Next budget business as usual, to see higher interest, subsidy spending

Interest payments for foreign loans, subsidies, and social safety nets are set to increase in the upcoming budget despite the IMF's conditions to reduce them for better fiscal management.

The total budget outlay is projected to be Tk7.64 lakh crore and will be officially presented to the prime minister on Wednesday.

While there will be a 14% increase in overall budget allocations, it does not resemble an election-year budget as the allocation for the Annual Development Programme (ADP) is expected to grow by only 11%.

Of the 122 programmes running under the social safety net, the allocation for the next fiscal year will only increase by Tk5,000 crore, a portion of which will be used to pay pensions to government employees.

Chaired by the premier, the National Economic Council (NEC) will approve the ADP on Thursday.

Even so, there will be no new measures in the financial policy to combat high inflation, except for providing assistance to the poor through existing programmes of the social safety net. The finance ministry is fully relying on monetary policy to keep inflation under control.

The Finance Division will present the expenditure allocations for the upcoming fiscal year during a meeting to be held at the Prime Minister's Office on Wednesday evening. If any instructions come from the premier, the allocation will be finalised accordingly.

On Tuesday, Finance Division officials held a lengthy meeting, chaired by Senior Secretary Fatima Yasmin, to finalise the budget outlay and determine the allocation for various sectors.

According to several officials who attended the meeting, the upcoming budget will be somewhat contractionary and conventional in nature. The government's ongoing austerity efforts will continue into the next fiscal year, and unlike in previous election-year budgets, there will be no new programmes to satisfy the public.

"While controlling inflation is a primary objective for the government, the finance ministry does not have any special tools to achieve this beyond options like open market sales (OMS) or providing assistance to the poor," said one of the officials who is directly involved in the budget preparation.

"Therefore, the Bangladesh Bank will take the initiative to control inflation through monetary policy. The central bank governor will present a plan for controlling inflation during the meeting with the prime minister," he added. 

The inflation target for the new budget will be set at 6.5%. In April, the inflation rate in the country was 9.24%, while the average inflation rate was 8.64%.

In the upcoming budget, the allocation for servicing foreign loans will see the highest increase of 41%, to Tk24,000 crore from Tk17,000 crore in the current fiscal year, due to the devaluation of the taka against the dollar, according to officials from the finance ministry.

Overall, the government has allocated Tk1.02 crore for interest expenditure, compared to Tk80,375 crore this fiscal year. Apart from interest on foreign loans, interest on bank loans, savings tools, and Treasury bonds is paid from this allocation.

The government has increased the prices of gas, electricity, and fertilisers under the pressure of the International Monetary Fund (IMF). The finance ministry informed the IMF that the price of electricity will be increased once again by next June, according to ministry officials.

Fuel oil prices will be adjusted to international market rates in September. Still, the subsidy allocation is being increased in the next budget compared to the current fiscal year. However, the additional allocation will be used to clear the arrears of subsidies for the current financial year, they added.

In the revised budget of the current financial year, the subsidy allocation is Tk1.02 lakh crore. It may increase to Tk1.10 lakh crore in the next financial year. Tk33,000 crore will be allocated to the power sector among the huge subsidies.

In the current fiscal year, there was an allocation of Tk17,000 crore for subsidies in the power sector, which was later increased to Tk23,000 crore in the revised budget.

As a result of increasing the price of all types of fertilisers by Tk5 per kg, the finance ministry has calculated that the subsidy in this sector will decrease by about Tk7,000 crore in the next financial year. As a result, compared to the revised budget, the allocation for subsidies in the agriculture sector is being reduced.

Tk17,000 crore may be allocated for subsidies in the agriculture sector in the next financial year. It was Tk16,000 crore in the current fiscal year, but an additional subsidy of Tk10,000 crore has been allocated here in the revised budget.

Finance Division officials said that in the last budget of the current government, the finance ministry decided to include 7.35 lakh elderly, widows, and disabled persons under the social security net. In addition, the amount of old age allowance and widow allowance is being slightly increased after almost a decade. This will result in an additional expenditure of Tk1,526 crore in the new financial year.

Out of the 7.35 lakh new people, the number of disabled beneficiaries will increase by 5.35 lakh. Besides, the number of beneficiaries of old age allowance and widow allowance will increase by one lakh.

At the same time, the monthly allowance of the beneficiaries of the old age allowance is being increased from Tk500 to Tk600. Besides, the amount of monthly allowance for widows and dependents is being increased by Tk50 to Tk550.