Govt may face Tk82,000cr revenue shortfall in FY24: CPD

The Centre for Policy Dialogue (CPD), a leading think tank in Bangladesh, has projected a revenue shortfall of Tk82,000 crore by the end of the fiscal year 2023-24.

"The revenue collection did not meet the target in the first six months of the ongoing fiscal year. To meet the overall target in the remaining six months, revenue collection must be around 54.4%, which is exceptionally challenging," CPD Executive Director Dr Fahmida Khatun said.

The country's overall economy is currently undergoing a crisis, said Khatun while addressing a media briefing on "Recommendations for the National Budget for the Fiscal Year 2024-2025," held today (16 March).

"There remains an instability in the overall economy, with significant pressure mounting," she remarked.

The country's macroeconomic challenges include a decline in revenue collection, liquidity crisis in banks, reduced exports and remittance income, and a decrease in foreign currency reserves, she said.

She said the government's development spending was also down, reaching just 25.5% of the planned budget, compared to 27.2% the previous year.

The CPD executive director, however, noted a silver lining with the budget deficit reduced to Tk7,885 crore in six months, a decrease from last year's Tk2,0,000 crore. 

"Even though the deficit has decreased, the government's borrowing from the banking system has increased. This will have a negative impact on the growth of private sector loans," she added.

"Inflation has consistently exceeded 9% throughout the year. Food inflation surpassed non-food sectors and was notably higher in rural areas than in urban areas," she said, warning that rising electricity prices could increase  inflation further.

As per the think tank, the government has increased the interest and repo rate while setting the policy rate at 8% in January 2024 to reduce the pressure.

"The government's current approach to managing inflation, such as printing money and releasing dollars into the market, or withdrawing dollars from the market, needs to be changed," Fahmida opined.

While highlighting concerns in all indicators of the external sector, the CPD director said, "There has been a sluggish growth in export earnings while imports have also declined. Under the circumstances, implementing stricter import controls could adversely impact medium and long-term investments.

"Remittance growth has also been slow. Despite some recent growth reported recently, it doesn't match the number of people going abroad, which is concerning. Additionally, the incentives provided by the government in remittances and other sectors are becoming a fiscal burden."

Noting that the foreign currency reserves are still unstable, she said, "Efforts have been made to transition towards a more market-based exchange rate, with Bangladesh Bank implementing a crawling peg system, although its effectiveness remains limited."

CPD Distinguished Fellow Mostafizur Rahman, Research Director Khandkar Golam Moazzem, Senior Research Fellow Toufiqul Islam Khan were present at the event held at the think tank's office in Dhanmondi. 

Regarding health of the banking sector, Mostafizur Rahman highlighted the need to address underlying weaknesses in the banking sector, such as transparency and governance issues. 

He called for better market management and enforcement of laws to combat financial crimes like money laundering and duty evasion.
Khandkar Golam Moazzem said there is a lack of enthusiasm and specific initiatives from the new government in its first 100 days. 

He expressed concerns about the government's ability to address economic challenges, particularly the transition from Least Developed Countries (LDCs). 

The revenue collection target during July-December period was 36.3%. However, only 13.9% of the target had been achieved by December. 

The government's total revenue collection target this year has been fixed at Tk5 lakh crore. If there is a shortfall of Tk82,000 crore, it will be around 16.5% of the target — higher than the previous two years.

Economists and experts have always called the government's revenue targets ambitious. On the other hand, traders complain that the revenue board puts extra pressure on traders to achieve excessive targets which sometimes become unbearable.

Recommendations 

The CPD at the event suggested that the primary goal of the next budget should be to restore macroeconomic stability, and these efforts need to be consistent. 

The government needs to make significant reforms in the upcoming budget because the first year of a new term for a new government is the best time for such bold actions, it said.

The government should also focus on reducing reliance on bank loans by minimising wastage. Prioritising the right investments based on realistic targets is crucial.

Regarding inflation, the think tank said it is vital to address inflation pressures and prevent unchecked rises in the prices of essential goods.

Therefore, it's crucial to boost domestic food production, expand social security coverage, and enhance incentives in the agriculture sector, she added.

"Subsidies should be directed towards helping the poor, while savings should be pursued whenever feasible. Additionally, there should be a focus on effectively implementing foreign-aided projects," the CPD suggested.

The CPD also suggested that projects implemented less than 10% by March 2024 should receive less priority in the future. 

It proposed establishing an independent commission to ensure proper government expenditure. 

The think tank recommended maintaining the tax-free income limit for the next fiscal year but suggested adjusting tax rates for different income brackets. 

They propose lowering the threshold for higher tax rates and increasing tax rates for higher income levels. 

It also suggested widening the gap between corporate tax rates for listed and unlisted companies. Additionally, it advocated against treating non-profit organisations as companies.

To strengthen the tax base without overburdening taxpayers, CPD suggested implementing medium and long-term revenue strategies including property tax and wealth tax. 

It said 15% tax rate on provident funds and gratuities should be reduced to 10%, making it permanent in the FY25 budget.

The CPD also called for allocating funds in the budget for clean energy projects, extending renewable energy tax breaks, and incentivising solar use in industries and agriculture. 

Besides, it proposed raising healthcare and education allocations, reducing taxes on education, and incentivising private educational institutions.