Budget size kept small to avoid increasing debts: Mustafizur Rahman

Perhaps one major reason for the government trying to keep the budget size smaller is to avoid increasing the size of the debt, Professor Mustafizur Rahman, a distinguished fellow, Centre for Policy Dialogue (CPD).

"Increasing the debt size would otherwise raise questions about bank loans, which could potentially stimulate money supply and inflation – the budget planners might have considered it," he said as an immediate reaction to the Bangladesh National Budget proposed at the parliament today (6 June).

"As citizens, we expect a democratic government to present a people-friendly budget. Since the economy is going through a tough period and the Bangladesh Bank is also pursuing a contractionary monetary policy, an attempt has been made to keep the size of the budget somewhat restrained. We can understand this from the expenditure estimates allocated to various sectors of the budget," he said.

Noting that the revenue collection target has been set to 9.7% of GDP in 2024-25, he said, "However, we know that in 2023, the actual figure was 8.3%. Even if we estimate for 2024, it will be around 8.4 or 8.5%. To raise it to 9.7% will require some initiatives. It has been stated that there was no pressure, but there is indeed pressure from the IMF. The revenue income in the budget needs to be brought to a certain level of GDP—around 9.7%. There is certainly underlying pressure in achieving this, as it seems to be a significant target. Therefore, it's clear from the numbers that there is some pressure."

Another issue is that right after public administration, interest expenses are coming in at number two. Therefore, the accumulating interest in the economy, the burden of servicing our interest and principal, is also increasing, and this is evident from the current structure, he added.

Mustafizur said, analysing the income tax structure, it is evident that some adjustments have been made to reduce the burden on the middle class. We observed that the highest income tax rate, which was 30% before COVID-19 and was reduced to 25%, has been brought back to 30%. This adjustment has been made considering the increasing income inequality.

The pressure, however, on revenue collection through VAT and other tax structures has been well reflected in the budget. Some tax proposals have provided protection to our import-substituting products. This has also been applied to several essential goods," he said.

"On the other hand, since the general public is under pressure, it seems that due to resource constraints, it has not been possible to extend family cards or other social protection measures as extensively as they could have been."