Budget growth rate shrinks

A caricature of finance minister Abul Hassan Mahmood Ali

People have been suffering due to the high prices of consumer products. The inflation in May was almost 10 per cent. There is the persisting dollar crisis. The government has accordingly forcefully shrunk imports. Amid all this, another piece of bad news was received on Wednesday. Export income has dropped by 16 per cent year-on-year in May.

There is no substantial growth in revenue income either. There is a deficit of Tk 260 billion than the target set for the first 10 months (July-April) of the outgoing 2023-24 fiscal year. On the other hand, the pressure of repaying foreign and domestic loans has been rising with every passing month. Neither there is dollar nor taka to pay the price of power. Failing to pay the power plants, for now the government has managed the situation by issuing bonds with 8-10 year terms to the banks.

The amount of loan in comparison to gross domestic product (GDP) is also approaching 40 per cent, with the experts dubbing this a risky zone.

Besides, the government has already decided that it will raise the power tariff four times a year. Water tariff has also been increased a few days ago. The prices of petrol, octane, diesel and kerosene have also been raised just a week ago.

Considering the whole context, there is no good news in the economy in the offing.

Budget 2024-25 at a glance
Prothom Alo infographics

Though the government has been trying to assure people, none is buying that as the base has become weaker. Added to these is the pressure to meet various conditions of the International Monetary Fund (IMF).

This multifaceted pressure has affected the upcoming national budget as well. The growth rate, which was over 10 per cent, will not be similar like the previous years. This year the growth rate would be 5 per cent. IMF also advised the government to keep the budget size smaller as there is scarce in the money resources.

In this context, the new finance minister Abul Hassan Mahmood Ali, better known as a diplomat, who took charge five months ago, is going to present the budget for the next fiscal year 2024-25 in the Jatiya Sangsad (national parliament) on Thursday.

This is going to be the first budget of the new finance minister. The title of budget speech is “Pledge towards building a happy, prosperous, developed and smart Bangladesh”. The finance ministry said in a circular Wednesday that although it is the first budget of the finance minister, it is the first budget of the incumbent government formed for the fourth consecutive term and the 21st budget of the government led by Prime Minister Sheikh Hasina.

Sources said the inflation target in the next budget is 6.5 per cent, the same target was initially set in the budget of the current financial year. Later the target was raised to 7.5 per cent though. The inflation rate was more than 9 per cent throughout the current financial year.

There is the dollar crunch alongside the high inflation rate. Added to this is the high interest rate. But the inflation has not decreased. Apart from this, there is a gas and electricity crisis. We hope there will be measures to resolve these persisting crises
FBCCI president Mahbubul Alam

Meanwhile, the GDP growth rate in the next financial year is estimated at 6.75 per cent. Though in the current fiscal year, the rate was raised to 7.5 per cent, later it was reduced to 6.5 per cent.

Sources from the finance department and the National Board of Revenue (NBR) said the new customs law will come into effect from today, Thursday. There will be an opportunity to whiten black money, subject to paying taxes in the next fiscal year. There could be a proposal to levy duty on car imports of MPs. However, the tax-free income ceiling of individuals remains the same.

Speaking to Prothom Alo, Federation of Bangladesh Chambers of Commerce & Industries (FBCCI) president Mahbubul Alam said, “We are going through various types of crises. There is the dollar crunch alongside the high inflation rate. Added to this is the high interest rate. But the inflation has not decreased. Apart from this, there is a gas and electricity crisis. We hope there will be measures to resolve these persisting crises.”

Is the election manifesto under consideration?

It has been learned that the election manifesto declared by the ruling Awami League before the 7-January elections was taken into consideration while preparing the first budget of its fourth consecutive term in power.

The finance minister said initiatives will be taken in the budget of the 2024-25 fiscal for the implementation of the election manifesto.

