The economy of the country is facing a grave challenge as it struggles with the dollar crunch. Some banks are rejecting letters of credit (LC) for importing goods while simultaneously making export income difficult too. The country hasn't seen such situation in recent years..
The price of almost everything including rice, dal (lentils), salt, edible oil, sugar has soared. The government had set an inflation target of 5.6 per cent for the current fiscal. It stood at 9.24 per cent according to government accounts in last April. The prices of gas, electricity, fuel oil and fertilisers went up a few months ago. The value of the taka against the dollar has fallen. The government is failing to attract remittance even after offering incentives. Furthermore, there has been a persistent downturn in the graph of export earnings.
Again, there is pressure to meet various conditions relayed by the International Monetary Fund (IMF). The government has only received the first installment of $4.7 billion from the IMF. The second tranche may arrive in next December. That will be available only if the conditions are met. Moreover, there is a looming risk that key requirements, including the balance of reserves, may not be met.
But the expenditure of the government continues. It is borrowing more from the banks. In the current fiscal 2022-23, the target of borrowing from the banks was Tk 1.06 trillion. The government came to realise in the April that it could not sustain its expenditure with this loan amount. As a result, the revised target of bank loans has been set at Tk 1.15 trillion.
A trader Fazlul Haque, who came to the Karwan Bazar yesterday afternoon told Prothom Alo about the budget expectations and said, "Will the price of goods go down? If not, I have no interest in this budget.”
Finance minister AHM Mustafa Kamal will present the budget for the fiscal 2023-24 in the Jatiya Snagsad today, Thursday, keeping all these concerns and realities in mind. This is his fifth budget. He named the budget speech for the fiscal 2023-24 as "Unnayner Agrayatra Periye Smart Bangladesher Abhimukhe." ( Towards a Smart Bangladesh after the march of development). The government made no official announcement. The finance minister has been said to be unwell for a long time. As a result, he no longer attends many events. He will appear in public on Thursday to present the budget.
Finance ministry’s takes on the budget
The Ministry of Finance said in a circular yesterday that the key vision of the budget for the fiscal 2023-24 is to build a happy, prosperous, developed and smart Bangladesh by 2041. This will be the first budget that aims to build a smart Bangladesh.
As per the statement, the achievements witnessed in the country over the past decade and a half, under the guidance of the existing government, have laid a sustainable foundation. The vision of Smart Bangladesh will be constructed upon four primary pillars: Smart Citizens, Smart Government, Smart Society, and Smart Economy.
In this year's budget, health, agriculture, food production and management are being given more importance, said the ministry. It said, the government will run various food-friendly programmes throughout the fiscal. For this, the scope of social safety net is being enhanced.
According to the Finance Division of the Ministry of Finance and the National Board of Revenue (NBR), the size of the next budget is Tk 7.61 trillion. And the income for the next fiscal including grants is estimated at Tk 5.03 trillion. Without grants, the deficit is estimated at Tk 2.61 trillion.
AB Mirza Azizul Islam, advisor to the former caretaker government, while talking to Prothom Alo identified the main challenges for the next budget. These encompass controlling inflation, stabilising currency exchange rates, addressing income disparity, and increasing revenue collection. It remains to be seen how the finance minister will approach and tackle these pressing issues.
Mirza Aziz also said that the government is fuelling inflation by taking more bank loans. This loan should be reduced. And the price of the dollar should be stabilised. More attention should be paid directly to increasing the revenue. Instead of collecting the minimum tax of Tk 2000, the tax should be collected from new taxpayers. Social safety net should be expanded to prevent income inequality and stand by the poor.
Where will this Tk 1 trillion come from?
The size of the budget for the current financial 2022-23 was 6.78 trillion. In the revised budget it was reduced to 6.60 trillion. Given the revised size, the size of the next budget increased by Tk 1.01 trillion. It has been learnt that, the finance minister would not make any announcement about any practical strategy for this hike.
As per the budget projections, the government anticipates earning Tk 5 trillion in revenue for the next fiscal year. The tax component is expected to contribute Tk 4.50 trillion, out of which Tk 4.30 trillion will be regulated by the National Board of Revenue (NBR), and the remaining Tk 200 billion will be derived from sources outside the NBR. Additionally, non-revenue earnings are estimated at Tk 500 billion, with grants amounting to Tk 39 billion.
NBR is the main source of revenue growth. However, there has been a deficit of Tk 340 billion in the first 10 month of the current fiscal. Even after 10 months, the growth in revenue collection is only 8.8 per cent. Despite the target of collecting Tk 3.70 trillion in the current fiscal at 24 per cent growth, a total of Tk 2.5 trillion has been collected in the July-April period.
Will issuance of banknote increase?
In the upcoming budget, there is a deficit of Tk 2.61 trillion before grants. To bridge this deficit, two methods of financing will be employed: external loans and domestic loans. A net foreign loan of Tk 1.02 trillion will be acquired, along with Tk 1.55 trillion in domestic loans. Among the domestic loans, Tk 1.32 trillion will be obtained from the banking system, while Tk 230 billion will be sourced from non-bank loans, including the sale of saving certificates.
The government will take Tk 260 billion or 24 per cent more loans from the banking system in the next fiscal compared to Tk1.06 trillion in the current fiscal, which may increase inflation.
Former Bangladesh Bank Governor Salehuddin Ahmed told Prothom Alo about this that more bank loans means issuing more money. And issuing more money means risk of inflation. If the government borrows more from banks, the private sector's chances of getting loans will fall resulting in less employment opportunity.
Meeting IMF conditions
The upcoming budget will reflect the government's compliance with conditions for obtaining a loan of USD 4.7 billion from the IMF. In the finance minister's budget speech, there will be an announcement regarding meeting of most of the conditions stipulated by the institution, without explicitly mentioning the IMF. Additionally, there will be announcements of several reforms.
The IMF said that over the next three and a half years, additional revenue must be collected at a rate of 10.5 per cent above the normal pace. And the strategy should be formulated by this June. NBR should also set up a risk management unit in the customs and VAT department by next December. A plan to purchase 60,000 electronic fiscal devices (EFDs) has been taken up in the next financial year to increase revenue. Besides reforming the administrative management of VAT department, NBR will also create 5 new VAT commissionerates. Apart from this, a time-based formula for adjustment of fuel oil prices should be developed by next December.
Changes
In the upcoming budget, most of the applicants for income tax return will be required to pay a minimum tax of Tk 2000. Income tax return deposit receipt will be required for 44 types of services including saving certificates and credit cards.
There may also be an announcement to increase the annual tax-free income threshold from Tk 300,000 to Tk 350,000 to give some relief to individual tax payers. In addition to that, 50 types of fees may increase including for purchasing land and apartment. Apart from this, the travel tax may increase.
Cigarettes, pens, plastic tableware, kitchenware, tissues, napkins, mobile phones manufactured by local companies may be subject to additional customs duties. Buying a second car may incur additional taxes such as carbon tax. Surcharge on tax is payable on assets more than Tk 30 million. This asset limit can be increased to Tk 40 million.
In a significant development, the finance minister is expected to announce the launch of a universal pension on an experimental basis, first time in the country.
Abul Kasem Khan, the former president of Dhaka Chamber, expressed his views to Prothom Alo regarding the upcoming budget. He mentioned that on one hand, it is an election year, while on the other hand, there are several negative aspects within the economy. Expenses are increasing while income remains unchanged. There must be an income, but in reality, chances are low. We have never witnessed such multifarious challenges before.
*This report, originally published in Prothom Alo print edition in Bangla, has been rewritten in English by Farjana Liakat