Amidst a myriad of external challenges, the government has tabled a bold budget for its election year, aimed at healing the crisis-riddled economy and maintaining growth momentum.
The financial blueprint was carefully crafted to balance a multitude of present and upcoming hurdles, including curbing inflation, boosting revenues to meet the IMF loan conditions, and protecting the impoverished segment, all while meeting election-time needs and maintaining the long-term development trajectory.
This budget comes at a time when the country, still grappling with the economic aftershocks of the Covid-19 pandemic, faces a new global crisis – the Russia-Ukraine war.
The conflict has inflated global prices of food, energy, agricultural inputs, and industrial raw materials, leaving countries such as Bangladesh, which rely heavily on imports, facing heightened inflation, tumbling currency value, and rapid depletion of foreign reserves.
Despite these adversities, Finance Minister AHM Mustafa Kamal proposed a 12.34 percent increase in the budget outlay, allocating Tk 7.61 trillion for the 2023-24 fiscal year with a substantial Tk 2,617.85 billion, or 5.2 percent of GDP, budget deficit.
To rectify the macroeconomic instability, the government has secured a $4.7 billion loan from the International Monetary Fund (IMF), accepting conditions such as a hike in tax revenues.
In his presentation, Kamal asserted that the ambitious spending plan aims to overcome the present difficulties and revert the economy back to a high-growth trajectory, stimulating more diversified exports and employment.
The main challenges include containing inflation, stabilizing the exchange rate, reducing income inequality, and boosting revenues.
The fiscal plan sets a robust 7.5 percent growth target for the coming year, projecting an average inflation rate of 6 percent, a notable decrease from the 9.4 percent inflation recorded in April and the estimated 6.03 percent growth for the outgoing fiscal year.
Kamal aims to cover a substantial portion of the budget deficit through Tk 1.55 trillion in domestic borrowing, primarily from the banking sector. However, this could potentially fuel inflation, as borrowing from the central bank equates to money creation.
The budget proposal also includes an elusive revenue target, dictated by an IMF stipulation to increase the Tax-GDP ratio by 0.5 percent annually over the next 3.5 years.
The National Board of Revenue (NBR) fell short of its revenue target by a significant Tk 340 billion this fiscal year, reflecting only 8.8 percent year-on-year growth. Nevertheless, the NBR’s revenue target is set at Tk 4.30 trillion, a 16 percent increase from the revised budget.
Over the past fifteen years, the government has fortified the country’s economic foundation. Now, the focus is on building a ‘Smart Bangladesh,’ with smart citizens, smart government, smart society, and a smart economy serving as the four pillars.
For valid reasons, health, agriculture, food production and management, job creation, and education have taken precedence in the budget.
The Annual Development Programme (ADP) has been affected by austerity measures, even though its size has increased by 5.6 percent to Tk 2.63 trillion.
There is no apparent populist step in the ADP targeting the upcoming national polls, but Tk 115.17 billion has been set aside as a block allocation for various ministries or divisions, a marked difference from the previous year.
The government also allocated an additional Tk 46.97 billion for special needs development support. This allocation was absent in last year’s budget, and is believed to fund populist projects listed in the Annual Development Programme (ADP).
The highest allocation of Tk 759.45 billion, or 28.88 percent of ADP resources, goes to the transport and communication sector. The ADP funds will come partly from local sources (Tk 1.69 trillion) and partly from foreign sources (Tk 940 billion).
The power and energy sector received the second-highest allocation (Tk 443.93 billion or 16.88 percent) followed by education (Tk 298.89 billion or 11.36 per cent).
Housing community facilities received Tk 270.46 billion or 10.2 percent, the health sector received Tk 188.8 billion or 7.18 percent, local government and rural development received Tk 162.04 billion or 6.16 percent, and the agriculture sector received Tk 107.07 billion or 4.07 percent.
The budget proposal includes several strategies to shield low-income citizens from escalating inflation. The finance minister has proposed an 11 percent increase in the social safety net allocation, raising it to Tk 1,262.72 billion from the current fiscal year’s Tk 1,135.76 billion. This proposed allocation accounts for 16.58 percent of the total budget and 2.52 percent of GDP.
As part of the proposed budget, Kamal has suggested increasing the monthly old age allowance by Tk 100 to Tk 600, and the allowances for widowed, deserted, and destitute women by Tk 50 to Tk 550.
The number of beneficiaries in both categories has been expanded by 100,000, bringing the totals to 5.801 million and 2.575 million, respectively. Despite maintaining the monthly allowance for physically challenged people at Tk 850, the proposed budget increases the number of beneficiaries by 535,000, totaling 2.9 million.
In his budget speech, Kamal formally announced the introduction of a universal pension system from the 2023-24 fiscal year. He also proposed increasing the tax-free income limit to Tk 3.5 lakh from Tk 3 lakh for individual taxpayers in FY24 to relieve the middle-income demographic.
In contrast, Kamal suggested a minimum Tk 2,000 tax on individuals who, although not having a taxable income, still file tax returns to boost tax revenues in line with IMF directives.
As the government shifts to electronic fund transfers for all cash-based social security programs from the upcoming fiscal year, separate allocations of Tk 4,000 crorehave been set aside for the first time for financial risk management.
While there will be no increase in the prices of home appliances, the costs of locally assembled smartphones will continue to rise. Corporate tax rates remain unaltered for FY24, but the surcharge imposition limit has increased to Tk 4 crore from the current Tk 3 crore.
The government has also proposed an energy tariff based on a formula from September 2023 and an increase in the tax on foreign travel and smokers will have to pay more.in F24.
Further, a carbon tax ranging from Tk 25,000 to Tk 3,50,000, depending on engine capacity, will be imposed on individuals wishing to own a second car.
These changes come as the government prepares to tackle the impending challenges and secure the nation’s economic future.