Inflation, GDP growth targets in budget unrealistic: Sanem

The inflation and GDP growth targets set in the proposed budget for the upcoming fiscal year 2024-25 are not realistic as the ground reality has not been assessed properly, the South Asian Network on Economic Modeling (Sanem) has said. 

"Bringing down inflation to 6.5% and achieving a GDP growth of 6.8% is both unattainable," said Selim Raihan, executive director of Sanem, during a programme titled "Sanem Budget Review 2024-25" held at BRAC Center Inn today. 

The review was presented by the organisation's Research Director Professor Sayema Haque Bidisha.

According to the Sanem review, other targets, such as increasing foreign currency reserves, revenue collection, and investment, are also not considered realistic. 

The organisation believes that future crises will become more severe if these targets are not realistic.

"The budget does not accurately assess the economy. There is a sort of understanding, but not enough initiatives to overcome the crisis," said Selim Raihan. 

No profound and thought-based strategic measures have been planned, he said. "There is also a lack of initiative regarding the institutional reforms needed to achieve these targets." 

He added that a target of $32 billion in foreign currency reserves has been set. "However, the sources of this reserve increase are not specified in the budget."

The Sanem executive director further mentioned that a two-year plan for economic recovery was necessary given the current situation. 

"The annual budgets being made are not bold enough in policy-making. Policies also change, and to prevent these changes, such planning is necessary," he added.

He explained that while many neighbouring countries are managing to keep inflation at bay, Bangladesh struggles due to keeping interest rates low for long.

"Interest rates were raised so late that demand had already dropped to its lowest point, making the rate increase ineffective," he added.

The economist also said that poor management in the domestic market causes prices to rise for minor reasons without corrective action. 

Besides, the government has increased indirect taxes instead of direct taxes, adding to inflation, said Selim Raihan.

However, he praised the 30% maximum tax rate.

Condemning the proposal to whiten black money at a 15% tax rate, Selim Raihan urged parliamentarians to reject the proposal. "This facility will encourage corruption." 

He said such policies will discourage honest traders and promote smuggling by allowing lower taxes on illicit funds. Instead, efforts should focus on increasing the tendency to invest and keep money within the country.

'Budget could have been smaller' 

Prof Sayema Haque Bidisha in her analysis said the budget size could have been smaller and advocated for reducing the deficit by decreasing internal debt. 

She said the macroeconomic situation has deteriorated compared to a year ago. Key indicators like inflation, reserves, exchange rates, investment, export, and import are unfavourable.

Although remittances are stable, they remain unsatisfactory, added the professor. "Challenges include declining reserves, currency devaluation, and difficult revenue collection, with private sector investment being negative or stagnant."

She noted that the proposed budget's size is 14% and the deficit is 4.6% of the GDP. Operational expenditure makes up 64% of the budget, and development expenditure is 36%. 

Consideration should be given to revising VAT and increasing the tax-free income limit from Tk3.5 lakh, she said. "Besides, the budget lacks significant measures to reduce inflation from 9%-10% to 6.5%, offering little hope for substantial inflation relief."

She said measures to stop illegal money transfers (hundi) and curb black money were necessary but are missing. There is also no incentive for farmers to produce import-substitute crops.

Bidisha pointed out that the budget lacks major initiatives to create employment. A detailed roadmap for employment was needed, along with clear incentives for private sector investment, particularly in labour-intensive industries. 

"Since large-scale industries aren't showing investment trends, small and medium-sized enterprises (SMEs) should be incentivised to generate jobs," she added.

'Insufficient allowances' 

Prof Bidisha noted that excluding pensions and interest, social security allocations make up 11% of the budget. "This allocation should be increased as current allowances are insufficient given inflation." 

"The budget has increased by 5% from last year, with some austerity measures in place and efforts to improve social security. Initiatives like TCB's family card and open market sales (OMS) aim to provide some relief, but more could be done to control inflation," said the professor.

The OMS should have been enhanced for the urban poor, who also need to be included in social security programmes—an area the budget neglects, she said.

Parliamentary committee on anti-corruption

Sanem executive director Selim Raihan said corruption has become a major issue in the country, evident from the cases involving people in important positions. This widespread corruption negatively impacts low-income and poor people.

"Although the Anti-Corruption Commission and other committees are investigating, these efforts are ineffective. Therefore, a high-powered parliamentary committee is needed to oversee anti-corruption initiatives and be accountable to the parliament," he said. 

He expressed concern that only a few corruption cases are exposed, suggesting there are many more.