Budget reflects IMF conditions

Finance Minister AHM Mustafa Kamal, in the proposed budget for the fiscal 2023-24, announced a number of initiatives to address the conditions imposed by the International Monetary Fund (IMF) for its $4.7 billion loan to Bangladesh.

The first tranche of $476.2 million of the $4.7 billion loan was released last February. The remaining five tranches will be released every seven months, subject to fulfilling conditions.

The global lender has given 38 conditions for this loan and also fixed the time frame for implementation of the conditions. Loan instalments will not be released if these conditions are not met within the stipulated time.

The IMF wanted to see initiatives taken by the government in the upcoming budget to meet the conditions, which include increasing the tax-to-GDP ratio, reducing government borrowing from savings certificates, introducing a new mechanism for adjusting fuel prices, reducing subsidies in the energy sector, and market-based currency exchange rates.

Placing the Tk7.61 lakh crore national budget in the Jatiya Sangsad on Thursday, the finance minister addressed these issues asked for by the IMF.

One of the conditions that have to be implemented in the new fiscal year is the initiative to increase revenue collection. The IMF said steps should be taken from the new fiscal year to increase revenue collection by 0.50% of GDP every year.

While presenting the budget, the finance minister said the government wants to use all possibilities to collect revenue. For this reason, the tax net will be expanded through other reforms, such as ease of return filing. Tax exemption will be rationalised. 

Revenue collection will be enhanced through the deployment and expansion of electronic fiscal devices, online VAT registration and automation in tax administration, Kamal said, adding that a study is being conducted to rationalise the scope, extent and pattern of tax exemption.

The National Board of Revenue (NBR) has developed a medium-term revenue collection strategy. At the same time, income tax and customs laws are being adjusted, the minister said. 

Mustafa Kamal proposed imposing a minimum tax of Tk2,000 on those who are required to file income tax returns. He also proposed collecting additional taxes from several car owners.

Apart from this, the collection of non-tax revenue besides tax revenue is being stressed, said the finance minister. 

Mustafa Kamal spoke about strengthening the manpower structure of the NBR. New strategies have been adopted in all three areas --- Value-Added Tax (VAT), Income Tax and Customs to increase revenue collection. 

The finance minister said the NBR will be proactive in preventing revenue evasion.

The IMF has a condition to release gross domestic product (GDP) data every three months from the fiscal year 2023-24. Kamal mentioned in his budget speech that the Bangladesh Bureau of Statistics has already taken this initiative.

The IMF has a condition regarding reducing government borrowing from savings certificates. In the next financial year, the target of borrowing from this sector has been reduced to Tk18,000 crores.

The IMF has a condition for introducing a new mechanism for adjusting fuel prices. In the budget speech, the finance minister said a permanent method is being developed for formula-based price adjustment in the energy sector and will be finalised by September this year.

Kamal said the total subsidy in the energy sector will gradually decrease in the medium term with the implementation of the current price increase and the upcoming adjustment mechanism.

The IMF has suggested reducing subsidies in the energy sector. The finance minister said the minimum capacity charge for rental power plants will be phased out.

The amended Bank Companies Act is expected to be passed in Parliament by September. The finance minister mentioned in his speech that reforms will be brought about in the banking sector.

The IMF has asked that a sustainable public sector procurement policy be formulated by September. 

Mustafa Kamal said the work of forming the Public Procurement Authority is underway to bring about efficiency and order in the government procurement process.

The IMF also wanted to see a corridor system for interest rates, changes in the accounting system of foreign exchange reserves, and the introduction of market-based currency exchange rates in the new fiscal. The finance minister said monetary policy is being changed accordingly.

Kamal said the Bangladesh Bank is thinking of making fundamental changes in monetary policy to meet the changing global and domestic realities. 

Considering the effectiveness of bringing about more transparency and flexibility in the monetary policy framework and influencing the demand and supply of currency, moving towards an interest rate targeting policy instead of monetary targeting is being considered, he said.

Apart from this, work is going on to make the interest rate and foreign currency exchange rate market-based. 

The government will continue its efforts to develop the banking sector by removing other constraints of the financial sector, including non-performing loans. For this purpose, Bangladesh Bank BASEL-III is preparing various procedural guidelines, which will be implemented in phases, said the minister.