Mammoth Budget Docks for 2024-25 Fiscal Year

On the track of Bangladesh’s development, the people have always had a big aspiration to get a budget that will give them comfort in their economic life. Bangladesh has entered into the fourth phase of a continuous process of development mood under the people’s welfare-oriented architectural leadership of Prime Minister Sheikh Hasina, in which she feels a clear responsibility to sailing the nation more toward a sustainable growth pattern. Amidst this very urgency, the upcoming national budget of Bangladesh for the fiscal year 2024-25 is set to make a resounding impact, tipping the scales at an impressive Tk 8 trillion.

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Prime Minister Sheikh Hasina wasted no time giving her approval to this monumental budgetary proposal. Scheduled for presentation in parliament on June 6, the news was confirmed by sources within the Finance Ministry to reporters on Tuesday (May 14).

Emphasizing a stance against the influx of luxury imports, Prime Minister Hasina echoed her commitment to reigning in inflation, a cornerstone priority carried over from the current fiscal year. With the discerning eye of a leader keen on fulfilling electoral promises, she expressed contentment in finding the budget allocation aligned with the government’s manifesto.

Budget Prioritizes Inflation Control and Economic Stability

Prime Minister Sheikh Hasina firmly advocated for a strategic shift in the upcoming fiscal agenda, prioritizing the battle against inflation. During discussions at Ganabhaban, she emphasized aligning fiscal strategies with her government’s mandate, expressing satisfaction with the proposed budget.

The forthcoming fiscal landscape, shaped under her guidance, focuses on inflation control, boosting foreign direct investment, managing imports, scrutinizing development projects, and enhancing revenue collection.

Further, the PM urged adopting policies from economic giants and emphasized broadening the tax base without overburdening taxpayers. She also called for curbing luxury imports, criticizing frivolous expenses amid economic challenges.

Her directives also highlighted expanding the safety net to support more beneficiaries, underscoring her commitment to the welfare of the people.

Finance Ministry officials, bearing the mantle of responsibility, unveiled plans to ease pressure on foreign currency reserves and reduce inflation by December. They presented a Tk 7,96,900 crore Bangladesh budget 2024-25 focused on fiscal prudence and economic recovery.

Amid economic uncertainty, the budget includes a 4.6% increase in fiscal allocations and a Tk 2,65,000 crore Annual Development Programme, signaling hope and progress.

However, according to experts, preparing and implementing the national budget for FY25 will be a formidable task for the government, given the ongoing pressure on key macroeconomic indicators such as inflation and foreign exchange rates.

Masrur, a former World Bank senior economist, noted that with current inflation, the Bangladesh budget 2024-25 should align with the central bank’s contractionary policy.

Masrur advised focusing on export-oriented industries to sustain the economy and highlighted the importance of improving the tax environment to attract investment and create jobs. Simplifying tax policies is crucial for attracting Foreign Direct Investment (FDI).

Preparation for LDC Graduation with a Focus on Local Industry and SMEs

As Bangladesh approaches its graduation from the “Least Developed Country (LDC)” status by 2026, which will eliminate the Generalized System of Preferences (GSP) facility and other benefits from international buyers, the need to invest in local industries is becoming more meaningful gradually. After LDC graduation, Bangladesh will no longer be able to provide subsidies to export-oriented businesses. Therefore, the authorities should focus on empowering local industries, including SMEs, to drive future economic growth. Increased investment in technology, research, and development is crucial for making data-driven decisions that support growth.

Considering the recent financial status, immediate action to curb inflation and long-term strategies for growth are crucial in Bangladesh’s economic landscape to fight back against all the odds. Between these two, the main short-term issue is inflation, which has surged from 5-6% to 10% due to rising import prices and weak export returns, leading to currency depreciation and exacerbating inflation.

The government’s ambitious spending spree, juxtaposed against tepid revenue growth, delineates the contours of prevailing fiscal policy. While a sluggish economy and soaring interest rates offer some respite, the government’s tactic of delaying payments fails to stem the tide. The fiscal deficit, though ostensibly reduced, falls short of the necessary magnitude to quell inflationary pressures—a stark reality underscored by the impending fiscal year.

Optimism wanes as projections suggest a continuation of inflationary woes into FY25, with real-term figures oscillating between 5-10%. The government’s recourse to foreign borrowing to plug the fiscal deficit offers scant reassurance, with doubts lingering over its efficacy in curbing inflationary trends.

The Role of Fiscal Austerity and Export Growth

Amidst escalating interest rates, the impact on investment remains an enigma. The intricate interplay between interest rates and private investment defies simplistic analysis, challenging the conventional wisdom that higher interest rates invariably deter investment.

However, the prevailing narrative often attempts to pin the blame for inflation on cartels—a misconception pervasive among the public but fundamentally flawed. In reality, Bangladesh’s markets are fiercely competitive and devoid of monopolistic tendencies. Moreover, the fixation on interest rate fluctuations—ranging from 2-5%—is misguided, given that investment expectations hover between a lofty 25-30%, rendering minor interest rate adjustments inconsequential. Borrowers, buoyed by the assurance of leniency in repayment delays, further undermine the efficacy of interest rate interventions.

The crux of the matter lies in slashing the government deficit by a substantial 2-3% of GDP, heralding a drastic reduction in government expenditures. Such austerity measures promise immediate relief, precipitating a sharp decline in inflationary pressures.

Amidst the clamor for solutions, the fallacy of governmental price control looms large. History attests that no government can reign in prices, and attempts to do so invariably end in failure. Monetary policy, likewise, yields limited impact in this regard.

Now is not the time for convoluted schemes or budgetary reallocations; rather, an unyielding commitment to fiscal austerity over the next biennium is imperative. Only through ruthless expenditure cuts can inflation be tamed, paving the way for renewed economic expansion.

In tandem with fiscal restraint, fostering an environment conducive to export growth assumes paramount importance. Yet, the mishandling of key export sectors—like leather and shrimp—underscores the urgency for corrective actions. Corruption and governance lapses have exacted a heavy toll on these vital industries, necessitating a paradigm shift in policy and management.

The Ready-Made Garment (RMG) sector, the cornerstone of Bangladesh’s economic landscape, demands urgent attention. Lackluster efforts in training, research, and product diversification threaten to erode the sector’s competitive edge, imperiling its future trajectory.

Compounding these woes is the dearth of reliable data plaguing critical sectors like RMG. Without accurate employment figures, price indexes, or production cost data, navigating the path to growth remains treacherous.