Published : 30 May 2024, 08:36 AM
Updated : 21 Aug 2026, 11:32 AM
The government is grappling with unprecedented challenges in crafting and implementing the national budget amid a complex economic crisis. Economists are cautioning against increasing the cost of living and depleting reserves.
Despite annual budget increases, each fiscal year ends with a deficit in implementation and the outgoing year is no different. Observers fear the same thing will recur in the upcoming fiscal year, with weak management of the economy by the government.
Finance Minister Abul Hassan Mahmood Ali is set to present the budget for fiscal year 2024-25 in parliament on Jun 6, aiming to increase funding over the current year, despite a cautious policy stance.
Economists are fearful that Bangladesh's economy is in crisis and emphasise the urgent need for a clear strategy in the upcoming budget to address major challenges and stimulate recovery.
Ahsan H Mansur, the executive director of the think tank Policy Research Institute or PRI, told bdnews24.com that planning alone will not suffice because funds are lacking.
"The main problem is that we've lost confidence in the economy, and trust in the government's financial management has declined."
PRE-BUDGET CHALLENGES
Mansur warned that the country's economy is at risk of "falling into a ditch" as the government calculates the income and expenditure for the new fiscal year.
"We need to increase reserves. If we can't repay the loans, confidence in the economy will be lost," he said.
Mansur emphasised the precarious situation, stating: "If we move carelessly, we could fall into a ditch because we lack reserves. We have already lost $24 billion, so we must proceed with caution."
According to the Bangladesh Bank, the country's foreign exchange reserves are now below $24 billion in gross terms, compared to over $31 billion before the current fiscal year's budget.
The decrease in reserves, along with a dollar crisis, has heightened inflationary pressures.
The overall inflation has exceeded 9 percent since March of last year, despite the government's plan to keep it within 6 percent for the current financial year.
According to Mansur, "The main problem in the economy is inflation. The government has taken some steps to address this. To reduce inflationary pressures, the government needs to cut down on domestic borrowing.
“However, achieving growth will not be easy because our banking sector is in poor condition, which has become a major problem."
Economist Zahid Hussain also believes that the primary challenge is to ensure that the budget does not increase inflationary pressures.
Zahid, the former World Bank lead economist in Dhaka, advised: "In situations where there is no foreign financing but imports, you have to buy dollars from the market. Such projects should be avoided to prevent pressure and ensure that the demand for dollars does not increase due to the budget."
If there is a large deficit in the budget, he said, it will increase inflationary pressure.
He recommended focusing on controlling deficits and avoiding increases in indirect taxes, while efforts must be made to reduce revenue loopholes.
Regarding the liquidity crisis in the banking sector, Zahid said, "Credit flow in the banking sector has significantly decreased, and interest rates are higher now. If the government borrows a large amount from banks, it will negatively impact private sector credit flow. An alternative is for the government to borrow from the Bangladesh Bank, but this could create inflationary pressure.”
Therefore, the goal should be to reduce costs further and prioritise projects with significant foreign financing in the pipeline, he said.
By accelerating the implementation of these projects, the government can maintain its investment expenditure without relying on internal financing, he added.
The economist emphasised foreign loan planning. "We should avoid bilateral loans from countries like China, India, and Russia, where interest rates are high.
"We cannot halt foreign investments because the government will not be able to invest.
“Therefore, we must utilise loans that have relatively long terms and are cheap. For example, if we can increase the implementation of projects on loans from the World Bank, we can control the pressure of repayment. Loans must be repaid."
Economics teacher and researcher Professor Sayema Haque Bidisha also believes inflation and the reserves are the major challenges in next year's macroeconomic budget.
"In addition, there's the issue of the value of the taka against the dollar. In this challenging situation, the budget must aim to bring the cost of living to a more comfortable level. Efforts should also be made to achieve positive changes in the reserves."
She also highlighted the challenges of poverty alleviation, gross domestic product or GDP growth, and employment generation.
