B Mirror Desk: Bangladesh’s next budget may be Tk 7.92 trillion, smaller than the current one, as the interim government balances a tightrope amid a muted trend in revenue earnings and foreign aid inflow in the current context. Containing inflation to 6.5 percent is a key promise, with an ADP of Tk 2.3 trillion and a GDP growth target of modest 5.5 percent.
As the government also considers slower execution of the current budget, officials provide a potential budgeting forecast, stating that this is the first time Bangladesh is creating a smaller budget than the previous one.
The decision was announced Wednesday at a ministry of finance technical committee meeting on budgeting. The ultimate decision about the budget for fiscal year 2025–2026 will be made by the committee for coordination on fiscal, monetary, and currency exchange, which is led by Dr. Saleh Uddin Ahmed, a financial expert.
The national budget for the financial year 2024-25 is set at Tk 7.97 trillion, reflecting a reduction of Tk 490 billion from the initial annual development program (ADP) allocation of Tk 2.65 trillion. According to sources from the Finance Ministry, the National Board of Revenue faces the challenging goal of collecting Tk 5.10 trillion in the upcoming fiscal year, an increase from Tk 4.80 trillion in the current year.
Officials indicate that the ADP allocation for the next fiscal year may be established at Tk 2.30 trillion. The government is likely to aim for a GDP growth target of 5.5 percent for the next fiscal year, down from 6.75 percent in the current year.
In terms of inflation, the government may set a target of reducing the rate to 6.5 percent, consistent with the current budgetary goal. As of March in the current fiscal year, inflation has remained stubbornly high, fluctuating between 11.66 percent and 9.32 percent.
Additionally, the government intends to keep the budget deficit below 4.0 percent of GDP, compared to 4.6 percent in the current fiscal year, as reported by officials. Finance officials emphasize that a primary objective for the next fiscal budget will be to curb inflation and improve budget execution.
As of February, the National Board of Revenue had generated Tk 2.21 trillion against a budgetary target of Tk 4.80 trillion. They anticipate that by the end of the fiscal year, the NBR may collect around Tk 4.0 trillion at most, which falls short of the revised target of Tk 4.635 trillion.
Furthermore, ADP implementation has been reported at below 25 percent until February, marking the lowest performance in 14 years, according to official data. Consequently, officials express concerns that funding a large budget in the next fiscal year will be challenging, and much of it may remain unutilized.
Dr. Fahmida Khatun, the executive director of the Centre for Policy Dialogue (CPD), identifies several factors contributing to the limited budget for the upcoming fiscal year.
Firstly, she points out that Bangladesh has been facing consistently low tax revenues, with its tax-to-GDP ratio ranking among the lowest in the world. This situation restricts the government’s fiscal capabilities.
Additionally, Ms. Khatun highlights that as part of a $4.7 billion loan agreement with the International Monetary Fund (IMF), Bangladesh is obligated to undertake various fiscal reforms. These reforms include reducing the budget size, improving tax collection, adopting a market-based exchange rate, and decreasing the budget deficit.
Secondly, the government aims to lower inflation to approximately 6-7 percent by FY 2025-26. To meet this goal, it is essential for the government to implement cost-saving measures in public spending while also pursuing a contractionary monetary policy, she explains.
“Although the decision to reduce the national budget is in line with efforts to stabilize the economy and fulfill international commitments, it presents challenges, such as decreased public spending that could hinder job creation,” states the CPD executive director.
She believes it is crucial for the government to address these negative impacts. “It must focus on efficient resource allocation, safeguard vital social programs for the underprivileged, and implement reforms to boost revenue collection.”
