Govt’s overdependence on loans hurting private sector
Says CPD in pre-budget analysis
Since the government's annual development programme (ADP) is mostly reliant on loans, the private sector often finds it difficult to borrow from the banking system, according to the Centre for Policy Dialogue.
"This dependency is a major structural problem of the budget," said Prof Mustafizur Rahman, a distinguished fellow of the think-tank.
"If anyone manipulates the market and makes money, they should not be just fined. Rather, they should be punished as per laws. "
Besides, a significant part of the government spending goes into interest payments, he said.
For years, the government has not been able to finance the ADP without borrowing because of the low revenue collection, he told a media briefing on the budget for the upcoming fiscal year of 2024-25 at the CPD office in the capital's Dhanmondi.
As per a CPD projection, the total revenue collected this fiscal year, 2023-2024, will be Tk 82,000 crore less than the target.
In 2022-23, the revenue collection was Tk 366,000 crore and expenditure Tk 362,000 crore.
That year, the ADP spending was Tk 250,000 crore. Of the sum, only Tk 4,000 crore came from the fiscal surplus while the rest was mobilised in the form of loans the government secured from internal or external sources.
"The government needs to raise revenue collections by expanding the tax net," Prof Mustafizur said. Bangladesh has one of the lowest tax-to-GDP ratios in the world.
The CPD said the next budget should focus on restoring macroeconomic stability.
"In order to do that, the government must tame the inflationary pressure that has been hitting the poor and fixed-income people."
It urged the government to monitor the essential commodity market and restore discipline in the supply chain as prices are going through the roof.
"If anyone manipulates the market and makes money, they should not be just fined. Rather, they should be punished as per laws. The law even permits imprisonment for life. Without exemplary punishment, the problem can't be solved."
There were signs of inflationary pressures in Bangladesh even before the added impact brought on by the Russia-Ukraine war.
Quoting findings of the World Bank, Prof Mustafizur said 73.9 percent of Bangladesh's population, or 125.2 million people, could not afford a healthy diet in 2021.
"In the last two years, the situation worsened as inflationary pressure intensified."
The budget for FY25 will be formulated at a time when macroeconomic challenges persist, revenue collections are low, inflation shows no signs of abating, liquidity crunch in the banking sector deepens, and foreign currency reserves plummet.
"The budget will need to address these challenges to restore macroeconomic stability," said CPD Executive Director Fahmida Khatun.
The CPD urged the government to take steps to rein in the rising cost of essentials.
Bangladesh has been witnessing an elevated level of inflation since May 2022 and it has averaged more than 9 percent since March last year owing to both external and internal factors.
"Proper attention should be given to food production, social protection, subsidies for agriculture, and energy, power, health and education sectors," the think-tank said in a paper presented at the briefing.
Supporting the vulnerable and disadvantaged groups should be the central focus when it comes to subsidy management, according to the research organisation.
"The government should focus on implementing foreign-funded development projects given the declining foreign exchange reserves."
The government should also give importance to the projects that are almost finished whereas the schemes that have 10 percent or lower implementation rate up as of March 2024 should be deprioritised, the CPD said.
It called for an independent commission to look into the issues related to the surging costs of public infrastructure projects and said the government should raise revenue receipts by expanding the tax net in order to create more fiscal space.
"Fiscal policies and proposals, especially subsidies, need to be aligned with Bangladesh's obligations as a future developing country, following LDC graduation," the CPD said. Bangladesh will leave the group of the least-developed countries in 2026.
Prof Mustafizur said the government should find a strategy to help the private sector so that it doesn't experience any troubles after the graduation since the country would not be able to offer direct subsidies after the transition like it does currently.
"In many countries, the government, for example, builds dormitories for workers and provides food items. Then, it is not a subsidy to industries but it still helps them."
Khondaker Golam Moazzem, research director of the CPD, called for participatory discussions on the budget in parliament.
He pointed out that the dynamism that is usually seen in a new government is yet to be there although the current government came to power more than two months ago.