The finance minister deserves appreciation for proposing a pragmatic budget defying manyfold challenges, both domestic and international, arising out of accentuating supply chain disruptions due to the Ukraine war at the back of the pandemic recovery.
The budget looks more pragmatic than expected, given the ground realities. The focused attention on increased allocations for agriculture and consequent food security in a volatile world has indeed been a highly prudent move.
Indeed, our robust agriculture has not only been the ultimate safeguard of our economy in the difficult days of the Covid-19 pandemic but also continues to remain a source of employment plus robust domestic consumption and demand.
With enhanced agricultural production, it has been substituting imports of food and thus helping the stability of our foreign exchange reserve. The trade imbalance could have gone worse had the agriculture sector not been so resilient.
The budget also provides extra incentives to digital entrepreneurs by reducing taxes for startups. This will go a long way in taking the country to fetch $5 billion worth of exports from digital products and services.
The decision to do a feasibility study on digital central bank currency is a welcome move. We have gone a long way in promoting mobile banking and internet banking to go for a cashless society. This will further boost that journey.
However, the increased five per cent VAT on broadband services and on the retail sales of mobile sets will increase the cost of digital services leading to a further digital divide.
The post-Covid recovery, in fact, expected more support for digital transformation. Almost all people in Bangladesh, including those at the bottom of the pyramid, use mobile phones. So this will add to their woes in this difficult year of inflation. I would strongly recommend rethinking this VAT proposal. The younger generations will get the wrong signal from this. The education sector will also get a hit from this.
The continued support for the export industries including zero taxation on homegrown shipping industries will help reduce freight charges for apparel and other exports. The increased support for the physically challenged, and the expansion of the social safety nets for the extremely poor are both steps in the right direction.
However, Tk 500 monthly support for the aged remains paltry and could have been increased a bit in the wake of persistent food inflation.
Meanwhile, the decision to launch the universal pension scheme has been a smart move. The legal framework for developing a regulatory authority as promised in the budget will set in motion this much-awaited pension scheme for all. There are many systems in place. We must take lessons from them and start our own homegrown scheme. We too have some experiences in health-related pension schemes in the non-governmental sector and should try to mainstream these experiences.
The increased taxation on tobacco products and enhanced allocations for the education sector are also welcome moves.
Further enhancement of taxation on luxury products will help reduce import bills and reduce the trade deficit. It will also provide indirect benefits to the import substitution industries for many of these products, like home appliances and durables used by middle and advanced consumer groups.
The increased allocations for the transport sector may ease traffic congestion and increase connectivity for faster movement of goods and services.
On the whole, the proposed budget will be seen as prudent. However, the favours are given to those who were involved in the flight of capital, though a desperate move by the government to get more foreign exchange, may be questioned by the observers on ethical grounds and as well as a source of disincentive for the usual taxpayers who are going by books.
Despite some contradictions in percentage terms in revenue collection and ADP, the budget didn’t cut the expenditures on soft sectors like health, education and social safety net. Instead, it has increased investment in people including better support for skills development.
However, all said and done, implementation of the budget will determine how able the country will steer the recovery drive despite post-Covid and global geopolitical challenges, particularly the growing and persistent inflation.
Atiur Rahman is an economist and former governor of the Bangladesh Bank.
