Revenues, subsidies, budget deficit – three major challenges for the next budget

Maintaining revenue growth, effectively managing subsidies and tackling the growing budget deficit are the three main challenges of the new budget, said Ahsan H. Mansur, executive director of the Policy Research Institute (PRI) of Bangladesh.

“The target for FY23 has been set at Tk 3.7 trillion, which will require NBR revenue growth of approximately 28% in FY23,” he said. during a post-budget roundtable organized by the American Chamber of Commerce in Bangladesh (AmCham). Sunday at the Sheraton Hotel in the Banani district of the capital.

“Actual growth rates vary between 13% and 15% per annum and based on this shortfall in FY23 will be around 400 billion taka,” he added.

As for subsidies, he said, the subsidy bill has been relatively stable, although it has increased in recent years. However, the amount of grants jumped in FY22 and is expected to increase sharply again in FY23.

“The Tk 720 billion allocation for subsidies is a low figure and likely to increase further if fertilizer and food prices increase further in the international market. No major effort has been made to review the vast grant program despite rising grant bills,” he said. observed.

On the budget deficit, he said, the budget assumes about $11 billion in foreign financing, net amortization payments in FY23.

On the domestic financing side, borrowing from the banking system is budgeted at 1,060 billion taka, or only 320 billion taka in FY21.

The money market is already stretched. Deposit growth is slowing due to foreign exchange interventions ($6.5 billion) and lower net foreign assets. Treasury bond rates are already 8% for 10-year bonds, which are expected to rise further.

“Bangladesh’s budget is the smallest of almost any country. Whether that is a curse or a blessing remains to be determined. We need large public expenditures to meet the growing needs of the But at the same time, if the resources are not used well, the economy will suffer,” said Ahsan Mansur.

AB Mirza Azizul Islam, former adviser to the interim government, said: “Borrowing from the banking system to fill the budget gap will reduce the flow of credit to the private sector and this will have an impact on employment.

Calling the private sector the engine of the country’s economy, he said, “we need to facilitate more investment opportunities in this sector.”

He also said revenue collection is low relative to GDP ratio and reforms are needed in the revenue sector.

Planning Minister MA Mannan, the main guest at the event, said: “The legal framework for revenue collection has been changed. The government is working step by step to develop the revenue sector in line with the vision.

Ahsan Mansur, in his keynote address, said that the existing challenges for Bangladesh’s economy are manageable through the application of the right policy instruments for the right objectives.

He said the reduced size of the budget (relative to GDP) will help reduce domestic demand pressure.

“The exchange rate should be left to the market and the Bangladesh Bank should only focus on ensuring its stability without interfering with its trend. The interbank foreign exchange market should be allowed to operate freely,” he added.

The round table was moderated by the president of AmCham, Sayad Ershad Ahmad.