Photo: Daily Messenger
The budget session of the National Parliament will begin in the first week of June. It will present the budget for the next fiscal year. Naturally, from the policymakers and experts to the root levels, discussions on the upcoming budget have started. Due to various reasons, all stakeholders have a keen eye on the upcoming budget.
This will be the first budget of the newly elected government. This budget is supposed to guide the direction of the economy of the country in the next five years. Apart from that, tensions have arisen at the international level at the moment. This crisis in the Middle East can throw the entire world economy into a new uncertainty.
Within the country, topics like commodity prices, the crisis in business investment, and instability in foreign economies seem to be quite risky. There is no denying that the macro economy of Bangladesh is going through a challenging situation due to external economic pressures, geopolitical instability, and above all our internal structural crisis.
The general public is more interested in how our budget makers will present a roadmap to deal with this challenging situation. Will budget makers emphasize growth or macroeconomic stability in the coming fiscal year? Or will they give a balanced realistic budget to handle both ends? Shall the government emphasise own sources, or resource mobilisation from outside, or will make a judicious mix of the two?
Cut the coat according to cloth, i.e., spending according to income budget is required now. Undoubtedly, I think the main priority of the budget should be to protect public life (especially city dwellers) as much as possible from the pressure of inflation.
People at the bottom of the social pyramid have been under pressure for several months due to inflation. Despite the good growth in agriculture, the lives of low-income people across the country have become very difficult. In this regard, the government's initiative to provide low-cost daily commodities to one crore families through cards has been effective particularly.
Such timely initiatives need to be taken more and more. Otherwise, many families that have risen above the poverty line may fall back below the poverty line in the face of persistent inflationary pressures. In the budget, therefore, additional allocation must be made especially for the protection of low-income families.
At the same time, it should be accepted that the size of the budget should not be increased much this time for the sake of stabilizing the overall economy. Admittedly, our growth is largely dependent on government spending. So, cutting extra expenditures will affect growth to some extent. In October last year, the IMF projected Bangladesh's growth in the current fiscal year to be 6 per cent, but in their World Economic Outlook report released on April 16, the projection was further reduced to 5.7 per cent.
The World Bank projection is also close to it. In this context, many may fear that the new year's budget cuts will reduce the growth further. But I think, now more attention needs to be given to keeping the macro economy stable rather than accelerating the growth rate. Because growth in every country is getting slower in the whole world with few exceptions. According to the IMF, the global average growth in the current fiscal year 2023-24 will be only 2.4 per cent.
Next year this ratio will slightly increase to 2.7 per cent. As such, the projected growth rate of Bangladesh seems to be satisfactory till now. Therefore, it is desirable not to formulate a large-scale budget for ensuring more growth. Since the rate of investment in the private sector is not increasing, the budget deficit will increase if the investment depends on government expenditure. Rather, we should follow the principle of spending according to income.
On the whole, our growth rate will be slightly slower in the upcoming year as compared to the last 10 to 15 years. A look at documented growth shows a slightly different picture. The main reason behind the decrease in the total growth of the current fiscal year is the slow growth of the industrial sector. Growth in the services sector has also slowed. But the agricultural sector is growing well even during this disaster.
The macroeconomic data released by the Bureau of Statistics every quarter shows that the growth of the industrial sector was 10 per cent in the second quarter of the previous fiscal year (i.e. October-December period), but it has come down to 3.24 per cent in the second quarter of the current fiscal year of 2023-24. Growth in the services sector has not declined to the same extent (down from 6.62 to 3.06 per cent).
But in the case of agriculture, this point-to-point growth rate has not decreased but rather increased (from 4.22 to 4.65 per cent). Because as much as 40 per cent of the labour force is engaged in agriculture—we understand the true importance and reality of such an increase in agricultural growth. It can be said that agriculture is saving us in disastrous times. We have seen this during the coronavirus standoff as well. Agriculture is still protecting us at this time.
