Can this budget deliver on its promises?
![Sketch: TBS](https://www.tbsnews.net/sites/default/files/styles/big_2/public/images/2024/06/07/picsart_24-06-07_01-16-32-173.jpg)
With an eye towards battling inflation, Finance Minister Abul Hassan Mahmood Ali unveiled a Tk7.97 lakh crore national budget yesterday (6 June) for the fiscal year 2024-25.
Usually, the size of a new budget increases by 10% to 12% compared to the current year's budget, but this time it increased by less than 8%, with a lowered GDP growth target of 6.75%.
TBS spoke with four experts to gauge their opinions of the budget.
FY25 is not a year of growth, not a year of investment
![Ahsan H Mansur. Sketch: TBS](https://www.tbsnews.net/sites/default/files/styles/infograph/public/images/2024/03/27/ahsan_h_mansur_1-copy_1.png)
Dr Ahsan H Mansur/Executive Director, Policy Research Institute (PRI)
The challenge of inflation is beyond the budget. But budget plays a supporting role. What really plays a major role is the government's monetary policy. And the monetary policy has been tightened to a large extent… We have to be patient. We are hopeful that inflation will come down by December.
I think there are some internal inconsistencies within the government. I do not think this year is a year of growth. I do not think this is a year of investment. I am of the opinion that the private investment target that has been projected has some inconsistency. The budget expects that private sector investment will increase by 29%, which is impossible.
At times like this when there is a liquidity crisis in the banking sector, when the government will crowd out much of banking sector funds, then the banks will not be able to facilitate the private sector with loans.
The government is taking Tk1,36,000 crore from the banking sector. The banking sector can grow 10%-11% at most. It might get Tk1,70,000 crore to Tk1,80,000 crore deposits. If the government takes Tk1,36,000 crore from this, what will be left for the private sector? So, the growth expected from the private sector is not possible for the budget.
Investment will decrease, the growth rate will slow down, inflation will come down, and then the economy will stabilise. Then we will need to carry out tax reform and banking sector reform. Without reforming these sectors, hoping that the growth rate will always be around 7%-8% is absurd.
The approach to whiten black money is fundamentally flawed
![Debapriya Bhattacharya. Illustration: TBS](https://www.tbsnews.net/sites/default/files/styles/infograph/public/images/2024/05/07/debapriya_bhattachariya.png)
Dr Debapriya Bhattacharya/Distinguished Fellow, Centre for Policy Dialogue (CPD)
The issue of whitening black money is highly sensitive. In the past, opportunities provided to legitimise black money have been ineffective. Instead, these measures disrupt financial discipline, increase social inequality, and encourage corruption in politics. Consequently, I firmly believe that this approach is fundamentally flawed.
In their last election manifesto, the government pledged to adopt a zero-tolerance stance against corruption and to reject any undeclared money acquired through illegal means. Legalising such money now would contradict their election promises.
I want to highlight two specific concerns.
Firstly, this is likely the first instance where it has been stated that no questions will be asked regarding the origins of black money. This implies that even if the money was earned illegally, it would not be scrutinised, which undermines the rule of law.
Secondly, while a flat 15% tax is proposed to legalise black money, individuals or institutions who earn money in an honest way are required to pay up to 30% in taxes. This disparity is inherently unfair.
At a time when governments worldwide are implementing strict measures against money laundering and black money, our government appears to be regressing. I am baffled as to how such a decision could have been approved.
Meanwhile, inflation is currently at 9%, and the target in this budget has been set to reduce it to 6.5%. However, I don't believe this is realistic because the Finance Minister's speech did not provide a clear plan as to how this reduction could be achieved.
Also, it is quite normal for a country like Bangladesh to have a budget deficit. But what is more important than the deficit itself is where we are getting the deficit money from, what we are going to do with it, and how we are going to repay that money.
We will have to borrow the money from outside the country, and 70 % of the deficit will still be spent on infrastructure. That means it will take us a long time to repay the money, which is a cause for concern.
