‘Mitigate risks, cut polls-centric spending’

The national budget for FY2023-24 should be focused on mitigating the ongoing economic risks, including soaring inflation, the balance of payment deficit and energy subsidies, and cutting election-centric unnecessary allocations, says the Centre for Policy Dialogue (CPD).

The local think-tank made the recommendation in its proposal for the next budget at a press conference, titled “Weathering the Storm, Containing the Risks,” at its office in Dhaka’s Dhanmondi on Monday.

The next parliamentary election is scheduled to be held in January 2024 and the next budget will be the last for the ruling party before it.

“The ongoing external economic shocks turned internal and started hitting hard the living of common people in Bangladesh. It was thought that the external shocks will be in the macro economy but it reached the micro level,” CPD Research Director Khondaker Golam Moazzem said.

The impacts of the economic shocks will intensify in the days to come. To tackle the crisis, the government is taking loans from IMF and agreeing to their terms and conditions but it is not enough, he said.

The next budget is very crucial and to overcome the challenges, the government should focus on mitigating the ongoing economic risks including rising inflation, the deficit in the balance of payment and subsidies in the energy sector, the economist said.

He also said the government should also not allocate funds keeping the next election in mind.

CPD Executive Director Fahmida Khatun said the government spends a large sum in an election year. “Many times, we have seen that the expenditure appeared to be non-productive.”

“Such expenditure should be curbed because the economy is at risk. A strategy has to be adopted between fiscal and monetary policies so that the macro economy remains stable,” she said.

Revenue mobilisation

According to Finance Ministry data, revenue mobilisation decreased by (-) 3.1 per cent during Jul-Dec of FY2022-23. If the annual growth target of 31.8 per cent is to be achieved, then revenue earnings will need to rise by an unrealistic 67.4 per cent over the remainder of FY23, CPD said.

IMF has projected that the total revenue mobilisation of FY23 and FY24 will be nearly Tk 387,600 crore and Tk 454,900 crore, respectively.

CPD thinks that if the IMF projection for FY24 is to be achieved, then total revenue mobilisation in FY24 will need to grow by about 27 per cent, which will be a daunting task.

In this context, Fahmida said that the type of administrative measures taken to increase revenue collection as per IMF’s terms will not be fruitful. As a result of this weakness, shrinking fiscal space has forced the government to opt for restraining public expenditure.

ADP implementation

According to Finance Ministry data, total public expenditure recorded a paltry growth of 1.3 per cent during the Jul-Dec period of FY23. The most alarming fact in this regard is that the ADP expenditure recorded a negative 4.9 per cent growth during this period, said CPD.

Of the top 10 ministries or divisions with a combined share of 72.5 per cent of the total ADP allocation for FY23, four had below-average utilisation rates. As a result, the FY23 ADP has been slashed by 7.5 per cent taking the Revised ADP to Tk 2,27,566 crore.

Fahmida said that whether this is the result of limited resource availability owing to the fall in revenue mobilisation, the inability to implement a large number of projects, or the austerity measures taken by the government remains a critical question in this backdrop.

The ADP for FY24 should be carefully designed to contain the budget deficit. A political government may find it tempting to take on new development initiatives in the run-up to the upcoming election by adopting a populist stance, said CPD in its presentation.

Banking and remittance

CPD thinks it is important to ensure good governance in the banking sector since it emerged as one of the weaknesses of Bangladesh’s economy. It also demanded the formation of the banking commission again.

According to the think-tank, the balance of payments deficit is one of the biggest risks for the economy despite the decrease in imports. Emphasis has been placed on increasing exports and remittances income to reduce the deficit.

Fahmida said, in terms of exports, a decline in non-RMG exports is worrisome. “We need to look into it. Apart from this, we have to find out why the remittance income is not increasing despite the export of manpower in larger numbers happened in the last two years.”

Remittance inflow continued to remain in positive terrain at 4.3 per cent in Jul-Feb FY23 while overseas migration was far more impressive – about 27.5 per cent in the same period.

If remittance income through formal channels does not increase, then CPD suggested considering whether the incentives should be continued.

Health and education allocations

Bangladesh’s budget allocation for the health sector has been less than 1 per cent of GDP for over a decade. However, in 2017, at least 30 Least Developed Countries (LDCs) spent more than 1 per cent of GDP on health. In this context, CPD called for increasing budget allocation in this sector.

Besides, the education budget as a share of the total budget decreased from 14 per cent in FY2009-10 to 11.7 per cent in FY2021-22. The revised education budget as a share of GDP decreased from 1.9 per cent in FY22 to 1.8 per cent in the revised budget for FY2020-21.

Therefore, it is necessary to not only increase the budget allocation and budget utilisation of the education sector but also to undertake a variety of fiscal policies to encourage better education and maximise social welfare, recommended CPD.