Not enough to manage inflation, little for social safety

Economists were expecting a somewhat austere budget in the next fiscal, ensuring additional allocations to the social security sector.

The allocation to the social security sector has not been increased at the expected rate to create employment, alleviate poverty and maintain the purchasing power of the poor. They have, in fact, declined compared to the size of the gross domestic product and the budget.

Subsidies and assistance to the poor can be maintained if revenue is increased through direct tax hikes.

In addition to increasing the amount, economists think it would be easier to meet other government expenditures.

The report was compiled by talking to three senior economists.

The government is moving from local black money to global black money

Dr Debapriya Bhattacharya

In the finance minister's budget speech, there is a grudging acceptance of the existing crisis in the economy. There may be differences of view regarding sources of the problem, but the finance minister sees most of the problems emanating from the external global environment. Internal structural challenges are not recognised in this connection.

Nonetheless, solution to the problem starts from its recognition. However, the identified problem has not been addressed through a medium term integrated, holistic approach. So, in that sense, we really don't get a feel how these disparate measures are going to add up and for example, bring down inflation from 6.3 to 5.6.

Further, the investment target is 31.5% of the GDP for FY23 and it is expected that public investment will decrease as a share of GDP and private investment will increase . But what is interesting is that even with this kind of sober investment targets, the GDP growth target still is 7.5%. This is very unusual, if not improbable. So it seems that the GDP targets in a pre-election year have become a political number less of an outcome of fiscal exercise.

While there have been some efforts to rationalize the tax rates to look for new sources of taxes, and also to do away with some discrepancies between the production and the turnover distribution level of products. What really strikes is that it has two major measures proposed which are anti-tax justice. The first one is that it was the two types of the registered companies, both with 10% of IPOs or less than 10% of IPO's are going to get tax rebate.

The unregistered private companies are going to get tax rebates. And also the individual enterprises are going to get tax rebates. These are all very fine. But on the other hand, this will reduce the corporate tax, at the personal income tax level, the low income middle class people and not getting any respite as the threshold for tax free income has not been increased from Tk3 lakh to Tk3.5 lakh or anywhere up. So, what we give to the corporate world, we are not giving it to the really marginalized communities or the middle class and lower middle class.

However, the most revealing proposal from the finance minister is that he's offering a very generous golden spoon to the people who have assets and income abroad. The minister does not qualify whether this is, he says that income earned abroad. But we all know in most cases, these are money sent abroad from Bangladesh through illegal means and the money itself has been earned mostly through illegal means.

So in that case the offer up from 15, 10 and 7% of taxes on different categories, it comes as a total surprise and shows that the real tax policies in Bangladesh is not really is who is the real final arbiter of the tax policies in Bangladesh. In fact, those are the people who have done double stealing. First, stealing the money, creating the wealth by stealing money from illegal means and then taking them out through illegal means. Why on earth a political government committed to fairness and justice has proposed this is totally unacceptable, incorrigible and unthinkable from political perspective. And it has no economic value, because those who have taken the money, they do not trust the government, so why would they bring them back? And the list, if published somewhere, will be leaked out.

What is interesting here is that when this measure is coming at a time when the country is approaching the national elections, so are these the people who are really going to finance the future elections. So we are going to please them, appease them.

They number two is that we know that in most of the countries abroad in the developed world the relevant authorities are hounding down people who have transferred money to their country, laundered money to their country, acquired wealth and pushed up the market prices, they are also checking out their sources. So is it because those monies are now facing questions abroad that my government is proposing this kind of way out for those people? With whom possibly, It will be interpreted their politically empathize with in this case is. So this is totally unacceptable. This government has accepted the local black money. Now it is accepting the global black money, moving from local black money to global black money. Otherwise it is a subdued budget. It is a subdued budget because of the recognition of the problem. The challenges the government is currently facing. And that's a tone that comes through across the speech and also on the targets. 

'The budget has uncertainty on a large scale'

Dr Ahsan H Mansur

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.

Saddening that social security allocation has come down from 2.8% of GDP to 2.55%

Dr Mohammed Abu Eusuf, executive director, RAPID

We thought this year's budget would expand the size of social security programmes by giving priority to the livelihoods of low-income people in the face of rising inflation due to global crises.

In particular, we hoped that the scope of employment generation and food-friendly programmes like OMS, for the poor would increase significantly. Various parties had recommended doubling the food supply programmes at a lower cost.

It is saddening that in the midst of these crises, the size of the social security programme has been increased by only Tk2,000 crore. In contrast to the inflation of more than 6%, the allocation in this sector has increased by less than 2%.

The social security allocation has come down from 2.8% of GDP to 2.55%. The allocation has also decreased compared to the size of the budget.

We see that more than half of the allocation for social security is going into the pockets of the wealthy. Besides, almost 100% of the additional allocation is going to sectors like pension, and interest payments. Excluding all these issues, the actual allocation for social security will come down to less than 1.5% of the GDP.

However, the monthly allowance for persons with disabilities has been increased slightly to Tk850 from Tk700. The number of beneficiaries has increased slightly as well.

Overall, however, the budget did not reflect the way we intended for the allowances and allocations to increase. But we still hope that parliament will discuss it and increase the number of allowances and beneficiaries.

There are currently some 122 social security programmes. But about 40% of the allocation goes to places like savings certificates, pensions, etc. 

The government should fulfil its commitments made in the National Social Security Strategy 2015, in particular, the Universal Pension Scheme, Social Insurance, etc. 

We will get more accurate information after we have our Household Income and Expenditure Survey 2022. We do not have this information since 2016. 

However, the government is doing MIS information management system, g2p to minimise these gaps. Pensions from the government will go directly to the individual through mobile banking. If these initiatives are implemented then I think the errors will be reduced. 

We think that if there is any kind of selection bias, the main purpose of these programmes will be achieved.