Plethora of promises, initiatives lack a punch

The proposed budget for FY24 will keep corporate taxes unchanged and provide other policy support to the country’s business community, bringing a much-needed sense of ease to those keeping the wheels of the economy turning.

Businesses are getting a breather, but they are still quite concerned for survival amid external and internal economic shocks, as the foreign exchange crisis continues to hinder imports of raw materials to produce goods, and capital machinery to make new investments.

Finance Minister AHM Mustafa Kamal on Thursday placed a Tk 7,61,785 crore national budget for FY24 in Jatiya Sangsad with a focus on tackling skyrocketing inflation, employment generation, the fourth industrial revolution, and ultimately, to build a “Smart Bangladesh.”

Under the country’s ongoing economic status, it is crucial to reduce living expenses of people, who are already grappling with soaring prices of essential commodities and shrinking income.

Kamal himself recognised the economic crisis saying, “Overall, our current challenges are to rein in inflation, improve the current account balance situation, and stabilise the foreign exchange rate.

However, the proposed budget did not give a clear pathway to address the forex crisis and taming inflation.

The budget also ignored key macroeconomic issues, and did not focus on bringing stability, which is very important to bring inflation under control. An expansionary budget is not helpful towards controlling inflation, as it increases fund flow.

Due to a decrease in the prices of fuel, food, and fertilizer in the global market, along with the adjustment of fuel prices in the domestic market and government initiatives to keep the food and supply systems normal, the inflation will remain in control in the next FY.

The annual average inflation is expected to stand at around 6 per cent, the minister said in his speech. Amid 9.26 per cent inflation in April, the target of keeping it at 6 per cent in FY24 is highly ambitious.

However, necessary steps to contain inflation were not visible in the proposed budget for FY24. But the hopes are there if the next monetary policy reins in the money flow. Initiatives such as currency policy, duty and tax measures are not devised to this end.

With a minimum Tk 2,000 income tax, the proposed budget will also increase the financial burden of people, at a time when they are already tackling unusual living costs. Though the tax free income rose to Tk3.5 lakh, it would not benefit lower middle income segments.

One top of that, the proposed budget increased 2.5 per cent VAT to 7.5 per cent on household items including tableware, kitchenware, plastic tableware, household articles, hygiene and toilet articles, kitchen, towel toilet tissue, napkin tissue, facial tissue/pocket tissue, aluminum and kitchen, sanitary ware and parts made of aluminum.

Declining foreign exchange reserves is a big issue for Bangladesh to rejuvenate investment and ensure smoother imports of raw materials and capital machinery, but no plans were chalked out to increase the greenback inflow in the proposed budget.

To rebuild the foreign exchange reserves, the government banks on the traditional imports checking and cash incentives against remittance sending, which is not an effective tool as it may create an obstacle in investments.

The imports of raw materials and capital machinery have already been hit.

In FY24, the government proposed to increase the investment to GDP ratio to 33.75 per cent, which was 27.84 per cent rate in the outgoing FY. But there is no road map on how to attain this ambitious investment target.

The high bank borrowing to meet budget deficit and slower forex reserves is an impediment to investment.

The proposed budget set a borrowing target of Tk 1,32,395 crore from banks to finance a deficit of Tk 2,61,785 crore in FY24. Higher borrowing from banks will slow down private credit growth, which came down to 11.28 per cent in April this year.

Protection to local industries good

Though there is some frustration for the business community, there are some hopes as well. The proposed budget offered protection for local manufacturers by increasing supplementary duty and reducing taxes.

To encourage local manufacturing and discourage imports, the government plans hikes to import duty on lifts, escalators, bicycles, and home appliances including washing machines, refrigerators, juicers, and toiletries.

On the other hand, to encourage local software developers, the budget proposed 15 per cent VAT on software imports. It also offered a new tax structure for electric motor producers.

Social safety net increases

The budget proposed allocation of Tk 2,696 for the social safety net programmes meant for poorer segments of the population compared to the previous FY, which includes a rise in some allowance schemes and expanding coverage.

In FY24, Tk 1,26,272 crore will be spent for the social security programmes, which is 16.58 per cent of the country’s total budget for FY23 and 2.52 per cent of GDP.

However, in the previous budget, the government allocated 16.75 per cent of the total budget and 2.55 per cent of the GDP for the safety net programmes, which means poorer people this year will get slightly less from the chunk.

The total proposed budget for FY 24 is Tk 7,61,785 crore. The allocation for the social safety net has been increased in every budget but proportionately it has been declining. In FY22, it was 17.82 per cent of the total budget and 3.11 per cent of the GDP.

There are ten social security programmes where cash is transferred directly to the beneficiaries as allowance. In this chunk, festivals, victory and Bangla New Year celebration allowance for the heroic freedom fighters has been newly added. Tk 16.71 core will be spent on this purpose.

Ambitious revenue collection target

Though the National Board of Revenue (NBR) lags behind to attain the revenue collection target of the outgoing fiscal year, the government is setting a target to earn Tk 500,000 crore in FY24.

Out of the figure, Tk 430,000 crore will be earned through the NBR and Tk 20,000 crore from non-NBR tax and Tk 50,000 crore from non-tax revenue.

The key focus of Bangladesh’s fiscal policy and strategy will be to mobilise internal resources, increase efficiency in expenditure management, and find cost-effective financing sources from home and abroad to meet the challenges of the post LDC graduation period.

“We want to harness all potentials of generating revenues,” Kamal said in his budget speech.

He elaborated, “Tax revenue will be significantly increased through the expansion of the tax net by simplifying the return submission process and other reforms and rationalisation of tax exemptions.

“The establishment and expansion of electronic fiscal devices (EFD) will be ensured to support value added tax collection in an automated and transparent manner, while putting an emphasis on online VAT registration and automation of tax administration.”

Employment generation and skill development

“Ensuring decent employment for all and making the workforce skilled and fit for the labour market is one of our economic policies,” said Kamal.

He added, “An economic zone has been established covering an area of 1,150 acres in the Bangabandhu Sheikh Mujib Shilpa Nagar area near Chattogram for creating employment opportunities for about five lakh people.

“Work is in progress for creating a Department of Employment for the purpose of generating new jobs, and creating a central database on employment, education and training.”

To face the 4IR challenges and creating a skilled workforce, skill development is a must, but the roadmap towards creating trained manpower is not well defined in the budget for FY24.

However, an allocation of Tk 100 crore for search and innovation is a good initiative for the future tech based startups.

Is it an election year budget?

Many expected that the government would place a populist budget for FY24 ahead of the national election to woo voters.

But it seemed that the government tried to balance the crisis and people-friendly promises because of the mounting pressures caused by the external and internal economic shocks.

It widened social safety net coverage with increased allocation, but it is not enough to bring all the eligible poor under this initiative.

In gaining support of the country’s business community, this proposed budget is allowing continuation of existing trade benefits already offered by the outgoing budget.

On the other hand, the government tried to give protection to local industries.

Journey towards a bright future

“While our goal is achieving higher growth, we want to lay greater emphasis on maintaining macroeconomic stability at the same time,” said Kamal.

He adds, “Following the adoption of the time-befitting strategy of our government, the instability in the balance of payment has already gone down. We will remain cautious, and adopt an accommodative policy in the coming FY as well.”