Economists criticise lack of measures against wilful defaulters in proposed budget

The proposed budget lacks provisions to reduce non-performing loans and tackle wilful loan defaulters, said economists expressing concern.

According to them, although this year's budget is not too bad, achieving the set targets will be challenging. They also warn that the government's borrowing from the banking sector to cover the budget deficit may increase the liquidity stress in the sector.

When asked about the existing challenges the country is facing, like dollar crisis, depreciation of taka, rising interest rate, Moinul Islam, a former professor at Chittagong University and an Ekushey Padak-winning economist, said, "It will be very difficult to overcome these current challenges.

"However, the budget will not trigger these issues. The new budget aims to reduce inflation. It is not overly expansionary. But we have significant doubts about whether the goal of reducing inflation to 6.5% will be achieved."

He further said, "The budget lacks any provisions regarding the banking system. There are no stringent measures against deliberate loan defaulters."

He also compared the new budget favourably to the previous one, saying, "Last year's budget was completely useless. The new budget is better in comparison. The former finance minister played a role in creating the economic problems we see now. We want to see how the current finance minister can pull us out of these issues."

Addressing the feasibility of the tax-GDP ratio target, he said, "The proposed budget sets a tax-GDP ratio of 9.7%. Prices and taxes on several items have been increased. Whether this target is achievable remains to be seen, but the target itself is reasonable."

In his budget speech on Thursday (6 June), the Finance Minister Abul Hassan Mahmood Ali said Bangladesh stands far behind compared to the comparable countries in revenue collection. 

The Tax-GDP ratio has been below 8% in the last decade. The same ratio is 16.98%, 11.59%, 14.03%, and 15.57% in India, Indonesia, Vietnam, and Thailand respectively. To achieve medium-term development targets, it is extremely important to achieve a Tax-GDP ratio of over 10%, the minister said.

Meanwhile, Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), said "The government  is planning to borrow from the banking sector to cover the budget deficit. 

"However, if this situation continues, banks will likely face increased liquidity stress, which has already begun."

"Additionally, the government has had to increase allocations for debt servicing due to rising interest rates, adding further pressure," she added.

"As the government increases borrowing from the banking sector, private sector loans could be affected. Our bank deposits are not increasing significantly. If the government continues to borrow in this manner, the private sector may struggle to obtain loans," she further said.

The economist also criticised the absence of a roadmap for recovering non-performing loans.

"There is no mention in the budget about how to improve the health of the banking sector. There should have been a roadmap for recovering non-performing loans and addressing deliberate loan defaulters," she added.