Business Report :
The inflation and GDP growth targets set in the proposed budget for the fiscal year 2024-25 are not realistic, the South Asian Network on Economic Modeling (Sanem) has said.
“Reducing inflation to 6.5% and achieving a GDP growth of 6.8% is both unattainable,” said Dr Selim Raihan, executive director of Sanem, during a program titled ‘Sanem Budget Review 2024-25’ held at the Brac Center Inn in the capital on Saturday.
The review was presented by the organisation’s Research Director, Professor Sayema Haq Bidisha.
According to the Sanem review, other targets, such as increasing foreign currency reserves, revenue collection, and investment, are also not considered realistic.
The organisation believes that future crises will become more severe if these targets are not realistic.
“The budget does not accurately assess the economy. There is an understanding, but not enough initiatives are being taken to overcome the crisis,” Dr Raihan said.
“No profound, thought-based strategic measures have been planned. There is also a lack of initiative regarding the institutional reforms needed to achieve these targets. A target of $32 billion in foreign currency reserves has been set. However, the sources of this reserve increase are not specified in the budget,” he added.
The Sanem executive director mentioned a two-year plan for economic recovery is necessary, given the current situation.
“The annual budgets are not bold enough in policy-making. Policies also change, and to prevent these changes, such planning is necessary,” he added.
Dr Raihan said Bangladesh has been unable to keep inflation manageable even though many other countries did.
“This is because interest rates have been held steady for a long time, which was a mistake. Raising interest rates reduces demand, but the delay has already brought demand to its lowest levels,” he added.
The Sanem executive director also mentioned that mismanagement in domestic market management leads to price hikes.
“Prices are increasing, even for minor reasons, and no measures are being taken against these unwarranted price hikes. On the other hand, instead of focusing on direct taxes to increase revenue collection, an expansion of indirect taxes has been chosen,” he said.
Dr Raihan said this indirect tax will create further pressure on inflation.
However, he recommended setting the highest tax rate at 30%.
In her analysis, Sayema Haq Bidisha said the macroeconomic situation has worsened compared to a year ago.
She said, “Inflation, reserves, exchange rates, investment, exports, and imports are not in good condition. Even though a few indicators, like remittances, are stable, they are not satisfactory.
“There are challenges in the macroeconomy, such as negative trends in reserves and a decrease in the value of money. Private sector investment is either negative or stagnant,” she added.
She said the proposed budget is 14% of GDP, and the deficit is 4.6% of GDP.
Mentioning that there have been attempts to keep the budget somewhat restrained, Bidisha said, “64% of the budget is operational expenses, while 36% is development expenditure. The budget increased by 5% compared to last year.
“There are austerity measures in some areas. The withholding tax has been reduced. Efforts have been made to bring new people under social security. It has been stated that more people will benefit through TCB’s family card and OMS,” she added.
The CPD research director said, doing so would provide some relief. “However, there were more areas where work could have been done to control inflation.”
She said more consideration could have been given to imposing the value-added tax (VAT).
“Not enough effort had been made to expand the net of income tax. The tax-free income threshold could have been increased from Tk350,000,” she added.
Bidisha also said the budget contains nothing special besides some general initiatives to reduce inflation from 9-10% to 6.5%, and the likelihood of this budget reducing inflation is slim.
She said she believes initiatives to increase export earnings and remittances are conventional.
“Measures were needed to stop hundi [informal money transfer system] and the circulation of black money. No steps have been taken in this regard. There is no initiative to encourage farmers to produce agricultural products as an alternative to imports,” Bidisha said. Mentioning that there are no significant initiatives to encourage employment creation in the budget, the Sanem research director said a detailed roadmap is needed for employment.
“Decisions need to be made on how and where to provide incentives for investment in the private sector, especially in labour-intensive industries. Since there is no tendency to invest in large industries, incentives could be given to small and medium industries to create jobs,” she said.
“The allocation in the budget for social safety is 11% without pensions and interest. The allocation for main social safety needs to be increased,” Bidisha said, adding that the allowance amount is insufficient considering the current inflation pressure.
“On the other hand, the number of trucks and the quantity and number of products in open market sales must be increased. People with low incomes in cities need to be included in social security programs. There is no initiative in the budget for this,” she added.
Sanem condemns proposal of whitening black money
The Sanem executive director has urged the members of parliament not to approve the budget proposal for whitening black money.
“I strongly condemn the proposal to legalise black money with a 15% tax. It encourages corruption,” he said.
He said the National Board of Revenue (NBR) has not disclosed any success from such measures, and it is necessary to examine why black money exists.
“Honest businessmen are discouraged with such facilities. If legitimacy is obtained by paying less tax, it will encourage money laundering,” Dr Raihan added.
Sanem proposes forming a parliamentary committee against corruption Dr Raihan proposed forming a parliamentary committee against corruption, mentioning that the extent of corruption in the country can be understood from incidents involving individuals in important positions.