget did not increase the tax-free income threshold, it did reduce tax rates for the middle class.

According to the budget proposal, income up to Tk 350,000 will not be taxed. The next Tk 100,000 of income will be taxed at a rate of 5 percent.

Previously, a 10 percent income tax was imposed on income between Tk 450,000 and Tk 750,000. Now, it will apply up to Tk 850,000.

Referring to the revisions of the tax rate as 'progressive,' Fahmida Khatun said, "This brings some relief to middle-income earners given the soaring inflation.”

PARLIAMENTARIANS TO LEAD BY EXAMPLE

While speaking of the increasing budget deficit, Mustafizur said, "Currently, various individuals and groups are benefiting from tax exemptions. For the next budget, customs duties on car imports have been levied upon the MPs. This is a good opportunity for them to set an example by paying their taxes."

While putting emphasis on automation and digitisation to increase revenue, he further added, "The chairman of the NBR stated that it is possible to collect a tax of Tk 100 by investing Tk 0.22 in digitisation. Investment in digitisation is relatively low compared to the other 33 LDCs [Least Developed Countries]. We need to start investing in this sector."

The presentation concluded that the budget for the upcoming 2024-25 fiscal year has failed to take concrete measures to alleviate the ongoing economic crisis. It also added that the measures to curb inflation and provide respite to the poor and lower-income groups are inadequate.

CPD Research Director Khondaker Golam Moazzem told reporters, "The new government has presented an old budget. The MPs have not been able to demonstrate a proper budget strategy to deal with the ongoing economic crisis."

One of the many problems in Bangladesh's economy is that revenue collection fails to meet expectations.

Taufiqul Islam Khan, a senior research fellow of the organisation, said, "Tax evasion must be averted. There is no way of raising revenue until tax exemptions are withdrawn."