In this year’s budget review, we will provide a broad overview of inflation, currency, growth, and interest rates, offering a general direction. The central bank’s policy stance after the parliamentary approval of the national budget will play a critical role in shaping the outcomes of these crucial macroeconomic factors.
Successfully navigating the complexities of participating in an IMF program, meeting the recommended policies for accessing the second tranche of funding, and managing the political pressures associated with an upcoming election year presents a significant challenge. Recognizing the magnitude of these macroeconomic challenges and the wide array of potential outcomes, we will present a more in-depth analysis in our forthcoming macroeconomic outlook report.
The FY2023-24 budget places emphasis on fostering digital inclusion for individuals and businesses, aligning with the SMART Bangladesh plan to drive digitization across various activities. Additionally, a universal Pension Scheme was also introduced.
Despite the prevailing macroeconomic challenges, the FY 2023-24 National Budget places a strong emphasis on stimulating growth.
Expenditure allocation for pay & allowances, interest, and subsidies equals 77% of revenue, which inflates the operating expenditure limiting fiscal space for development spending. On the other hand, the government has raised the social safety net allocation by 11% from last year’s budget while adding around 8 lac new direct beneficiaries under various programs aiming to provide relief during a high inflation environment.
The revenue collection target including grants has been raised by 15.5% to BDT 5,039 bn, with a special focus on the expansion of the tax base and tax policy reforms. However, a 26.6% increased revenue target from direct taxes, may be difficult to achieve due to unchanged tax rates and the adverse impact of global and local challenges on business activities.
The projected budget deficit is set to rise by 15.0%, accompanied by a 14.7% higher borrowing target from the banking system and a 22.3% increase in foreign sources. However, meeting these borrowing targets presents significant challenges.
Challenges in meeting higher bank borrowing targets under the budget may prompt interest rate hikes or debt monetization by the central bank, exacerbating inflationary pressures.