To reform the banking sector, we require skilled, industrious, and reputable individuals
![Salehuddin Ahmed. Sketch: TBS](https://www.tbsnews.net/sites/default/files/styles/infograph/public/images/2023/06/23/salehuddin_ahmed_new.png)
Dr Salehuddin Ahmed/Former Governor, Bangladesh Bank
I am satisfied with the size of the budget. It is realistic to be restrained. But at the same time, I am a bit disappointed that the expenditure is high, resulting in a deficit budget. Unnecessary expenses must be reduced, and spending is only allowed for priority projects.
Why allocate such a huge amount of money for ADP projects? Only the priority projects should have been kept, and all others should be halted for now. Reducing it by half would cut the budget deficit by half.
To cover the deficit, there is high dependence on bank loans. Considering the contractionary monetary policy and liquidity crisis of the banks, it will create pressure on the private sector. We should have addressed more sources for business and income first.
How will investment be structured? It would certainly be possible if FDI (Foreign Direct Investment) and FPI (Foreign Portfolio Investment) were to come in. I think it will be tough to meet the inflation target of 6.5%. The market must be monitored with a coordinated effort.
To reform our banking sector, we require skilled, industrious, and reputable individuals. That's a significant type of reform.
The allocation of non-development expenditure could have been improved, particularly given that the administration sector accounts for 40% of it. Though controlled by the IMF, it's commendable that there's a promise to allocate subsidies to the energy and agriculture sectors.
More focus should have been on direct tax, instead of VAT
![Muhammad Abdul Mazid, Former chairman, National Board of Revenue. TBS Sketch](https://www.tbsnews.net/sites/default/files/styles/infograph/public/images/2022/05/24/abdul_mazid-tbs.png)
Dr Muhammad Abdul Mazid/Former Chairman, NBR
I think this is a contractionary budget and it has been drafted keeping the ground realities in mind. Unlike other years, this budget cannot be called overly ambitious. If all other things remain the same, properly utlisiling the budget will not be an issue.
The main goal of this budget is to bring inflation down; how that will be done remains to be seen. There are some discrepancies between the monetary policy and the budget. There are two types of tax: direct and indirect. Direct tax is more important type of tax and should receive more focus. Direct tax even helps reduce discrepancy between different social classes.
But we have not seen many initiatives to increase direct tax. The new initiatives proposed such as bank surcharge if you have more than a certain amount in banks, higher call rates are all indirect taxes. VAT is an indirect tax. It has a negative impact on inflation. VAT will impact things such as raw materials, in turn increasing cost of business.
Taxpayers have to pay around 30-35% taxes, but black money can now be legalised by paying only 15% tax; even the fine that was there before has been waved. This will discourage not only the existing taxpayers but also the potential ones from becoming taxpayers in the first place.
The NBR has been tasked with collecting Tk480,000 crore in the next fiscal year, which is 11.6% higher than that of FY24.
It would have been better if the non-tax revenue segment of government income were to earn more but it has been in fact decreased. The non-tax revenue segment is planned to generate Tk45,000 crore, which is 10% lower than this year.
A big chunk of this non-tax revenue is supposed to come from state-owned entities, which are not good at properly utilising funds.
Around two years ago a law was drafted to use SOEs' Tk2,12,100 crore idle money sitting at banks would be used for development work. They are not very efficient at handling idle funds. But nothing came to fruition. Around 17% of our GDP is lying with them.
Whether the NBR can reach the target set for it is not just a question of its efficiency. Yes, the NBR has issues, they have manpower shortage, they are not digitised etc. But the economy must be also be revitalised. The NBR cannot do that. It cannot also solve the issues plaguing the banking sector. Only good governance can do that.
