Expectations-achieving fluctuating budget, the pressure will increase or decrease?

In May, the food inflation rate in the country increased to 10.76 percent. For the low-income people, the most important issue at the moment is to curb the rise in commodity prices.

The cost of living has increased manifold. But the income did not increase in that way. Many people’s incomes have fallen even further. Lower and middle class people are struggling to meet their basic needs. Many have compromised with the food list. Some are breaking savings, some are drowning in debt.

Abnormal appreciation of the dollar and insufficient supply are major headaches for an importer. Manufacturers are unable to import raw materials due to less supply than required. Production is affected. A crisis has arisen in the supply of essential commodities in the domestic market, which is constantly pushing up prices. Common people’s suffering is increasing. Production of export-oriented industries is also disrupted in many cases.

According to Bangladesh Bank’s latest data, private sector investment growth is negative. Credit flow to the private sector fell to 9.90 percent in April from 11.28 percent in the same period last year.

Employment is not increasing due to slowness of private investment. Unemployment rate is increasing. Job interview queues for educated unemployed are growing. Many people are joining lower than qualified positions to get rid of the curse of unemployment without getting the desired job.

Export income is not good news. According to the latest data from the Export Development Bureau, May exports fell by 16 percent. Exports of goods earned $4.07 billion in May, which is 16.06 percent less than last year. In May last year, the revenue was 4.84 billion dollars.

Bangladesh’s export earnings are under pressure due to global political unrest and economic slowdown. Also domestic problems could accelerate negative growth.

Although expatriate income is on a positive trend, it is not enough to increase or strengthen the foreign exchange reserves. Total expatriate inflows through the banking channel in May ended at $225 million, the highest in nearly four years (46 months), and the second highest ever. Earlier, the highest remittance in a month was 2.6 billion dollars in July 2020.

Finance Minister Abul Hasan Mahmud Ali will present a budget proposal of seven lakh 97 thousand crore rupees for the financial year 2024-25 in the National Parliament today Thursday (June 6) amid various global and domestic adverse economic conditions.

However, the finance minister has hinted to ease the life of the common man by controlling inflation. But traders are worried that the cost of living will go up further with the possible tax rate.

Now the question is whether the government will present the budget in the parliament today, will it reduce or increase the ongoing pressure on the lives of the common people and the farmers?

The tax-free life limit of Tk 3.5 lakh will remain unchanged. Abnormal rise in cost of living on one side, flat income on the other. As a result, the effect of inflation on the common people will not decrease.

Keeping the duty on import-dependent commodities unchanged or increasing will not make the life of the common man easier but more difficult.

Some new products are said to come under value added tax, which can be a blow to the market if it is a commodity.

To provide some relief to the poor and low-income and elderly people and reduce their cost of living burden, the social safety net needs to be increased in allocation as well as coverage. But if there is an indication of increasing the scope in the next budget, the possibility of increasing the allocation is slim.

Before the coronavirus pandemic, Bangladesh had averaged more than 6 percent GDP growth for several years. But the growth in the current fiscal is forecast to be 5.82 percent.

In order to achieve GDP growth in the previous trend, domestic and foreign investment should be increased and people’s standard of living should be increased through employment creation.

The main obstacles to increasing investment are the tax structure, business infrastructure, complexity of prevailing laws and gas and electricity connectivity. In this case harassment and bribery to get services deepens the problem. Banking chaos, irregularities, corruption and rampant bad debt have constricted the flow of private credit.

According to the data of Bangladesh Bank, in December 2023, defaulted loans were Tk 1 lakh 45 thousand 633 crores. In the meantime, the government is planning to take 1 lakh 37 thousand 500 crore from the bank in the next budget. Large borrowing by the government from banks will hamper the flow of credit to the private sector and reduce investment.

According to the data of the Bureau of Statistics, 30.98 percent of the gross domestic product has been invested in the current fiscal year, which was 32.05 percent in the fiscal year 2021-22.

Private sector investment was 23.51 percent of GDP, which was 24.18 percent last year.

Therefore, legal reform to boost investment, bring order to the banking sector and reduce dependence on the banking sector to meet the government’s budget deficit.

Without reforms, it will not be possible to increase private sector investment and foreign investment. Major reforms in the financial and revenue sectors should be highlighted along with specific plans in the budget. Rather than increasing the size of the budget, focus should be on implementation. Otherwise, only the budget size will be large, people and businessmen will not benefit from it.

Political will is needed to get out of the current shaky situation in Bangkok. If the ongoing weak condition of the financial sector continues, the desired economic growth will not be achieved. On the other hand, savings and investment will decrease, which is not desirable for the country’s economy at the moment.

Government debt is increasing as revenue collection is not at the desired level. As a result, it is assumed that the government will set an increased revenue collection target in this budget as well.

In the budget of the next financial year, the revenue target is estimated at five lakh 41 thousand crores. Of this, the target of the National Board of Revenue (NBR) is Tk 480 thousand crore. Non-NBR tax is estimated at 15 thousand crores. And the target of receiving from the non-tax sector is 46 thousand crores.

Setting unrealistic targets will increase pressure on businesses and tax payers. But revenue collection will not increase. The economy is going through a crisis and the government needs to increase its revenue. It does not mean that the budget will be revenue raising. It will not industrialize. The budget needs to have directions that will increase industrialization. And if industrialization increases, revenue collection will increase.

Only increasing the tax rate will not increase the revenue collection, if the revenue collection is to be increased, appropriate steps must be taken to stop tax evasion. Along with that, the administration should be organized. Use of technology should be increased. Government should think about revenue as well as industrial development. The major challenge for export-oriented industries, especially the ready-made garment industry, is to remain competitive in the global market.

After joining the ranks of developing countries, Bangladeshi exporters will lose duty-free access to many countries. On the other hand, the finance minister has hinted at increasing taxes and reducing cash assistance in the next budget.

At present, exporters of ready-made garments have to pay 1 percent. Tax at source remains unchanged despite traders’ demands. This will hamper the development of the industry and make it difficult to compete in the global market.

Therefore, there should be appropriate steps in the next budget to solve the challenges that Bangladesh will have to face as a result of transitioning into a developing country. At the same time ongoing financial and policy support should be continued. Addressing the problems of business people and taking appropriate steps to deal with the ongoing economic challenges can play a role in reducing the pressure on the economy.

To improve people’s quality of life and reduce the pressure of commodity prices, people-friendly budget must be made.