In an exclusive interview with the daily star, vice-chairman of the policy research institute of Bangladesh (PRI), a think tank had shared his opinion on national budget for the FY 2023 where he said that it has been a disappointment as it did not address the macroeconomic crisis emanating from the joint impacts of global inflationary pressures and Russia-Ukraine war. The budget should have showed an effort to tighten domestic demand through an increase in taxes and the reduction of subsidies. This FY 2023 budget did not deliver on any of them.
Mr. Sadiq said, “Bangladesh has substantial structural and institutional problems with the tax system and unless these are tackled, ad-hoc measures announced during the budget season are not going to work as amply demonstrated by the experiences of past several years.”
Subsidies are likely to increase to 2% of GDP in FY 2023mainly triggered by the surge in global energy prices. So the government will need to find a way to contain subsidies to below 1.5% of GDP, especially when it is unable to increase the tax-GDP ratio.
He added that the government is cutting development and social protection spending to contain the budget deficit but even after that the fiscal deficit will likely increase from 3.7% to GDP in FY 2021 to 5% in FY 2023.
The former senior official of the World Bank said the ongoing macroeconomic crisis is of serious concern. To manage the balance of payment, he said, the government reacted by increasing tariffs and adopting a range of import control measures. But this policies drastically reduced the growth of imports and the current account deficit substantially in FY2023 as compared with the outcome in FY 2022. He said “global experience shows that import controls can at best be a temporary measure and not a sustainable way to manage the balance of payments. Now, if the imports fell and the current account balance improved, the flip side was a substantial slow-down in GDP growth”. The GDP growth is now estimated at 6.03% for FY 2023 against the original target of 7.5%. The economy expanded by 7.5% in FY 2022.
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