The Bangladesh government has taken a hard look at its expenditure plan, particularly focusing on administrative costs and subsidies in the proposed national budget for the fiscal year 2024-25.
However, they should further reduce expenditure by another Tk 50,000 crore, which would limit government borrowing from the banking system to less than Tk 90,000 crore. This would leave more resources available for private investment and help achieve macroeconomic stabilisation in FY25.
Moreover, if this policy is strictly maintained, and the Bangladesh Bank refrains from providing excessive liquidity support to commercial banks and does not print money to finance the budget deficit, the inflation rate should start to decrease within six to nine months.
Policy Research Institute (PRI) Executive Director Ahsan H Mansur made these remarks in his keynote presentation during a post-budget 2024-2025 discussion titled “Budget Insights: Challenges and Opportunities,” organised by the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) on Wednesday.
The discussion event took place at the MCCI’s Gulshan office.
Tight monetary policy, tax reforms needed
Ahsan H Mansur recommended a tight monetary policy to reduce inflation, called for tax policy reforms, and noted the unrealistic revenue target for FY25 amidst failed bank consolidation efforts.
He said, "We can anticipate that if Bangladesh continues tightening monetary policy like this, the inflation rate will come down to 5 to 6 per cent."
"FY25 is the year of macroeconomic consolidation. It will not be a year for high investment and growth," he observed, recommending that the government focus on maintaining a tight monetary policy stance to contain inflation and achieve relative price stability.
He also called for fundamental reforms in tax policy and administration to raise the tax-to-GDP ratio, stating, "Greater focus should be given to tax administration and its full automation in all three wings in an integrated manner."
The revenue target for FY25 is realistic but not attainable for the National Board of Revenue (NBR). The initiative by Bangladesh Bank to merge weaker banks with stronger ones appears to have failed due to a lack of political support and deficiencies in designing the consolidation framework, he said.
Ongoing policy paralysis is not an option, he added.
IPO incentive removal criticised, radical reforms urged
Adeeb H Khan, member of the Tariff and Taxation Committee at MCCI, criticised the removal of the IPO incentive for mobile operators, while Zaidi Sattar, chairman of the PRI, praised the budget's pragmatic approach but called for radical reforms and highlighted the potential of the "Made in Bangladesh" policy for global market growth.
In his keynote presentation, Adeeb H Khan said, "The slightly odd direction in the proposed budget policy is the removal of the IPO incentive for mobile phone operators. As a result, there is now no difference between listed and non-listed companies."
"Even if you face losses in the business, you will have to pay taxes because scope reduction or disallowances are no longer considered special business income. This move is unfair in the Finance Bill 2024," he commented.
Zaidi Sattar said that the budget was headed in the right direction, being much more pragmatic and realistic in terms of expenditure. "Some are saying that it is contractionary, but it is moderately expansionary compared to the revised budget."
While he believes the revenue target is realistic, Sattar also expects radical reforms. "The budget deficit is the lowest in the last 15 years. Ideally, budget deficits support contractionary fiscal and monetary policies," Sattar said.
On the issue of "Made in Bangladesh" in the budget, he described it as a nationalistic idea. He stated that if policy support for “Made in Bangladesh” was geared towards sales in the global market, there could be seven to eight per cent growth, rising to ten per cent.
He, however, added, "There are no examples of any country achieving such growth through selling within the country."
Exchange rate liberalisation, corporate tax rate cuts praised
Addressing the audience as the chief guest, Prime Minister's Economic Affairs Adviser Dr Mashiur Rahman said that the liberalisation of the exchange rate was a good move to address the macroeconomic challenges the country was facing.
He also emphasised increasing productivity and focusing on product and market diversification. Given Bangladesh’s unemployment level, he believed in the need for further government investments and removal of bottlenecks.
He stated that the goal of bank mergers should be to improve the banks’ capacity to lend and their suitability to borrow, thus increasing the banks’ overall strength.
In his welcoming remarks, MCCI President Kamran T Rahman commended the reduction of the corporate tax rate by 2.5 per cent for unlisted and one-person companies and recommended applying this reduction to listed companies as well.
However, he found the opportunity to whiten black money by paying a 15 per cent tax to be demotivating for honest taxpayers.
The MCCI president believed that only raising the tax rate without expanding the tax net would not achieve the desired tax-GDP ratio.
Before concluding, he expressed that having an interim evaluation of the budget every three months would be very helpful.
