Finance Minister AHM Mustafa Kamal placed a Tk 6.8 lakh crore national budget for the financial year 2022-23 on Thursday (June 9) with a notable provision for allowing unconditional declaration of properties and money owned abroad by paying 7 to 15 per cent tax.

It was projected that the government would borrow over Tk 1 lakh crore from the country's banking system to meet the budget deficit target of 5.5 percent of the gross domestic product in FY23.

Economists termed the provision for legalising properties held abroad without disclosing the sources as unethical and cautioned that the projected borrowing from the banking system would create chances for the government to crowd out the private sector.

If the bank credit becomes squeezed for the private sector, the projected 7.5 percent GDP growth for FY23 will be very difficult to achieve, said former caretaker government adviser Mirza Azizul Islam.

He said that the Tk 3.7 lakh crore revenue income target was achievable on condition that tax evasions were checked and the number of income tax payers increased.

The proposed fiscal measures, including the declaration of smuggled-out money, were announced by the finance minister against the backdrop of high inflation and safeguarding the depleting foreign exchange reserve amid uncertainties gripping the geopolitics and global trade as the Russia-Ukraine war is raging on.

No question will be raised about the sources of assets held abroad if an owner pays the stipulated tax on such assets, said the finance minister as he announced the new proposed budget through a multimedia presentation.

The proposed rate is 15 percent for immovable properties, 10 percent for movable properties and 7 percent for cash and cash-equivalents repatriated to Bangladesh. The opportunity would be in force from July 1, 2022 to June 30, 2023.

The South Asian Network on Economic Modelling, or SANEM, said it is not clear how this policy measure will benefit the economy. "This will rather encourage illicit money transfer and capital flight," SANEM said.

The proposed budget for FY 2022-23 acknowledges the rising inflationary pressure, however, the expectation of limiting average inflation to 5.6% for the next fiscal is quite ambitious, given the current context and shifting global economic factors, SANEM also said in its immediate reaction on the proposed budget for the fiscal year 2022-2023 on Thursday.

Increased sales through TCB to mitigate the effect of inflation on low-income people, as mentioned in the budget, is commendable, it said.

The budget also promises to continue taking actions against hoarders, but does not offer any detailed action plan.

Provisions for decreasing tariff on essential items, exploring alternative import sources or similar supply side interventions for tackling inflation, have not been clarified in the budget.

In this regard, the implementation processes of policies aimed to relieve the public from inflationary pressure, has not been properly clarified.

The main strategy to contain inflation, outlined in the budget as increasing the supply along with reducing the growth in demand, stands in contradiction with the medium-term policy strategy which aims to focus on consumption and investment to increase the domestic demand and exports to increase the external demand.

More importantly, it would not be prudent to focus policy action on the demand side when inflation is being pushed by supply-side costs-this may have depressing implications for the economy. Balance between macroeconomic targets and development goals through policy coordination has not been reflected accordingly.

If the inflation rate exceeds 6% then the real interest rate would become negative. However, the budget did not address this fact. Bangladesh is still maintaining the 6% and 9% rates which is not desirable.

SANEM said it is unfortunate that challenges of poverty and job growth have not been included. Contrasting the visible economic recovery from COVID-19 fallout, social recovery in terms of poverty alleviation and job growth has been rather slow.

In this regard, three issues pertinent to social safety net should have been addressed: poor allocation, target mismatch in terms of inclusion and exclusion errors, and coordination failure among implementing agencies. But they were ignored.

With regard to human development, trade and investment, the budget follows conventions of its predecessors and has not addressed the associated challenges in the current context.

In order to materialise strong domestic and external demand, the budget emphasises swift implementation of establishment of economic zones and mobilisation of foreign investments.

However, definite policy directions have not been outlined in this regard.

Although the budget regards that Bangladesh has successfully overcome the adverse economic impact of the COVID-19, it is rather an overstatement according to some economists, considering the impact of recent shocks, such as high inflationary pressure, escalated current account deficit, negative growth in remittances, stress on the US dollar exchange rate, strain on the foreign exchange reserves and long-standing challenge of job creation.

It is commendable that stimulus support for SMEs will be continued, nevertheless, existing challenges faced by SMEs in accessing allocated funds have not been addressed. Also, the modality and process of stimulus support for SMEs remains unclear.

Though the allocation for health and education has been increased in nominal terms, with respect to GDP share, allocation has declined for education and remained static for health.

Previous records have shown that allocation for health remained underutilised. On the other hand, the issue of education loss due to the COVID-19 pandemic has not been addressed either.

The government's proposal for the Ministry of Primary and Mass Education, Secondary and Higher Education Division, and Technical and Madrasa Education Division, was less than a third of Unesco's recommendation for the education sector.

Kamal allocated only 1.83 percent of GDP for the education sector. The same was 2.08 percent in the current fiscal's budget. A total of Tk 81,449 crore was earmarked for the sector, of which he allocated Tk 31,761 crore for the primary and mass education ministry, Tk 39,961 crore for secondary and higher education division and Tk 9,727 crore for technical and madrasa education division. Unesco recommends spending 6 percent of GDP in the education sector.