This role of agriculture as a bulwark of the macroeconomy will surely be taken into consideration by our policymakers while making allocations in the coming fiscal year. They will be expected to maintain the admirable trend of subsidizing the agricultural sector to a significant extent over the past decade and a half in the coming years. Because this subsidy in agriculture is a type of public investment.
Apart from this, agriculture can be encouraged by increasing some revenue benefits. For example, some concessions in VAT or regulatory duties imposed on various agricultural inputs (e.g. fertilisers, seeds, etc.) will benefit everyone from the agricultural sectors. In this, agricultural growth will be at the same level or even stronger. This will even benefit food security.
Another issue that needs special policy attention considering the public interest while formulating the budget is the price of fuel. As per the advice of international development partners, the energy price adjustment initiative is being implemented step by step. This has affected the power and transport sectors as well. In the meantime, due to the new instability in the Middle East, it can be said that there will be some kind of instability in the world market in the coming fiscal year.
Our budget makers will surely do their utmost to protect the people of the country from its effects. Some resources can be set aside in the budget to provide additional subsidies if necessary if fuel prices rise too much. Some revenue concessions on LP gas can also be considered to give relief to the people. In India, appreciable concessions are given in respect of domestic LP gas. We can learn from them, too.
Energy security also requires long-term policy thinking. We are highly dependent on the private sector for purchasing energy. The government plays a role as a guarantor of the private sector in this regard. It needs to be considered whether the government itself starts buying LNG directly from the international market or not.
Exploration activities for new gas fields are also going on. This is a positive initiative although it is late. Allotments should be made in the budget to speed them up. Apart from this, the Mujib Climate Prosperity Plan roadmap should be started now to reduce the dependence on fossil fuels and shift towards green energy. I am looking forward to seeing the reflection of this year's budget on how to build a sustainable energy system, especially at the level of individuals and small entrepreneurs.
Paying attention must be increased to green energy. However, instead of being stuck there, the issue of climate finance should be given more importance in future budgets from the place of thinking about SDG. International development partners are particularly keen to give Bangladesh its fair share of climate funding. Therefore, it will be easier to get international support if climate-friendly development projects are given more priority in the national budget.
Budget makers should therefore make development projects in every sector as climate-sensitive as possible. Development partners have already indicated that they are ready to provide large-scale financing for climate-resilient development. This year's budget has an opportunity to give them direction on how to convert that intention into a practical program. For this purpose, the intention of the Ministry of Climate and Environment, the Ministry of Finance, and the Ministry of Planning need to work together. The topic has the opportunity to be reflected in the budget speech. In this case, it would be appropriate to involve the sustainable financing department of Bangladesh Bank.
Above all, we should increase our attention towards the revenue income of the government in addition to the expenditure during the formulation of the budget. Still, our tax-GDP ratio is below 10 per cent. We have been saying for several years that this ratio will increase significantly if the revenue collection process is digitized. Digitization has also been started. But it is very important to speed up this process. Along with digitization, some changes in tax collection practices can be used to collect more tax from existing sources.
For example, the price of cigarettes is increased little by little in the budget every year. But from the calculations of anti-tobacco researchers, it is seen that if the price of this harmful product is raised at one stroke and taxes are collected from it, on the one hand, the consumption of cigarettes will decrease significantly, on the other hand, it is possible to get an additional tax of 10 thousand crores from the sale of cigarettes. Such innovative solutions for tax collection will surely be taken into consideration by our budget makers.
More taxes result in more revenue for the government. And if the income increases, the spending capacity of the government will also increase. And then there will be the welfare of the people. This year's budget may take initiatives to rationalize various aspects of tax breaks and incentives to increase domestic revenue. Undoubtedly, such reforms are highly desirable. But care should be taken that these reforms should be done with great compassion. Care should also be taken to ensure that there is no dissatisfaction in the public mind.
The writer is emeritus professor of the University of Dhaka and former governor of the Bangladesh Bank
Messenger/Howlader
