Sunday, April 28, 2024
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The government, to counter the adverse downward trend in every economic indicator, should address existing challenges in the upcoming budget, and focus on restoring macroeconomic stability, and protecting the vulnerable and disadvantaged groups.
It should also work to enhance fiscal space, and ensure best use of public money in terms of prioritisation and good value in the fiscal framework for FY25.
In a recent dialogue, the Centre for Policy Dialogue (CPD) made these recommendations, as the country’s macroeconomic challenges have deepened due to subdued revenue collection, slow budget implementation, high inflation, liquidity crunch in the banking sector, lower momentum of export earnings and remittance inflow, and declining forex reserves.
Existing challenges intensified as the country’s revenue mobilisation has not met the fiscal framework targets, which in turn is increasing fiscal pressure.
The CPD had earlier said the targets set for the macroeconomic framework for FY24 did not take cognisance of the current realities.
The resultant fiscal framework for FY24 was rather formulaic in nature, and envisaged that a business as-usual scenario would prevail. Consequently, lofty targets were set that were very likely to be missed by a considerable margin at the end of the fiscal year.
The CPD pointed out, “If the annual growth target of 36.3 per cent is to be met, then total revenue collection will need to grow by a whopping 54.4 per cent during the remainder of FY24, an unlikely prospect for the country.
“Meanwhile, if the current revenue mobilisation growth is carried over, then revenue shortfall at the end of FY24 could reach Tk 82,000 crore.”
The CPD analysis shows that while proposing the budget for FY24, the targeted growth of revenue mobilisation was set at 15.5 per cent over the revised budgetary target of FY23.
However, if the actual revenue mobilisation of FY23 is considered, the growth target for FY24 actually turns out to be 36.7 per cent - more than double the projected growth rate.
On this backdrop, the CPD recommends that the government design and set fiscal targets of the upcoming FY25 in a realistic manner, taking cognisance of the emergent macroeconomic scenario – both concerning the domestic and external fronts.
As the government’s revenue mobilisation is sloth, maintaining a balanced budget deficit financing is a challenge. CPD argues that in FY25, a major challenge will be to cater to the envisaged financing from foreign sources.
The think-tanks pointed out, “Bank borrowing will likely be under pressure to finance the budget deficit.
“In the backdrop of the liquidity crunch of the commercial banks and the government’s commitment not to opt for borrowing from the central bank, the fiscal space available for the government will be somewhat limited, if private sector borrowings are not to be crowded out.”
It added, “So, the government should continue cautious and austerity measures in cutting down unnecessary and luxury public spending such as the purchase of government vehicles and international travel to reduce fiscal pressure.
“Meanwhile, the government should prioritise implementing all foreign-funded ADP projects in light of the declining foreign exchange reserve situation and give higher priority to implementing projects which are nearly finished – about 90 per cent to 95 per cent completion rate in June this year.”
The CPD recommends deprioritising projects that had a 10 per cent or lower implementation rate up till end of March this year, and an Independent Commission should be formulated to examine the concerns about the rising costs of public infrastructure projects.
Attention to food production, social protection
While designing the budgetary framework for FY25, policymakers should take cognisance of the continued rising cost of essentials.
The CPD stated that proper attention should be given to food production, social protection including public works programmes, subsidies for agriculture, energy and power sectors, as well as the health and education sectors.
Supporting the vulnerable and disadvantaged groups should be the central focus of subsidy management as they are suffering most due to skyrocketing prices, it added.
During the first eight months of FY24, general inflation remained over 9 per cent at national, rural, and urban levels and recent increase in electricity prices is likely to make matters worse.
Food inflation, both in urban and rural areas, was higher than non-food inflation while inflation in rural areas was, on average, higher compared to urban areas.
Legalisation of undisclosed income should go
A number of provisions concerning legalisation of undisclosed income and assets have been included in the Income Tax Act 2023, which carried over from the Income Tax Ordinance 1984.
CPD said that rather than continuing such measures year after year, more proactive actions should be taken against tax dodgers by enforcing appropriate laws.
For boosting revenue, the National Board of Revenue (NBR) should launch a comprehensive on-line payment system for VAT, income tax and customs together with an interface with iBAS++ and ensure harmonisation and taxpayer data sharing across various wings of NBR.
As per data from international sources, the major part of Bangladesh’s illicit financial outflows is on account of trade mispricing.
Transfer Pricing Cell (TPC) of NBR, Bangladesh Financial Intelligence Unit (BFIU) and Customs Intelligence and Investigation Directorate (CIID) should work closely to deal with trade-based money laundering.
Efforts to broaden the taxation base must be given priority in the FY25 budget. CPD said that opportunities of taxing the digital economy and initiatives towards digitalisation of the taxation system ought to receive priority attention on the part of NBR.
Besides, fiscal policies and proposals will need to be aligned with Bangladesh’s obligations as a future developing country following LDC graduation, and the FY25 budget will need to address the attendant challenges as also the medium-term reform issues to restore macroeconomic stability.
