High growth target amid crisis, subsidy to rise

People cross a road at night, in Dhaka, Bangladesh, 22 May 2022.

Like the 2022-23 fiscal, the government decided to set a target of 7.5 per cent growth of the country’s gross domestic products (GDP) for upcoming 2023-24 fiscal amid the global and domestic economic crisis in addition to no new source available for revenue generation.

The government also decided to increase inflation target by 2 percentage points to 7.5 per cent in 2023-24 fiscal from 5.6 per cent in 2022-23 fiscal, apparently accepting the situation triggered by high inflation.

The decisions were taken at a Zoom meeting of the coordination council on fiscal, monetary and exchange rate on Tuesday. The meeting discussed various aspects on budget of the current and upcoming fiscals.

Commence minister Tupu Munshi, planning minister MA Mannan, Bangladesh Bank governer Abdur Rouf Talukder, finance division senior secretary Fatima Yasmin, National Board of Revenue (NBR) chairman Abu Hena Md Rahmatul Muneem, commerce secretary Tapan Kanti Ghosh, among others, attended the meeting.

According to meeting sources, there was discussion on undertaking several popular projects in the next budget since election will be held a year later.

Economists, however, raised questions on the targets of GDP growth and inflation rate saying the estimation of the government does not reflect the actual situation.

Sources said the meeting discussed various issues including pressure of high inflation on people, dollar crisis and its high price. The meeting was told that the government has taken measures to cut import in several phases to control situations and revenue may fall. Besides, there is no change in remittance earnings, export does not grow as expected. Subsidy is adding extra pressure and Trading Corporation of Bangladesh (TCB) sells subsidised edible oil and sugar in addition to subsidy on fertiliser and power. Subsidy may surpass Tk 1 trillion in the upcoming fiscal.

According to sources, a decision has been taken to formulate Tk 7.50 trillion in 2023-24 fiscal, which is Tk 720 billion more than the Tk 6.78-trillion budget of 2022-23 fiscal. However, this estimation is not final yet.

This was the first meeting of the coordination council on fiscal, monetary and exchange rate in 2023-24 fiscal. According to the Bangladesh Bank Order 1972, this meeting is held in the middle of a fiscal year.

The meeting minutes included growth of various domestic sectors, review of medium-term macroeconomic framework (MTMF) for on-going 2022-23 fiscal in the perspective of changing global and domestic economy, and discussion on projection of MTMF indices from 2023-24 to 2025-26 fiscal. Rate of inflation and growth, however, dominated talks at the meeting, according to sources.

Growth similar, inflation 2pc more

The rate of the country’s GDP growth stands at 7.5 per cent in on-going fiscal. Initially, same growth rate, according to the meeting sources, has been projected for upcoming fiscal.

In October, World Bank said Bangladesh’s GDP would grow by 6.1 per cent in 2022-23 fiscal, cutting its previous projection from 6.7 per cent. Bangladesh’s GDP will grow by 6.2 in 2023-24 fiscal.

According to this development partner, high inflation rate and power outage will disrupt the revival of Bangladesh’s economy from the impact of the coronavirus pandemic and that will largely see a drop in growth.

Another development partner Asian Development Bank (ADB) predicted Bangladesh’s GDP would grow by 6.6 per cent in 2022-23 fiscal. ABD’s projection has always been nearly similar to the government’s estimation

The Russia-Ukraine war began at the end of February this year while the budget of on-going fiscal was placed in June this year. Inflation target was set at 5.6 per cent in the budget, but inflation soared to 9.52 per cent in August before falling to 9.10 per cent in September and 8.91 per cent in October. Since inflation sees downtrend, the target of inflation has been set to be increased by over 2 per cent to 7.5 per cent in 2023-24 fiscal.

When former World Bank chief economist Zahid Hussain’s attention was drawn to the discussion of the meeting, he said food inflation fell below 9 per cent, but non-food inflation including clothes is nearly 10 per cent. There were talks on austerity, but where is it?

Goods prices have fallen in international market and the government must have internal strategy to check inflation. In the meantime, the government took Tk 300 billion from banks and that will be a reason for rise in inflation. So, it is not understandable why the target of GDP growth was set at 7.5 per cent, he added.

Revenue will not increase while growth has been set at 7.5 per cent. Zahid Hussain thinks it is too much. “A 7.5 per cent growth is the indicator of a strong economy, but what did we see in the last six months. Now, it is being said businesspeople cannot return the money. The actual equation matches nothing with the government’s projection,” he added.

No rise in revenue target

Revenue target was set at Tk 4.33 trillion in the budget of current fiscal. Of the amount, with NBR collecting Tk 3.70 trillion and the remaining 630 billion coming from non-NBR tax system. The budget has a deficit of Tk 2.85 trillion and that will be met from bank loan, foreign loan and donation.

Sources said a decision has taken at Tuesday’s meeting that revenue target would not be increased in the upcoming fiscal. The NBR set revenue target at Tk 3.33 trillion in 2020-21 fiscal and the target remained unchanged in the following fiscal.

According to sources, the budget deficit was projected at 6 per cent in the upcoming fiscal, up from 5.5 per cent in ongoing fiscal. Besides, the size of annual development programme (ADP) will be about Tk 3 trillion in the next fiscal.

Former adviser to caretaker government AB Mirza Azizul Islam placed two national budgets. He told Porthom Alo a target of 7.5 per cent inflation seems logical, but a target of 7.5 per cent growth of GPD is unrealistic where there is no arrangement to increase revenue.

Replying to query on what is the problem on a little more growth target, AB Mirza Azizul Islam said, “It raises question on credibility of economic data like employment related to growth. We may show higher growth, but people will not have job. So, there is no meaning to confuse people by raising hope unnecessarily.”