In response to the current economic situation, the government will be conservative in budget formulation and GDP growth target projection for the next financial year 2024-25.
There will be initiatives to increase reserves and employment with the highest importance, in a bid to bring inflation under control. The size of the proposed budget will not be large.
Sources at the Finance Division say such matters will be discussed in a meeting of the Budget Monitoring and Resources Committee and the Economic Coordination Council on Thursday, which would be chaired by Finance Minister Abul Hassan Mahmood Ali.
This will be the first meeting of this incumbent finance minister. The budget will be his first one as well. In this meeting of the financial sector’s highest policy-making committee, the depth of the economic crisis caused by different local and global factors will be discussed.
Over the last decade, except the Covid-19 pandemic period, the Ministry of Finance has consistently increased the size and formulated ambitious budgets. This time, a contractionary budget will be formulated out of that trend.
Officials associated with the budget formulation say the size of the budget must be reduced under the current economic situation.
They mentioned several reasons for this move, including stagnation in revenue collection; limited ability to borrow in foreign currency; interest rate increase in local borrowing by the government; slow implementation of ADP, decline in remittance flows; dwindling reserves; and limited opportunities for foreign investment.
They believe that in the next one to one and a half years, the positive trend will start in the economy. As the reason for this, they say, there is currently an increase in interest rates in the United States.
This growth will continue for the next one to one and a half years. The US will then lower their interest rates. And if their interest rates decrease, the flow of dollars in the country will increase and the reserves will increase.
Then, as the reserves increase, the price of the dollar will also decrease. Due to this, the price level will also go downward.
Budget size
This is the first time in the last decade that the budget size of the next financial year may be increased by 5.5 per cent, compared to the budget size of the current fiscal year.
This is an exceptional decision, breaking away from the historical trend of increasing the size of the budget by more than 10 per cent compared to the previous fiscal year's budget every year, except during the Covid-19 crisis period.
During the Covid-19 pandemic, the budget size growth rate for fiscal year 2021-22 was the lowest at 6.28 per cent.
The budget size for the next two financial years increased at a rate of more than 12 per cent due to the desire to take various economic indicators, including growth, investment, and employment, back to the pre-epidemic level.
Considering the high inflation control and economic crisis, insiders indicate that the budget for FY25 may be kept around Tk 7.97 lakh crore in FY2024-25. The budget shortfall may be Tk 2,55,000 crores, which would be 4.6 per cent of GDP.
Meanwhile, the GDP growth can be estimated at 6.75 per cent.
In the Eighth Five Year Plan, the GDP growth is estimated at 8.51 per cent for the next financial year. In the Perspective Plan – 2041, the GDP growth rate in FY2024-25 is projected to be more than 8 per cent.
It has been decided to reduce the size of the current fiscal year's budget to Tk 7.10 lakh crore in the revised budget, which is about 7 per cent less than the original budget.
The revised budget for FY2023-24 estimates the revenue collection target at Tk 5.55 lakh crore, which is 11 per cent higher than the revenue collection target of the original budget.
Since the beginning of the current financial year, due to various initiatives to achieve austerity in the fiscal policy and the contractionary monetary policy of the central bank – the inflation target has been increased to 7.5 per cent in the revised budget.
However, the inflation projection for the next financial year may be decided at some optimistic levels – 6.5 per cent to 6.25 per cent. According to the November data released by the Bangladesh Bureau of Statistics (BBS), general inflation was 9.49 per cent.
The Finance Division has decided not to give any subsidy to the power sector in the budget of the new fiscal year, even though it is expected to reduce the inflation rate compared to the target of this year’s revised budget, insiders say.
There is a possibility of increasing the production cost of various industries. However, subsidies on the agriculture sector will continue.
The Finance Division believes that the growth in the current financial year will decrease due to austerity in the government’s development and operational expenditures, decrease in imports and exports, and decrease in personal savings due to high inflation, political instability, slowdown in public-private investment, and negative growth of foreign direct investment.
Finance Division officials said these difficulties may hit the country in the next financial year as well.
The GDP growth projection for the next fiscal year is also lower than the IMF forecast. According to the lender, Bangladesh will grow by 7.1 per cent in the next financial year.
Finance Division officials admit that the high-growth budget strategy implemented in recent years has to be withdrawn amid the domestic and global economic context.
The government will now give importance to the development of human resources by reducing the expenditure on infrastructure. Due to this move, the growth may slow down a bit.
However, both the education and health sectors are lacking in projects or capacity to spend more, insiders say.
Allocation of ADP
In the revised budget of the current financial year, the allocation for ADP has been reduced by Tk 2.45 lakh crore and the budget deficit has been estimated at Tk 2.40 lakh crore. In the actual budget of the current financial year, the allocation for ADP was Tk 2.63 lakh crore and the budget deficit was estimated at Tk 2.61 lakh crore.
Finance Division officials said even if there is no austerity policy in the implementation of development projects in the current financial year, the money is not being spent in many cases as the revenue is not collected as expected.
Expenditure has been suspended from the bulk allocated by the government for the development sector.
However, due to the implementation of the austerity policy announced in the current financial year, about Tk 40,000 crore will be saved in the development and operational sector due to the election.
As a result of the austerity policy last financial year, the expenditure was reduced by about Tk 15,000 crore. The size of the ADP will be determined after today’s meeting. Relevant officials however said they do not have solid idea about the figures till the filing of this report.
