Proposed budget less expansionary than previous years

The context of the FY24 budget may be divided into three interlinked segments: the domestic politico-economic landscape, the domestic macroeconomic situation and the IMF programme, and Bangladesh's economic prospects in the context of evolving geopolitical and geo-economic developments.

This is an election year. A review of economic history tells us that election-year budgets are typically expansionary, with a lot of bells and whistles in expenditure programmes intended to earn political brownie points. However, the proposed FY24 budget appears less expansionary compared to previous years.

The expenditure-GDP ratio target has been kept at 15.2%. The same target was set in the FY23 budget, but actual implementation falls short, resulting in a fiscal deficit below the targeted 5% of GDP. Given the inflationary situation and external pressures, a conservative budget seems appropriate. Overall, the budget aligns with the saying, "Good economics is good politics."

The second segment considers the domestic macroeconomic situation and the IMF programme.

The IMF program was clearly a preemptive measure to create adequate buffers to move the level of foreign exchange reserves to a comfort zone. I would like to reiterate that reforms driven by "conditionalities" are no longer in place, and the IMF's $4.7 billion support over three years is based on a mutual understanding outlined in the MOU on Economic and Financial Policies (MEFP).

The budget sets an ambitious revenue mobilisation target of 10% of GDP, with a tax-GDP ratio of 9%. However, achieving this target requires radical reforms, as the tax-GDP ratio has remained stagnant at around 7.3-7.4% in recent years. The challenge lies in mobilising more revenue while reducing reliance on trade taxes, which currently contribute 28% of NBR tax revenue.

Finally, the FY24 budget must take into account recent developments in the global economy because Bangladesh today is more integrated with the world economy than at any time in its history.

The country's economic progress relies on leveraging access to the growing global market, which exceeds $100 trillion. While the domestic economy is growing rapidly, it cannot match the vast demand from consumers worldwide.

Bangladesh's export-led development strategy has gained international recognition, particularly as a top garment-sourcing country.

However, the ongoing Russo-Ukraine war and escalating US-China trade tensions are causing tectonic shifts in the geopolitical and geo-economic order.

Protectionist tendencies such as "re-shoring" and "strategic autonomy" are emerging, posing challenges to globalisation. Therefore, it is expected that the FY24 budget addresses trade openness, enhances export competitiveness, and restores balance of payments sustainability, particularly as Bangladesh prepares to graduate from LDC status in 2026.

Dr Zaidi Sattar is the chairman & chief executive of the Policy Research Institute of Bangladesh