The next budget is expected to reflect the conditions set by the International Monetary Fund (IMF) as part of its USD 4.7 billion loan agreement with Bangladesh.
According to sources from the finance division and the National Board of Revenue (NBR), finance minister AHM Mustafa Kamal will announce the implementation of almost all IMF requirements in his budget speech in the parliament on 1 June.
Until the fiscal year 2022-23, the government had been formulating the budget in its own way. However, the situation changed after the IMF approved the loan in favour of Bangladesh on 30 January.
Under the loan conditions, the government has no choice but to incorporate some tough initiatives and reform measures into the upcoming budget.
However, the finance minister, during his budget speech, will not provide any details regarding the connection of the reform measures to the IMF.
A significant portion of the IMF loan has been sanctioned to support the balance of payments. Bangladesh has received the first tranche of the loan and the second one will be withheld in the absence of initiatives for necessary reforms.
It could exacerbate the worsening dollar crisis, according to finance division officials.
The upcoming budget will allocate Tk 7600 billion under the theme of "Unnayner Agrayatra Periye Smart Bangladesher Abhimukhe." In the budget speech, the finance minister will shed light on the issues of smart citizens, smart economy, smart government, and smart society.
Minister Kamal will propose an allocation of over Tk 2500 billion for the Annual Development Programme (ADP). The growth rate of the gross domestic product (GDP) will be considered at 7.5 per cent, while the annual inflation target will be 6.5 per cent. The revenue collection target will be set at Tk 5000 billion, with the revenue board expected to collect at least Tk 4300 billion.
The IMF has set a total of 38 conditions to be implemented in the next three and a half years. However, the government has been instructed to implement around half of the conditions within the next fiscal year.
Some conditions, including the introduction of a corridor system in the interest rate, a proper calculation method for reserves, and a uniform currency exchange rate, are associated with the central bank. Some of them will be announced to be implemented during the monetary policy announcement in June, while others will be announced in July.
Increasing revenue collection and maintaining an adequate amount of foreign exchange reserves are two significant requirements of the IMF.
In this regard, planning minister MA Mannan told Prothom Alo that the next budget will certainly reflect the IMF recommendations. Some of their requirements have already begun to be implemented, while some others will be implemented within a year after the budget.
In response to a query, MA Mannan said some subsidies will be reduced, but not all. For example, food subsidies will increase, these must be increased.
Govt to meet IMF requirements
Revenue collection is increasing every year, but at a slow pace. The IMF has asked Bangladesh to introduce a strategy by June to raise revenue collection to 0.5 percent of GDP in the next fiscal.
Additionally, NBR has been instructed to establish a risk management unit in the customs and VAT department by December this year.
The finance division has been asked to ensure that government borrowings from savings certificates do not exceed 25 per cent of the total internal borrowings. The division should take effective measures in this regard by December.
Furthermore, a time-based system for adjusting fuel oil prices should be introduced within the period.
The IMF has said the Bangladesh Bureau of Statistics (BBS) should develop a system to release GDP data on a quarterly basis by December. The bank company act needs to be presented before the parliament by September as well.
In addition, the IMF has recommended the formulation of a sustainable public sector procurement policy by September. The lending agency has also asked to reduce the default loan rate to below the threshold of 10 per cent in state-run banks.
Ways to increase revenue collection
The finance minister will announce measures to meet the challenge of boosting revenue collection as per the IMF requirements. The NBR has already made preparations in this regard.
According to NBR documents, new strategies will be adopted to increase revenue collection from VAT, income tax, and customs duty in the next fiscal. The NBR will also remain vigilant against revenue evasion.
Sources also said a total of 60,000 electronic fiscal devices (EFDs) will be purchased in the next fiscal year to enhance revenue collection. There is a plan to increase this number to 300,000 over the next five years.
Furthermore, the administrative management of the VAT department will be reformed. Along with the existing 12 VAT commissionerates, five additional commissionerates will be established to generate additional income.
Considering the IMF conditions, the NBR has informed the finance minister that priority will be given to training officials, providing necessary support, infrastructure development, and incentives to achieve the revenue collection target in the next year.
Moreover, the privileges of tax exemption will be reduced and it is expected to bring more revenue to the state treasury. The NBR also said it is working jointly with the institute of chartered accountants of Bangladesh (ICAB) to prevent tax evasion.
Additionally, tax offices are being established at the grassroots level outside Dhaka.
Despite no remarkable increase in tax collection, the NBR is expecting income tax returns to rise by at least 30 per cent in the next fiscal year.
Ahsan H Mansur, executive director of the Policy Research Institute (PRI), said the IMF has not imposed very tough conditions on Bangladesh. So, many of the conditions will be fulfilled in the next fiscal year.
"But it seems to me that the government may fail to meet the two conditions of raising revenue and preserving reserves. The increase in revenue will not be assessed until the end of the fiscal year. But it is quite impossible to increase revenue without adequate preparation," he said, adding that he also sees no signs of building up the reserves.
The economist believes that subsidies will increase in the upcoming budget due to previous liabilities and so will the allocations.
However, the sharp fall in oil prices in the global market implies that the subsidy will not increase in this sector next time.