Inflation likely to subside by December: Finance minister

Finance Minister Abul Hassan Mahmood Ali has said inflation, currently hovering just below 10%, is expected to decrease by December this year and the government is exploring additional measures beyond those outlined in the proposed budget to tackle inflation.

Addressing a post-budget press conference at the Osmani Memorial Auditorium in the capital on Friday (7 June), he said the proposed budget includes all supportive measures to ensure that the agriculture, industry, and service sectors can continue normal operations despite challenges such as forex reserves, exchange rate volatility, high interest rates, and energy shortages. 

The minister unveiled a Tk7.97 lakh crore national budget for the 2024-25 fiscal year on Thursday with inflation and GDP growth targets set at 6.5% and 6.76%, respectively.

Regarding inflation control, Abul Hassan said, "I would like to recall that when we [Awami League] assumed power in 2010, inflation was considerably high, but we successfully managed to bring it under control within two years. I am confident that, with the measures we have taken this time, inflation will decrease in the future."

If necessary, ongoing social safety programmes such as open market sales (OMS) and family cards will be expanded to shield people from inflation's bite, said the minister.

When asked by reporters about the timeline for implementing the proposed 25% duty on vehicles imported by lawmakers through amendments to existing laws, the finance minister chose not to specify a timeframe.

Mashiur Rahman, the prime minister's economic adviser, termed the budget for the upcoming fiscal year a "well-planned" one.

"With years of experience in economic affairs, I believe that the budget for the upcoming financial year is well-planned. The budget speech this year has provided clear insights, which is unprecedented," he said.

When questioned about the government's strategies to control inflation and boost foreign exchange reserves, the finance minister responded, "We will have to wait and see. Time will reveal our actions."

However, State Minister for Finance Waseqa Ayesha Khan responded by saying, "With the adoption of the 'crawling peg' system, the local currency is expected to stabilise against the dollar."

"Additionally, as expatriates and foreigners deposit foreign currency into banks under the offshore banking law, the foreign exchange reserves are projected to reach $32 billion by the end of the next fiscal year," Waseqa added.

Social safety net could be expanded 

In the proposed budget, the allocation for Open Market Sales (OMS) is well below adequate. About one crore families with limited income buy essential commodities such as rice and edible oil at subsidised prices through the Trading Corporation of Bangladesh's (TCB) OMS.

State Minister for Commerce Ahasanul Islam Titu and Finance Secretary Md Khairuzzaman Mozumder addressed journalists' inquiries regarding the budget's low OMS allocation.

When asked about the absence of allocation in the budget for adding extra products to OMS, Ahasanul Islam Titu said, "We are working on a plan with the finance minister. If the plan can be developed effectively, it will be implemented with the prime minister's approval. Dedicated shops will be established to sell TCB products, offering a wider range of products at fair prices in addition to those already available to cardholders at subsidised rates."

Md Khairuzzaman Mozumder said, "We allocated more funds than the planned amount to enhance the scope of OMS this time as well. If necessary, further allocations will be provided." 

He mentioned that apart from the one crore TCB cardholders, subsidised products have been distributed through trucks this year. Measures will be taken to address inflation concerns in the next financial year too. 

Inflation and GDP projections

In the current fiscal year's budget, inflation was projected at 6.5%, with the Ministry of Finance taking contractionary monetary policies and austerity measures in government expenditure. 

Despite the implementation of these measures by AHM Mustafa Kamal in the first six months of FY24 and by Abul Hasan Mahmud Ali in the subsequent six months, inflation remained around 10%.

Data from the Bangladesh Institute of Development Studies indicates that food inflation in the country is at 15%, whereas the government agency Bangladesh Bureau of Statistics reports a significantly lower figure.

When asked about the reason for this discrepancy, the finance secretary said that there is no room for discrepancy in calculating inflation. The inputs on which the BBS calculates inflation are updated periodically. So, there is no reason to have any doubt in this regard.

Finance Minister Abul Hassan said alongside managing new inflation, he will prioritise minimising its impact on GDP growth, aiming to achieve the target. 

"For sustainable development, we will strengthen food security, agriculture, physical infrastructure, and the investment environment," he said.

Govt's bank borrowing won't fuel inflation

The finance minister said, "Even if the government borrows more from banks, it will not affect inflation and the liquidity crisis in the banking sector. All countries follow standard procedures when borrowing from banks, and we will do the same. There will be no impact on inflation."

The finance secretary also said the liquidity crisis in the banking sector is unrelated to the government borrowings to cover the budget deficit.

The current account of certain Islamic banks has remained negative for an extended period. Although the Bangladesh Bank regulations dictate the closure of lending programmes for these banks, they continue to disburse loans.

When asked why, Mashiur Rahman said, "People are depositing money in banks, and banks are offering them interest. If banks refrain from lending this money, it would halt their operations, which is not in line with the government's objectives."

"The substantial increase in defaulted loans in the banking sector did not occur overnight. Defaults have risen due to various factors, including weaknesses within banks. Disruption to normal banking operations would have adverse effects on the economy," he added.

'Black money does not stay in the country, goes abroad'

Regarding the provision to legalise black money with a 15% tax in the proposed budget, Abu Hena Md Rahmatul Muneem, chairman of the National Board of Revenue (NBR), said, "Those who generate black money do not keep it in the economic system. They launder the money abroad."

"Due to various reasons, many people could not show their legitimate assets in their tax returns. Some money goes unaccounted for in the purchase and sale of lands. Traders have also requested this scope, as audits prevent them from validating some of their assets. For these reasons, the scope to validate undisclosed income has been kept. The decision will be taken after further discussion in the parliament," he said.

In response to questions from journalists, the NBR chairman said that the size of the black economy in the country is unknown and not within the NBR's purview.

The NBR chairman also clarified that there is no provision to legalise the "illegal wealth" of former IGP Benazir Ahmed by paying a 15% tax. 

"The Anti-Corruption Commission is investigating him, and it is a matter of criminal law, Muneem said.

Boosting revenue is a priority 

Pointing out that the days of "zero tax" are coming to an end, the NBR chief said, "We have to increase tax collection. We do not want to see zero tax on anything. Therefore, a 1% duty has been imposed on capital machinery imports in the new financial year."

The finance secretary said the finance division will approve an increase in customs personnel within a month to enhance the capacity of the NBR.

The proposed budget has reduced the tax rate for non-listed companies without making similar reductions for listed companies. 

In response to this, the NBR chairman said, "I do not know how effective the stock market can be by reducing taxes. Did the market do well when taxes were kept low for a long time? The real problem of the capital market is not identified."

"We have to increase tax collection as we want to be a developed country," he added.

LGRD Minister Md Tajul Islam, Industries Minister Nurul Majid Mahmud Humayun, Planning Minister Abdus Salam, Housing and Public Works Minister RAM Obaidul Muktadir Chowdhury, Agriculture Minister Md Abdus Shahid, Education Minister Mohibul Hassan Chowdhury Nowfel, Cabinet Secretary Md Mahbub Hossain, and Bangladesh Bank Governor Abdur Rouf Talukder were also present at the press conference.