Budget will plunge Bangladesh deeper into crisis, economists fear

They think the budget for FY24 is inconsistent and lacks a strategy to address key issues like inflation and dollar crisis

The national budget proposed for fiscal year 2023-24 will push Bangladesh deeper into an economic crisis instead of easing the instability, because it is inconsistent and lacks a strategy to address key issues like inflation and dollar crunch, economists have said.

Finance Minister AHM Mustafa Kamal presented his fifth budget, a Tk 7.61 trillion spending plan, in parliament on Thursday, with hopes to achieve 7.5 percent GDP growth and bring down inflation to 6 per cent.
 
“I’m sad to say that I haven’t seen such inconsistencies in this finance minister’s previous budgets. The main issue – how to bring the economy back on track – is greatly missing in this budget,” said Selim Raihan, the executive director at the South Asian Network on Economic Modelling or SANEM.

The Dhaka University professor said the budget also lacks focus and the priorities were not set properly. The focus should have been on lightening inflationary pressures on the economy, according to him.

“To control inflation, there are three factors: monetary policy, fiscal policy, and market management. Not much has been said about these in the budget. Inflation hasn’t been falling for one year, but it hasn’t been addressed in the budget.”

In the monetary policy, the government has not used a powerful instrument like the lending rate by capping it for a long time, Prof Raihan said. “Some readjustments in the tax policy may ease inflation, but there hasn’t been any such strategy.”

“Overall, there is a big gap in the budget. No action against the anti-competition practices and loopholes has been taken. This is why prices are not falling in Bangladesh despite a decrease on the international market.”

“The budget speaks about dramatic improvement in private sector investments from 21.8 per cent of the GDP to 27.5 per cent, which is totally unrealistic. Private sector investments haven’t increased at this rate in Bangladesh’s history. There’s no indication how it will increase,” Prof Raihan said.

The revenue target of Tk 5.04 trillion is also “unrealistic”, according to him. “How will this much revenue be collected without bringing big changes to the tax structure? And nothing is said about the jump in default loans.”

He questioned the target of financing the deficit by borrowing 17 per cent from the banks. “Then where will the private sector get funds?”

Prof Raihan saw very few positive things in the budget, such as a rise in allocations for the elderly and widows, but said it was too little.

A hike in flat and registration fees is a good side of the budget, but proposing Tk 2,000 fees for return submission is not justified, he said. “If a low-income citizen seeks a trade licence, they will have to pay the sum for return submission, while those dodging taxes won’t face any action.”

Former IMF official economist Dr Ahsan H Mansur said the latest budget bores the elements of intensifying the ongoing economic crisis instead of easing it.

“What we needed is a smaller budget. Considering the current macroeconomic climate, there’s no point in proposing such an ambitious budget, which will neither propel growth nor tame inflation,” he said.

Dr Zahid Hussain, the former lead economist of the World Bank's Dhaka office, said the global lender's conditions for extending a credit of $4.7 billion had been exaggerated in the budget speech.

“IMF’s condition was to increase tax revenues by 0.5% of the GDP [gross domestic product] in the next fiscal year, pushing the NBR to post a growth of 19 percent in tax collection next year. The government, instead, set a target of 29 percent growth. It appears the government is more aggressive than the global lender, but selling it with the IMF’s banner,” he said.

“I am not seeing anything in the budget which rationalises the subsidies, as prescribed by the IMF. What is there to rationalise in export and remittances.”

Dr Salehuddin Ahmed, former governor of Bangladesh Bank, addressed the negative effect of government borrowing from the banking sector on creating jobs.

“There’s no plan proposed on the budget to create employment. Instead, the plan to borrow massively from the banking sector will only hinder the creation of jobs. How can inflation be controlled if jobs are not created?” he said.

“No indication of how the government plans to address the ongoing reserve shortage. So, how can it hope to achieve a growth of 7.5 per cent?”