Prices of essentials like food and fuel skyrocketed, as dollar prices surged, putting the entire world in a chokehold of rising inflation. A ‘victim’ of global circumstances, Bangladesh has been striving to navigate the national economy through these turbulent times.
After the first wave of the coronavirus pandemic, the government had to shift its focus from development to the recovery of the national economy in the 2020-21 budget. The second wave of the pandemic unsettled Bangladesh for a while, but the economic indices began to improve in the current fiscal year.
After two pandemic budgets, Finance Minister AHM Mustafa Kamal was perhaps planning a return to the development focus of previous years. However, the war and its repercussions have thrown up another roadblock, forcing government officials to revise their previous plans to propel the economy. Every country around the world is gearing up to tackle the impact of the Russia-Ukraine war. The Bangladesh government is no different. One of its key tools will be the national budget for the 2022-2023 fiscal year, which is to be proposed on Thursday.
Efforts will be made to increase domestic investment and bridle the rising inflation that has reached its highest level in a year and a half. The budget is also likely to include measures to ensure the implementation of the government’s incentive to cushion the after-effects of the pandemic and raise food production, export growth, and job growth.
It is believed, from the expenditure in previous years, that the finance minister is likely to present a budget of Tk 6.78 trillion, 15.40 percent of national GDP. It will be a 12.29 percent, or Tk 741.83 billion, increase over the budget for the current fiscal.
On Tuesday, two days ahead of the budget being brought to parliament, the World Bank lowered its world economic growth forecast to 2.9 percent.
Despite this global economic crisis, Bangladesh’s GDP growth target has been set at 7.5 percent, higher than the 7.2 percent target for the ongoing year. According to the World Bank, the growth rate for Bangladesh could be 6.7 percent.
If the target is achieved, the total GDP will surpass the milestone of $500 billion and stand at $512 billion at the end of the new fiscal year.
The investment target has been set at 31.5 percent of GDP, including 24.90 percent from the private sector and 6.6 percent from the government sector.
In addition to a lower corporate tax rate to encourage investment, the budget may also include several proposals to bolster GDP growth.
Zahid Hussain, a former lead economist of the World Bank’s Dhaka office, suggested the government design an employment-friendly budget by keeping inflation in check and ensuring food security amid increasing import spending triggered by the rise in international commodities prices. The main cause of this inflation is the war in Ukraine.
The government is targeting an inflation ceiling of 5.5 percent in the next fiscal. The figure was 5.3 percent in the present fiscal but was revised to 5.8 percent in the second half of the year as the war hiked the price of fuel and other commodities in the global market.
According to the Bangladesh Bureau of Statistics (BBS), inflation rose to 6.29 percent in April, the highest in the last year and a half.
"Currently, the biggest challenge for the national economy is inflation and the lack of balance between demand and supply in the foreign currency market," said Zahid Hussain.
“The pressure on the national economy will reduce if Bangladesh can discard its dependency on imports and become self-reliant,” said former Bangladesh Bank governor Mohammed Farashuddin.
To increase domestic investment, Farashuddin suggested the government raise the price of imported goods and devalue the taka against the dollar.
"They must impose tariffs to ensure those goods already produced in Bangladesh are never imported. The government should offer a bigger tax rebate to local entrepreneurs in economic zones to attract more investment," he said. "Only then can Bangladesh end its dependence on imports and become a 'self-reliant' country as dreamed of by Bangabandhu."
As import spending rose recently, the balance of payment deficit reached the highest point in the history of Bangladesh. This has affected the foreign exchange reserves as well. In response, the government imposed additional duties on many imports to bolster reserves. It increased the loan margin and also imposed sanctions on foreign trips for government employees.
Under the circumstances, the upcoming budget targets a rise in import growth of 9 percent, down from the 12 percent in the current budget. The export growth rate has been estimated at 20 percent, which is nearly two-thirds higher than the rate in the current budget. Although remittance growth is negative in the current fiscal, the proposed budget estimated a 16 percent increase in the incoming payments.
The upcoming budget may also include Tk 83 billion for cash incentives for export businesses, Tk 62 billion for remittance incentives and Tk 12 billion to provide export incentives to jute product exporters.
