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There is no consistency or logic in the targets set
Given the unprecedented crisis Bangladesh’s economy is facing – high inflationary pressures and macroeconomic instability – my expectation from the proposed budget of FY 2023-24 was that it would ease pressures and bring about much-needed stability to the economy. Instead, what the budget has done is ambitious – and in my opinion, it has posed unrealistic targets. For instance, the GDP growth target has been set at 7.5 percent, and it is being claimed that a major driver of such growth will be much accelerated private sector investment. Surprisingly, it is being said that private sector investment will increase by around six percentage points with respect to the GDP in the upcoming fiscal year. The total GDP-to-investment ratio will be 33 percent, while GDP to private sector investment will be 27.5 percent, which was 21.8 percent this fiscal year. Such a dramatic improvement in private sector investment in such a short period of time has not happened in Bangladesh, and is not feasible – it is completely unrealistic.
Let me talk about another anomaly. It is being said that there will be a dramatic improvement in private sector investment. But the question is, where will the investment for private sector financing come from?
Traditionally, our banking sector has been a big source of financing for the private sector via credit. Yet, when you look at the government’s budget deficit financing this time – about 5.5 percent of GDP – more than Tk 1 lakh crore will be taken as loans from the banking sector. If the government takes up so much of the loans, what will be left for the private sector?
And if the government does not borrow so much from the banking sector, who will the government turn to for such financing? If it goes to the central bank, it will provide the financing by printing new money, which will increase the inflationary pressure within the economy.
Another completely unrealistic target is that of inflation, which the budget states will come down to six percent in the upcoming fiscal year. For more than a year, inflation could not be tamed because the government’s policies and steps were inadequate. Meanwhile, there were a lot of anomalies in domestic market management, and on the fiscal side, too, import tariffs and duties could not be streamlined. Even now, we are citing the Russia-Ukraine war and the increase in prices in the international market as the causes behind our inflation, even though prices of many products, including oil, have actually decreased in the global market. If we look at our neighbouring countries – and we should not be citing the examples of Pakistan or Sri Lanka, whose economies are collapsing – such as India or the Southeast Asian countries, they were able to successfully use their fiscal and monetary policies to rein in inflation.
What should the focus of budget 2023-24 have been instead?
We should have focused on addressing the macro-fundamentals, which would create a launching pad for the coming year’s economic prosperity.
The main focus should have been on addressing inflationary pressures and providing a much-needed break to lower income groups. Addressing inflation is the most pro-people move the government could have made.
The IMF has already set some conditions – an important one is to improve the revenue side. To that end, some new taxes have been introduced – such as green tax on extra cars and additional tax on flat registration. Meanwhile, Tk 2,000 has been imposed as mandatory income tax annually for those who want to avail 44 government services, including acquiring a trade licence. While it is a good thing that the government has increased the income tax ceiling from Tk 3 lakh to Tk 3.5 lakh, if someone from a low-income household wants to get a trade licence, they will have to pay Tk 2,000.
So, are we assuming that when many low-income people go to avail a service such as getting a trade licence, they have concealed information regarding their wealth?
But what about those who are actually concealing information about their wealth? Or those who are loan and tax defaulters. Or those involved in money laundering? What services are we withholding from them? Is there any bar on foreign travels for them? Or are they VIPs wherever they go?
The whole tax structure is still very regressive, and the proposals in the new budget will make it even more regressive.
I believe we should look into these fundamental aspects. My expectation was that the main priorities would have been highlighted and would receive more focus. Instead, we have been set on the same old path.
Dr Selim Raihan
is a professor at the Department of Economics of the University of Dhaka, and executive director at the South Asian Network on Economic Modeling (Sanem).