The Awami League stressed on 11 issues in the manifesto. They are - striving to keep commodity prices within everyone's purchasing power; ensuring job-oriented education and employment for youth; building a ‘Smart Bangladesh’ based on modern technology; boosting investment in integrated farming, mechanisation, and processing to make agriculture more profitable; expanding industry by maximising existing infrastructure and enhancing investment; enhancing efficiency and capacity in financial sector including the banking; making healthcare accessible for people with lower income; bringing everyone under the coverage of a universal pension system; ensuring effectiveness and accountability of law enforcement agencies; preventing communalism, all forms of terrorism and militancy; and protecting democratic systems and promoting its practices at all levels.

Besides, the election manifesto of the ruling party also stressed on enhancing competence and ability in the finance sector, affordable health services for low income people, bringing every one under the Universal Pension Scheme, ensuring the effectiveness and accountability of the law enforcement agencies, preventing communalism and all sorts of terrorist and militant activities and promoting democratic practices and protecting democracy at all levels. According to sources, there will be a reflection of the election manifesto in the budget.

Speaking to Prothom Alo, a rickshaw puller, Aminul Islam, said he doesn’t know what a national budget is. He heard a lot of promises ahead of the elections. Now he will be happy if the prices of daily essentials come down.

Sources of revenue

The size of the budget for the current fiscal of 2023-24 was more than Tk 7.61 trillion, which was reduced to Tk 7.14 trillion in the revised budget. The size of the next budget is more than Tk 7.97 trillion.

The size of the budget is increasing by Tk 825.82 billion considering the revised budget of the ongoing fiscal as base. However, the budget for the 2023-24 fiscal was increased by more than Tk 1.01 trillion as compared to the revised budget of the 2022-23 fiscal.

The government is expecting a revenue income of Tk 5.41 trillion in the next fiscal. Of that, Tk 4.95 trillion will come from income tax, including Tk 4.8 trillion of NBR’s target.

Besides, the targeted income outside the taxes has been lowered to Tk 460 billion from Tk 500 billion in this fiscal. The government is also expecting Tk 44 billion as grants.

Huge deficit

According to the Finance Division under the finance ministry, the total revenue for the next fiscal, including grants, has been estimated at more than Tk 5.45 trillion. The budget deficit outside grants has been estimated at Tk 2.56 trillion, which is around Tk 60 billion less than the expected budget deficit in the current fiscal.

The budget deficit is usually covered in two ways – foreign loans and domestic loans. The amount of foreign loans in the upcoming budget is estimated at Tk 907 billion, which is Tk 144.07 billion more than the revised target in the current fiscal.

Besides, nearly Tk 1.61 trillion will come as loans from domestic sources, which is Tk 47.05 billion more than the estimated domestic loan target for the current fiscal. Of the domestic loans, Tk 1.38 trillion will come from the banking sectors and Tk 234 billion from nonbanking sources.

The amount of operational costs in the upcoming budget is more than Tk 5.06 trillion and the total development costs are estimated at Tk 2.81 trillion.

The size of ADP is Tk 2.65 trillion in the upcoming fiscal, which is only Tk 20 billion more than the revised ADP in the current fiscal.

Loan interest exceeds Tk 1 trillion

The interest cost in the upcoming budget has been estimated at more than Tk 1.13 trillion, for foreign and domestic loans. However, the amount of interest against the domestic loans is more than the total interests for the foreign loans. The amount of interest against domestic loans is Tk 930 billion while the amount for foreign loans is estimated at Tk 205 billion.

The amount of interest for the current fiscal was estimated at nearly Tk 950 billion, which was increased to Tk 1.05 trillion in the revised budget. As such, the interest cost has increased by Tk 70 billion in the upcoming fiscal.

Speaking regarding this, Policy Research Institute (PRI) executive director Ahsan H Mansur told Prothom Alo, “The decision to keep the budget small in compliance with the monetary policy is positive. The initiative to sell daily essentials at affordable prices to at least 10 million families is also very important. However, the dependency on the banks to cover the budget deficiency is very concerning. There will be no money from the savings certificates in the future either. So the arrangement of taking Tk 1.60 trillion as loan from domestic sources is a bit extra considering the financial arrangement.”

* The report, originally published in the print and online editions, have been rewritten in English by Shameem Reza and Ashish Basu