"Since the welfare of the common people is paramount, efforts must be made to relieve them from the pressure of inflation. To achieve this, we can consider reducing VAT and import duties on essential commodities."
Bidisha, a teacher at Dhaka University, said, "One of the challenges will be in revenue collection. To offset this loss, many untapped opportunities in personal sector income tax can be utilised."
CAUSES OF BUDGET IMPLEMENTATION DEFICIT AND SOLUTIONS
In the current fiscal year, the government initially budgeted about Tk 7,618 billion, which has been revised down to Tk 7,150 billion.
However, actual spending is expected to be less than Tk 6,500 billion.
Meanwhile, the government is preparing a budget of Tk 8000 billion for the new fiscal year, a move that economists are questioning in terms of its implementation feasibility.
"Economists argue that there is a significant deficit every year due to unrealistic budget targets," said Zahid, the former lead economist at the WB's Dhaka office.
"We consistently set ambitious targets that are rarely achieved. The outcome this year will depend on the government's actions."
It has been reported that the revenue target for the next budget is set at about Tk 5,500 billion.
In the current fiscal year, the revenue collection target was Tk 5,500 billion, of which 70 percent has been achieved in the first 10 months.
PRI researcher Mansur, said, "Achieving the revenue collection target will not be possible. While the target set in the revised budget seems reasonable, achieving it will still be challenging. This perennial issue creates ongoing problems. Instead of blaming budget implementation, we need to focus on increasing revenue for effective implementation."
"Our capacity to implement the budget is not improving. If the revenue deficit persists, it cannot be resolved. Therefore, expenditure must be aligned with revenue to achieve a more balanced approach," he added.
The former IMF official believes that the main issue with the budget is that its size could have been smaller.
"We could have allocated more funds to other areas, but we can't spend them there. We are wasting a lot of money unnecessarily. Those expenditures need to be curtailed.
“There is no need for so many ministries; ministers and secretaries should be appointed accordingly."
According to economist Zahid, reducing tax exemptions and minimising leakage is crucial for increasing revenue and reducing budget deficits.
"Taxpayers are paying their taxes, but not all of it is reaching the government coffers; a third party intercepts it. Therefore, in the case of income tax, taxpayers should be able to fill out an online form directly without going through tax officers and calculate their tax returns.
“This way, the tax calculation will be self-determined, leaving no room for negotiation with tax officials. This approach will reduce leakage significantly."
"This will be another setback for officials' income. Its [fully online tax] effectiveness remains to be seen. If the online process isn't done properly, eventually you'll have to go to tax officials. In that case, the leakage won't decrease."
He blames the budget deficit on the government's inability to implement projects.
"The budget isn't being implemented due to project execution hurdles. Every year, the Implementation Monitoring and Evaluation Division or IMED reports delays in project procurement and management instability. Transfer of directors is a known issue that disrupts projects."
"These are identified problems that the government is aware of. When a director is transferred, projects often stall. If we can't fix these issues, our efforts will be in vain."
He also pointed out that the failure to implement the budget is leading to a bleak future.
Zahid said, "The macroeconomy is under pressure. Inflation is one issue, and there are structural problems such as unemployment and underfunded sectors like education and health. Moreover, the allocated funds in these sectors often go unused, leading to no increase in allocations."
"That's not the solution. Why can't we utilise the allocations in these sectors, particularly when the health sector situation is critical? I don't see any alternative but to remove the implementation barriers."
"If we fail to invest properly in these sectors and build a skilled workforce, we will face more challenges in the future, especially in preparing our workforce for the technological advancements of the fourth industrial revolution," he said.
"Therefore, the government's plan for human resource development must be robust. The only way to strengthen it is to improve the quality of government spending.
“The marginalised population is experiencing a livelihood crisis due to high inflation. Wages are not increasing, but commodity prices are rising. In this situation, the government should support them through social safety nets."
Pointing out some of the major issues in the financial sector, the economist expects specific reforms to be outlined in the budget.
[Writing in English by Arshi Fatiha Quazi]
