Analysis of the budget for the financial year 2024-2025 of Bangladesh | An uninspiring budget proposal

Despite having some positive features, the proposed budget for the financial year 2024-25 does not take into account the immediate needs and medium-term challenges facing the economy. There are three major problems that the budget somewhat correctly identifies: runaway inflation, dwindling foreign exchange reserves and rising debt burdens. However, strategies to curb inflation and provide relief to the poor and fixed-income groups are grossly inadequate. For starters, duties have been cut on only a few essential items, and the government’s poor track record does not give much hope as to whether this will ultimately result in lower prices for consumers. Moreover, the government’s target of reducing inflation to 6.5 percent seems overly ambitious, given that average inflation has been above 9 percent for two years in a row. Most importantly, the budget does not provide a detailed roadmap on how to change this.

The government has rightly decided to slow spending, and the budget deficit is set at 4.6 percent, the lowest in a decade – indicating a tight fiscal policy that complements the central bank’s tight monetary policy. But it has failed to recognize where to prioritize its spending. For example, the allocation for the social safety net programs saw a small increase from Tk 1,26,272 crore in FY 2023-24 to Tk 1,36,026 crore. This amount is not only insufficient, but it is also misleading because the share of social safety net programs as a percentage of GDP actually fell from the 2.55 percent of the previous budget year to 2.43 percent proposed in the new budget. And if the pensions of government employees and interest payments on savings certificates are not taken into account, the share falls further to 1.62 percent of GDP. Likewise, allocations for education and health remain grossly below what is needed to develop our human capital.

It is disappointing to leave the tax-free income threshold unchanged while prices have skyrocketed. The government should have tried to raise more revenue through tax reforms and bringing tax evaders under the tax net. Instead, it has focused on increasing revenue collection through indirect taxes, which will disproportionately impact lower income groups, increasing inequality. The government’s immoral decision to allow corrupt individuals to turn black money into white by paying a low flat rate of 15 percent is another bone of contention. Add to this the absence of any mention of how it plans to reduce non-performing loans, and it appears that the Awami League government has made a complete U-turn on its so-called policy of ‘zero tolerance’ against corruption .

In fact, the Finance Minister’s general budget speech was disappointing on the structural reform front, in light of expectations arising from the fact that this would be the first post-election budget. It appears that the government has once again chosen not to rattle cages by undertaking politically challenging initiatives that are critical to strengthening our economic pillars. So the mantra seems to be to acknowledge the challenges, promise changes, but promise very little to actually deliver them.