Chances to meet proposed budget financing needs, IMF conditions dismal: PRI

The Policy Research Institute (PRI) of Bangladesh, a private think tank, has said the government's revenue goal for the fiscal year, starting 1 July, falls radically short of what is needed to meet the proposed budget's financing needs, as well as the IMF conditions.

In a press conference at its office in the capital on Tuesday, the organisation's Research Director Dr MA Razzaque said the government targets 16% revenue growth in the coming fiscal year compared with the outgoing one. However, as per the think tank's projection, the revenue growth should be 36% to fulfil the IMF set conditions, and 43% to meet the needs of the budget proposed for the fiscal year 2023-24.

There is no record in the country's history of collecting revenue at this rate, Razzaque added.

Executive Director Dr Ahsan H Mansur also agreed with Razzaque.

Razzaque went on to say that the government has to make cuts in its annual development programmes to reduce "the unrealistic proposed budget's huge deficit." On top of revenue collection challenges, the government would also face pressures on currency valuation and interest rates in the fiscal year starting 1 July.

To address the latter two issues, the government has to remove caps on interest rates allowing market forces to determine the rates and endorse the free-floating currency exchange rate mechanism to address liquidity crisis and inflation issues.

The present forex exchange reserve level is not alarming, but could fall dramatically if the three crises are not managed properly, Razzaque observed.

Dr Ahsan H Mansur said that to finance its proposed big budget goals the government is seeking to rely on bank loans. However, as there is already a liquidity crisis in the private banking sector, the government would resort to the central bank, which would, in turn, start printing money and add to inflationary pressures.

About opposition from businesses against the market-determined interest rate, Dr Mansur said they are more in control to influence decisions over this policy. He alleged that the corporate sector takes loans at the lowest interest rate while also having the most non-performing loans. They benefit from capped interest rates with some claiming low rates boost eagerness to invest. However, this artificial interest rate reduction measure reduces investment rather than increasing it, Dr Mansur noted. State-determined low-interest rates are often blamed for encouraging risky and unnecessary business loan-taking and reducing the cash flow for commercial banks.