Budget today amid flurry of challenges

The national budget for the financial year 2022-23 will be announced today amid challenges of tackling high inflation, volatility in the foreign currency market, depleting foreign exchange reserve, the ballooning subsidy and post-Covid recovery efforts.

Finance minister AHM Mustafa Kamal is expected to place the Tk 6.7 trillion budget in Jaitya Sangsad at 3:00pm keeping the target of GDP growth at 7.5 per cent and inflation at 5.6 per cent.

According to a press release issued by the finance ministry on Wednesday, the new budget styled ‘Returning to continuity of development from the Covid shocks’ will be announced in the parliament with emphasis on checking price hikes, agricultural sector, human resources and employment.

Economists said containing inflation would be the biggest challenge for the new budget because of volatility in the international commodity market and the uncertainty after Russia invaded Ukraine, which affected geopolitics.

They hoped that the finance minister would give the social safety net programme top priority in the budget to shield the poor from the steepest price hike of essential commodities in one decade.

The contraction of the budget will not help in addressing the suffering of the majority of people from the steep price hike of the essentials, said former caretaker government adviser Mirza Azizul Islam.

‘The prevailing inflation is import driven,’ said Islam, who introduced a 100-day employment programme and allowance for the lactating mothers to tackle the worst ever inflation in 2008 driven by a rally of fuel oil price hikes.

The Bangladesh Bureau of Statistics recorded monthly inflation of over six per cent for three successive months till April this year after it had recorded double-digit inflation on average in FY08.

Blaming partly the lack of market monitoring for the prevailing high inflation, economists said that the country’s macro-economy was under serious pressure ahead of the fourth budget of the incumbent government in their five-year tenure.

It will be the 13th consecutive budget for the current ruling Awami League government.  

Ahead of the budget, the import payment shot up considerably to pull down the foreign currency reserve equivalent to less than a six-month import payment from eight-month one year ago.

The value of the local currency taka eroded by seven per cent against the US dollar in the past six months which economists said underscored the necessity of effective coordination among the government agencies.

The fiscal measures should have clear ideas for safeguarding the foreign exchange reserve to overcome the uncertain period caused by the Russia-Ukraine war, said former Bangladesh Bank governor Salehudddin Ahmed.

He noted that short-term measures should get preference in the new budget to deal with the burning issues like easing pressure on the balance of payment.

Economists opposed the repatriation of smuggled out money as proposed by the finance minister to augment the higher flow of foreign currency.

Calling such proposals unethical, they said that the finance minister should give more focus on measures to diversify the export basket, tapping more remittances on the formal channels, and discouraging over and under-invoicing.

They also said that generating more revenue from the direct tax was imperative to address persisting problems of inequality that grew to 0.48 in 2016 from 0.46 in 2010 and 0.42 in 2005 as per the Gini coefficient

Former National Board of Revenue chairman Muhammad Abdul Mazid said that hints should be there in the new budget to carry out reform in the direct tax policy by discarding controversial policies like ill-gotten money legalising facility, wholesale tax waiver and tax evasion.

Without enhancing revenue from direct tax it will be difficult for the nation to obtain the next two goals, he said.

The country will graduate from the least developed county block in 2026 and try to emerge as a middle-income generating country by 2030.

The county became a lower-middle income-generating country in 2015.

Economists, however, criticised the present government for not being able to increase the overall revenue to commensurate with an average of six per cent economic growth in the past decade.

The tax-GDP ratio had been hovering below the double-digit although they said it should be around 14 per cent

Economists added that stimulus should be continued for the small and medium entrepreneurs in the coming budget so that an overwhelming number of people engaged in informal sectors could recoup the loss in the post-Covid period.

Without empowering the small and medium entrepreneurs fulfilling the requirement of overall investment at 34 per cent of the GDP from the current 30 per cent is difficult, said Salehuddin Ahmed.

He also said the new budget should re-fix the priority on concessional foreign loans instead of non-concessional borrowings to check the sudden jump in debt amortisation in future.

He noted that the country’s South Asian neighbour Sri Lanka was now facing bankruptcy due to a series of blunders in fiscal measures.

According to the Economic Relations Division, the country’s external debt repayment will be $2.7 billion in FY23, $4.02 billion in FY25 against $2.4 billion in the outgoing FY22 because of the quick maturity of short-term loans.

Economists said growing debt amortisation was reducing fiscal spaces as well as scopes for more fund allocation on sectors like education, health, energy and agriculture.

Assisting the consumption of energy and fertiliser with a budgetary subsidy is another area that according to economists is highly challenging since the amount will almost double the in the outgoing FY22 due to price hike of fuel oils and fertiliser.   

News Courtesy:

https://www.newagebd.net/article/172742/budget-today-amid-flurry-of-challenges