While the overall budget for FY 2022-2023 increased about 14.24 percent, the minister has proposed only a 12.62 percent increase for the health sector, which, according to experts, are related to incremental and inflation related issues.

The Health Education and Family Welfare Division witnessed a bump with a proposed allocation of Tk 7,582 crore, which was Tk 6,110 crore in the outgoing fiscal. The budget proposes Tk 29,282 crore for the health service division for next fiscal, which was Tk 26,165 crore in the outgoing fiscal.

Experts described it as a typical budgetary allocation for the health sector, from which we cannot expect any qualitative change in healthcare services.

The government's proposal for a universal pension scheme garnered praise. However, the budget has failed to mention any concrete strategy in this regard and therefore it remains ambiguous how and when the scheme would be implemented.

The finance minister said, "It is high time to establish a universal pension system in Bangladesh as at present the number of working people is much higher than the elderly population."

In the 2008 election manifesto, prime minister Sheikh Hasina promised to introduce a universal pension scheme nationally to ensure old-age protection for the elderly citizens under a sustainable and well-organised social security framework, AHM Mustafa Kamal added.

The minister said, "Around 85 per cent of workforce of Bangladesh's labour market is employed in the informal sector. As there is no institutional social security framework for the informal sector and expatriate workers, there are chances of uncertainty of livelihood at their old age."

The finance minister said a policy decision has been taken to enact the 'Universal Pension Management Act, 2022' to introduce a universal pension system to ensure a sustainable social safety net for the elderly and the needy people.

The law has already been drafted. After passing through all necessary formalities, it will be possible to present this important law to the National Parliament by 2022, Mustafa Kamal added.

The expenditure cut in the revised budget for FY 21-22 once again illustrates lack of capacity of responsible institutions. This has been a recurrent theme throughout the years, but as usual has not been addressed in the newly proposed budget.

On the other hand, revenue target for the next financial year has been set at Tk. 4,33,000 crore which again is rather unrealistic considering NBR's consistent failure to achieve its own targets in the previous years.

One of the positive sides of the budget is that the tax benefit for RMG has been extended to other exporting sectors. The budget also acknowledged that tax exemption for project implementation or maintenance work should not be in consideration. However, new tax exemptions are proposed, which is contradictory to that acknowledgement.

Corporate tax rates are reduced for companies to make the economy business-friendly.

"We can notice a variety of tax exemptions and we do not know what will be the result of it. Reforms of tax structures should have been proposed," SANEM said.

The lack of proper feasibility studies and the cost and time overruns in many megaprojects have been a major area of concern which again have not been addressed in the budget.

It is high time that a proper evaluation of progress in megaprojects and transport projects was undertaken.

The Foreign Investors' Chamber of Commerce and Industry (FICCI) has raised concerns about the reduced allocation for some key mega projects in the proposed national budget for the fiscal year 2022-23.

The move will result in slowing the implementation of the projects as well as raise the total cost of the projects, according to FICCI.

"We feel instead of reducing the allocation in mega projects, the government could concentrate on enhancing the quality of spending, which could bring further efficiency as well as generate employment," the apex chamber of multinational companies doing business in Bangladesh said.

It also expressed concern about financing the deficit from banking sources, as that may tighten the liquidity situation. Also, FICCI said individuals' income tax rates should have been increased.

"Considering the overall existing macroeconomic scenario and increasing inflation rate, we feel the tax ceiling for individuals should have been increased, which has not been changed for the last two fiscal periods," FICCI said.

FICCI also criticised the proposed amnesty for whitening black money.

"We do not encourage this kind of amnesty, but as the foreign minister mentioned to bring the undisclosed monies from abroad back to the country to shore up reserves as a reason we appreciate. However, out of the three options, the one where cash and equivalents are brought back to Bangladesh seems to be the only one that supports the intention."

"The other two options where moveable and Immoveable properties are kept outside of Bangladesh may well go against the stated objective, in fact, these two may result in more money going out of the country," the chamber said.

While e-governance and digitization of certain government services have been included in the budget, major institutional issues have been rather sidelined. For instance, much required reforms in the banking sector have not been proposed. There also has been no major shift in policy structure to address the issue of rising default loans.

Challenges ahead

Mustafa Kamal sees six major challenges for the fiscal year 2022-23.

"As in previous years, I have consulted with top business organisations, reputed economists, and media personalities as part of budget preparation for FY 2022-2023. Besides, I gathered suggestions on the budget from the ministries/divisions and different organisations," he said in his budget speech today, which was mostly in the form of an audiovisual presentation.

Based on discussions, proposals and analysis, major challenges for FY 2022-23 would be:

1. Containing inflation and enhancing domestic investment.

2. Financing additional subsidies required for increased price of gas, power and fertiliser in international markets.

3. Utilising funds available through foreign assistance and ensuring timely completion of high priority projects of ministries/divisions.

4. Ensuring timely completion of projects in education and health sectors.

5. Increasing collection of local value added tax (VAT) and raising the number of individual taxpayers.

6. Maintaining stability in the exchange rate of taka and keeping foreign exchange reserves at a comfortable level.