If such high growth is pursued, there is a risk of increasing the inflation rate
![Mohammad Abdur Razzaque. Sketch: TBS](https://www.tbsnews.net/sites/default/files/styles/infograph/public/images/2022/05/19/-abdur-razzaque-chairman-rapid.png)
Dr Mohammad Abdur Razzaque, Chairman, Research and Policy Integration for Development (RAPID)
The Finance Minister has been quite straight-forward in presenting the challenges ahead for the Bangladesh economy… He has paid much attention to curbing inflation. I find it quite positive. He has also talked about LDC graduation. He has mentioned that after LDC graduation, our country will not be eligible for many benefits in global trade. I hope that some measures to counter it will be reflected in the budget.
The Finance Minister wants to check inflation. And that is why he has reigned in the growth rate of budget expansion. Perhaps he has not been directly involved in the policy measures that resulted in the current macroeconomic crisis. But he has taken the responsibility to salvage the situation….
It seems that even though he wants to take similar contractionary fiscal measures, like the ones taken in monetary policy, it will be hard to achieve given the current fiscal deficit. If such high growth is pursued, there is a risk of increasing the inflation rate.
We have seen that taka has been devalued in the past year… Even though the government is saying that the budget deficit is decreasing, they have to take out loans to fill the gap. And the interest payment for these loans is about 16% of this budget. Also, there will be a 14% subsidy. Moreover, 10% of the budget will go to the salary payments of government service-holders. About 40% of our budget will be spent in these sectors.
For the last few years, our development budget has been borrowed, and it is pushing the costs of their implementations upward. In the education, health and social welfare sectors, the absolute amount of the budget will increase. But the percentage of GDP for these sectors will remain stationary.
Our current inflation rate is nearly 10%. The Finance Minister wants a growth rate of 6.7%. If he wants to achieve such growth, bringing inflation down to 6.5% will be very tough. We may see a compromise there.
Budget reflects a pressure on revenue collection through VAT and other taxes
![Mustafizur Rahman. Sketch: TBS](https://www.tbsnews.net/sites/default/files/styles/infograph/public/images/2024/03/24/mustafizur-rahman-cpd.png)
Professor Mustafizur Rahman/Distinguished Fellow, Centre for Policy Dialogue (CPD)
As citizens, we expect a democratic government to present a people-friendly budget. Since the economy is going through a tough period and the Bangladesh Bank is also pursuing a contractionary monetary policy, an attempt has been made to keep the size of the budget somewhat restrained. We can understand this from the expenditure estimates allocated to various sectors of the budget. Perhaps one major reason for trying to keep the budget size smaller is to avoid increasing the size of the debt. Increasing the debt size would otherwise raise questions about bank loans, which could potentially stimulate money supply and inflation— the budget planners might have considered it.
The revenue collection target has been set to 9.7% of GDP in 2024-25. However, we know that in 2023, the actual figure was 8.3%. Even if we estimate for 2024, it will be around 8.4 or 8.5%. To raise it to 9.7% will require some initiatives. It has been stated that there was no pressure, but there is indeed pressure from the IMF. The revenue income in the budget needs to be brought to a certain level of GDP—around 9.7%. There is certainly underlying pressure in achieving this, as it seems to be a significant target. Therefore, it's clear from the numbers that there is some pressure.
Another issue is that right after public administration, interest expenses are coming in at number two. Therefore, the accumulating interest in the economy, the burden of servicing our interest and principal, is also increasing, and this is evident from the current structure.
Analysing the income tax structure, it is evident that some adjustments have been made to reduce the burden on the middle class. We observed that the highest income tax rate, which was 30 percent before COVID-19 and was reduced to 25 percent, has been brought back to 30 percent. This adjustment has been made considering the increasing income inequality.
However, the pressure on revenue collection through VAT and other tax structures has been well reflected in the budget. Some tax proposals have provided protection to our import-substituting products. This has also been applied to several essential goods. On the other hand, since the general public is under pressure, it seems that due to resource constraints, it has not been possible to extend family cards or other social protection measures as extensively as they could have been.