Tuesday, 5 July, 2022

Lofty goals amid global gloom

The government went for an expansionary budget with a huge deficit to fight old and new challenges, expedite Covid-19 recovery and protect the poor amid mounting challenges posed by internal and external shocks.

The philosophy behind such an expenditure plan was to enhance public investment to boost domestic demand, spur private sector growth and create more jobs and widen the social safety net.

More money will be required to address the biggest challenge of ‘imported inflation’ in the next fiscal stemming from the war-induced global food and energy price volatility.

The finance minister plans to allocate more subsidies to offset the mounting inflation to put a cushion on the low-income people apart from some fiscal measures to lower import costs.

The lofty Tk 6.78 trillion budget for FY23 that the finance minister announced at the national parliament on Thursday comes with a deficit of GDP’s 5.5 percent though the Covid-19 emergencies have waned.

However, priority has now changed--taming the heating up inflation that most of the nations across the globe are grappling with after the start of the Ukraine war.

The budget was announced at a time when a crisis is looming large in the economy struggling with high inflation, falling reserves, high trade deficit and free fall of taka against the US dollar, falling exports and remittances inflows.

Skyrocketing global energy, food, industrial raw materials and other goods prices have been a major concern for the economy.

The country has never faced such a macroeconomic crisis since the 2008 global economic meltdown. 

Against this backdrop, the finance minister had to struggle to devise a budget blending the new priorities with the existing ones--SDGs implementation, addressing LDC graduation challenges and far-reaching development goals.   

Food security, enhancing farm output with mechanisation, health sector and human resource development, export diversification to face LDC exit challenge, raising investment and employment generation, and education and skill development are the other key areas of the budget.

Kamal is still gripped by the growth ambition as he expects to achieve 7.5 percent growth while keeping inflation within 5.6 percent to bring back the economy on the high-growth track from the Covid-19 fallout.

On income side, Kamal was ambitious both in domestic revenue mobilisation as well as channelling overseas funds.

He eyes borrowing one-third money of the planned expenditure from local and foreign sources to meet the 5.5 percent budget deficit in the next fiscal year.

In the original budget of outgoing FY22, the finance minister projected 6.2 percent budget deficit to fight the second wave of corona pandemic, which finally stands at 5.1 percent in the revised budget. 

Revenue collection bar has been set higher at Tk 4,330 billion, whereas NBR is miles away from achieving the current fiscal’s target.

There was more than Tk 1 trillion shortfall in the first 10 months and over Tk 300 billion shortfalls is expected this year. 

The next fiscal’s revenue target includes Tk 3,700 billion NBR tax, Tk 180 billion non-NBR tax, and Tk 450 billion non-tax revenue. Tk 32.71 billion foreign grants are also expected. The budget deficit is a staggering Tk 2450.64 billion or 36.14 percent, which is expected to be met mainly through Tk 1,063.34 billion bank borrowing.

Foreign loans are also going to play a significant role in the next fiscal. The net foreign borrowing target has been set at Tk 954.58 billion which is Tk 184.38 billion higher than current fiscal’s revised target.

Non-bank borrowing target will be Tk 400 billion, including Tk 350 billion from savings certificate sales.

The government will put more subsidies on the imported goods as the imported items are the main source of inflation in the country at this moment. As a result, subsidies may rise on fertiliser, food items, electricity, subsidy and incentive segment is fetching nearly Tk 830 billion.

The government allocated the biggest chunk of the planned expenditure, Tk 4,114.06 billion, as operational cost, including Tk 731.75 billion loan interest paymentswhile 38.28 percent or Tk 2596.17 billion has been allocated as development expenditure, including Tk 2,460.66 billion main Annual Development Programme (ADP).

The operating expenditure of the government is increasing at a faster rate than the development expenditure, resulting in the availability of a smaller share of revenue surplus for financing ADP.

Tk 1,135.76 billion has been set aside inFY 2022-23 budget, which is 16.75 percent of the total budget and 2.55 percent of GDP.

The finance minister informed the parliament that some 10 million families including the families who have received Tk 2,500 as cash assistance during the pandemic are getting family cards from TCB to get food at a lower cost.

As a result, Kamal said, about 50 million low-income population of the country will directly benefit from this government initiative.

Besides, 5 million low-income households will get food assistance of 30 kg of rice each month at the rate of Tk15.

The assistance will be given in the lean seasons- September, October and November and March and April, Kamal said in his budget speech.

The finance has tried to address the present and emerging situations through some fiscal measures to contain inflation, promote local industrial production and exports, and squeeze fancy items imports while trying to rope in laundered money from abroad.

Export-oriented industries other than RMG factories have been offered the same tax benefits enjoyed by the apparel sector to diversify the export basket to face LDC graduation challenge. Tax benefits have been extended to some emerging industries as well.

At the same time, corporate tax rates have been slashed for some industries to lure investment and create more jobs.

The government has introduced a policy of legalising laundered cash and assets without facing any questions for a year starting from next July 01.

Kamal proposed to add a new provision in the Income Tax Ordinance, 1984 so that money earned and assets acquired abroad can be mainstreamed into the economy with a view to creating a flow of fresh funds and investment for economic activities.

 According to the proposed provision, no authority, including the income tax authority, shall raise any question as to the source of any asset located abroad if a taxpayer pays tax on such asset.

 The proposed rate is 15 per cent for immovable property not repatriated to Bangladesh, 10 per cent for movable property not repatriated to Bangladesh and 7 per cent for cash and cash equivalents repatriated to Bangladesh.

However, there was no good news for the individual taxpayers as tax-free income limit remained unchanged at Tk 3 lakh.

Economic analysts said the raising tax-free bar in consideration of raging inflation could have left some space for disposable income.