This year's budget has been a moderate one in my opinion. Since the macroeconomic context is different – there is a larger imbalance in the external sector and different other tensions are at play as well – the budget should have been smaller from the demand management view. I think the size of the budget has been smaller in those considerations.
It has been only a 15.2% (of GDP) budget which is smaller than the previous budgets. And by the time its execution is completed, the size will be further reduced. The size of the budget, in this background, is fine.
However, it has some problems in some areas. For example, the revenue collection. It will have shortfalls like the last budget had Tk40,000 crores in shortfalls. But the budget is not admitting that.
The budget is saying that the NBR revenue is Tk330,000 crores. But in reality, it will not be more than Tk290,000. As a result, to reach the target of the next budget, growth has to be almost 30%, which is not possible at all.
In this budget, we do not notice the reforms in tax policy and tax administration that was necessary for consideration of the adversity in our revenue collection. We did not hear anything about that from the minister's speech, and this is sad.
The budget also has uncertainty on a large scale – the subsidy. The amount of subsidy – Tk82,000 crores – is huge. And the minister has admitted that it may increase by 15% to 20%.
This increase is highly likely because there are uncertainties about some issues like what would be the price of rice, oil and gas in the international market – we do not know that. And its impact will fall on the subsidy. If the prices increase in future – we do not know when will the price increase or how much will increase. And we also do not know if there is a political decision about it.
Tk82,000 is indeed a huge amount of subsidy. There is a fear that it may also increase further. Another point of fear is the big deficit in financing which will create pressure both on foreign and domestic financing.
In terms of foreign financing, it is being said that it will be mitigated by increasing the budget support, which is also fine.
But the budget support requires some reforms as well. Is the government ready for such reforms? We do not know that yet. Nothing has been said about this. But the prime minister has admitted the necessity for budget support, and the finance minister has inserted that in the budget.
The loan that will be taken from the domestic banking sector – Tk106,000crore – is a big amount. But while doing so, the personal loans will be obstructed which is going to be a big challenge. Similarly, the interest rate of the Treasury bill is already 8%, but it may also be increased further along with increasing borrowings which can create a conflict with the 9% personal loan ceiling.
The monetary policy is in needs to tighten up. In this background and evaluating the overall situation, lending caps and deposit caps should be withdrawn even if temporarily which later can be reset or can be left to the market.