Despite economists and other experts recommending a greater allocation to the social safety net to protect people from marginalised groups from the impacts of inflation, the government reduced the allocation in this sector as a percentage of GDP. However, the proposed budget has an allocation of Tk 1.13 trillion for some segments of the social security sector, which is Tk 53.86 billion more than the allocation in the current budget.
The highest allocation in the sector was Tk 335 billion in the social welfare segment.
This segment is used for providing allowances to disability service centres, the homeless, people from the third gender group, and the marginal groups. The new budget also has an allocation of Tk 278 billion for pension and family allowances.
Job growth programmes have been designed under the social security sector with an allocation of Tk 197 billion, a top-up of Tk 8.57 billion to the current budget allocation. The food security segment was assigned an allocation of Tk 190 billion. The figure is Tk 184.3 billion in the current budget.
The government proposed an allocation of Tk 70 billion for human resource development, around Tk 10.79 billion more than the allocation in the current budget.
The upcoming budget also has an allocation of Tk 60 billion for microcredit programmes under the social security sector, an increase of Tk 10.3 billion over the current allocation.
Despite ongoing criticism, the government has continued to portray the pension and family allowances provided to its employees as part of the social security sector.
The sector has an allocation of Tk 278 billion proposed in the next budget, up slightly from the Tk 266.9 billion in the current allocation.
“A person who receives Tk 500 from the government in allowance is unable to buy the same quantity of food they could buy last year with the same amount. This means that poor people are experiencing greater food insecurity,” said economist Zahid Hussain.
He suggested the government increase the number of beneficiaries and also increase the allowances. “People from the marginal groups suffered a lot over the last two years due to the onset of the coronavirus pandemic. Poverty has increased in the country, many research organisations have claimed in their reports. The purchasing power of the people is diminishing now as inflation has gone up. This means poverty has increased further.”
Another notable element of the upcoming budget is the deficit, which is estimated at Tk 2.44 trillion, or 36 percent of the budget, equivalent to 5.5 percent of the national GDP.
The revenue target has been increased to Tk 4.33 trillion, or 9.8 percent of GDP. However, it is a smaller percentage of GDP than in the previous budget.
The current budget targeted a revenue income of Tk 3.89 trillion or 11.3 percent of the GDP.
The National Board of Revenue’s target has been increased to Tk 400 billion higher than in the current fiscal year. The figure stands at Tk 3.7 trillion, 12 percent higher than the target in the current fiscal.
The budget also expects to collect Tk 180 billion from tax sources other than the NBR. The target was Tk 160 million in the current budget.
The government targeted an income of Tk 450 billion from sources other than revenue in the upcoming budget. The current budget has a target of Tk 430 billion from the same sources.
To meet the larger deficit, the upcoming budget proposes to add loans of Tk 1 trillion from foreign sources and Tk 1.41 trillion from domestic sources.
The current budget has a deficit of Tk 2.15 trillion but will increase by Tk 283.65 billion in the upcoming budget.
The Tk 6.77 trillion budget for the new fiscal year also includes operational costs and other expenditures of the government of Tk 4.31 trillion.
As the key segment of the operational sector, salary and allowance received an allocation of Tk 764.12 billion. A total of Tk 383.32 billion has been allocated to the goods and service sector in the draft budget.
The government proposed Tk 802.75 billion to pay loan interest and Tk 1.77 trillion for subsidies, incentives and cash loans.
According to the Ministry of Finance, Tk 2.46 trillion has been allocated for the Annual Development Plan (ADP). This will include Tk 1.53 trillion from domestic sources and Tk 930 billion from foreign sources.
The government proposed a significant hike in the allocation in this sector with a top-up of Tk 160 billion. The total allocation, therefore, will reach Tk 827.45 billion. The current budget initially had an allocation of Tk 538.52 billion in this sector, which was later revised to Tk 668.25 billion.
The proposed budget includes a subsidy of Tk 180 billion for the power sector and Tk 173 billion for the import of LNG and subsidies for incentive package interests. For subsidies in the food sector, the government proposed Tk 67.45 billion.
The government also proposed an allocation of Tk 100 billion to provide loans to Bangladesh Petroleum Corporation and Power Development Board in case of necessity.
[Reporting by Reazul Bashar, Zafar Ahmed, Faysal Atik and Farhan Fardaus; written in English by Sabrina Karim Murshed and edited by Shoumik Hassin]