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The government on Thursday proposed the country’s 53rd budget amid an acute economic crisis, which is the Awami League-led government’s 25th budget.
This budget contains a questionable provision allowing anyone to whiten undisclosed wealth by paying 15 per cent tax without any question.
The Centre for Policy Dialogue (CPD) stated that the FY25 budget fails to provide concrete measures to overcome the ongoing economic concerns. The measures for curbing inflation and providing relief to the poor and fixed income people are inadequate.
Presenting a keynote at a media briefing held in the city’s Bangabandhu International Conference Center on Friday, CPD Executive Director Fahmida Khatun said, “Projected economic indicators, including inflation rate, GDP growth and investment, are overambitious.
“These projections do not take into account the current reality. Hence, many budgetary targets will be missed in the coming FY. More importantly, due to the inability to acknowledge the nature of the ongoing economic challenges, the proposed budgetary measures are also inadequate and weak.”
On the whole, FY25 budget is an ordinary budget during an extraordinary time, she added.
Discussing the issue of undisclosed wealth, Fahmida said, “While the maximum rate of income tax has been increased to 30 per cent, revenue collection historically does not witness significant increase through this facility.
“The money whitening facility is morally and economically unacceptable. By doing so, those who pay taxes regularly are being reprimanded. CPD thinks this type of provision undermines the rule of law, and goes against the spirit of good governance. Rather, tax-dodgers must face accountability and be made to pay for their misdeeds.”
CPD Distinguished Fellow Mustafizur Rahman said, “A vicious cycle has been created in the country. Whitening undisclosed wealth by paying 15 per cent tax is tragic. Even arrangements have been made so that no authorities can ask any questions.
“It is unethical and economically unsustainable. This will reduce taxes because many will smuggle money abroad.”
He continued, “The tax-free life limit is Tk 3.5 lakh, which is even less if we account for inflation. The rate at which the inflation has increased in the last two years has not increased in line with the income.
“This will increase pressure on low income people. The inflation is above 20 per cent in the last two years in terms of essential goods basket.”
Mustafizur stated, “Our economic stability has become shaky, and all economic indicators have been bruised. The immediate challenge of the economy is to tame inflation, improve foreign exchange reserves, and restore macroeconomic stability.
“For FY25, the GDP growth target has been set at 6.8 per cent, a recovery from 5.8 per cent of the proposed FY24 budget, which is too ambitious to achieve. Besides, the public investment-GDP ratio will decline to 6.1 per cent in FY25, from 7.5 per cent in FY24, which was an overestimation.”
He then pointed out “In FY25, Tk 343,544 crore will be additionally required for private investment. The incremental capital-output ratio (ICOR) is expected to be 4.9 in FY25, implying a productivity improvement.
“No impact of the on-going macroeconomic policy adjustments, including contractionary monetary policy and a restrained fiscal stance, was considered.”
Private sector credit growth
Private sector credit growth has been set to 9 per cent in FY25, which was 10 per cent in FY24.
As of April 2024, the private sector credit growth was 9.9 per cent. Besides, inflation is set to 6.5 per cent in FY25, which was projected to 8 per cent in FY24. The entire FY24 experienced inflation over 9 per cent.
This projection does not commensurate with the earlier estimation for private sector investment projection.
The inflation projection for FY25 certainly appears to be overambitious, said Fahmida, adding that it is not untestable why they estimated all economic indicators at a higher level.
Public debt stock as per cent of GDP is to increase by 0.9 percentage points in FY25 (38.6 per cent in FY25, and 37.7 per cent in revised FY24 budget).
She added, “It will continue to increase in the coming financial year as the target reality is not being followed. Policy-making should take into account the nature, depth of the problem and what needs to be done to overcome it.
“The targets to be set for the macroeconomic framework for FY25 did not take cognisance of the current realities, are too optimistic, and a similar approach was taken in the budget for FY24.”
The budget deficit has been projected at 4.6 per cent of GDP (4.7 per cent in the revised FY24 budget). Share of foreign loans and grants (37.1 per cent) in financing the budget deficit is expected to rise from 33.8 per cent in the revised FY24 budget.
Fiscal framework
Revised budget for FY24 did not consider budget implementation progress into consideration, putting credibility of fiscal framework proposed for FY25 at risk.
Even CPD projected that to meet the revenue collection target, 27.3 per cent of the actual FY24 revenue or approximately an additional Tk 1,16,000 crore may need to be mobilised.
Share of domestic financing is 62.9 per cent in the proposed budget for FY25, which was projected at 66.2 per cent in the revised FY24 budget, where Tk 137,500 crore containing 53.7 per cent of the total will come from the bank borrowing.
The critical question is how much will be borrowed from the central bank, and whether the liquidity situation in the banking system improves or not in FY25, CPD says.
