Inflation is main challenge in upcoming budget, says State Minister for Finance Waseqa

State Minister for Finance Waseqa Ayesha Khan claims that Bangladesh’s foreign debt is not significantly high compared to the country’s Gross Domestic Product, or GDP. Though the debt is being taken for operating development activities, the state minister has objections to the phrase “debt-dependent development” to describe Bangladesh’s strategy.

Waseqa is one of the seven new state ministers appointed to the cabinet on Mar 1. She has been serving as a female MP from the reserved seat for three consecutive terms. She is the first female finance state minister of Bangladesh.

Waseqa, who is involved in preparing the national budget proposal for the next fiscal year on Jun 6, spoke to this news agency about different aspects of the economy. However, the budget is the main focus.

She said the implementation of plans in the Awami League’s electoral manifesto will get the highest priority in the budget. The state minister for finance pointed to a plan to maintain macroeconomic stability by keeping the budget deficit at a bearable level and controlling inflation.

The government is taking contractionary measures to keep inflationary pressure bearable. Reports say that the GDP growth target for the coming fiscal year is 6.5 percent. How will this inconsistency be handled in the budget?

Answer: High inflation can generally be prevented in two ways – by reducing consumer demand and increasing the supply of goods in the market.

The conventional approach to monetary policy mainly tries to reduce inflation by reducing consumer demand. Fiscal policy encourages production growth through incentives and subsidies. Efforts to reduce inflation can be strengthened by lowering demand through austerity under these policies.

Under the monetary policy, the LC margin on the import of essential goods has been relaxed. In this respect, contractionary monetary policy has been taken by increasing the central bank’s policy rate. The interest rate on various treasury bills also increased significantly until May compared with the same period in the previous year.

The market-based interest rate has been fixed since May 8. The policy interest rate has also increased.

Maintaining austerity in government spending, market monitoring and emergency import of daily necessities are among the measures taken under the fiscal policy.

The government has decided to exercise maximum restraint to reduce expenditure, imposing a ban on using funds in land acquisition, car purchases, et cetera. Attempts are being made to keep the overall budget deficit at the level of the actual deficit of the 2022-23 fiscal year.

Fertiliser subsidies have been standardised to keep agricultural production costs under control. As the prices are climbing in the global market, a Tk 260 billion subsidy was given in that sector in the last year.

The government has strengthened market monitoring to prevent price hiking in search of excess profits. A special unit is working to monitor the prices of daily necessities in the market. Solving the problem of the supply in the market through import is a conventional method which is being followed by the government.

Other steps the government is taking include identifying supply chain flaws by comparing prices at different stages of production. The extent of social security programmes for low-income people is being increased. Programmes such as distributing free food or at lower cost, family cards are underway.

What is the focus of the first budget of the government’s new term? How is the government proceeding and what is their philosophy?

Answer: The implementation of the election manifesto’s priorities will be given the highest importance. Plans have been taken to maintain macroeconomic stability by keeping the budget deficit at a bearable level and controlling inflation.

To keep the supply chain strong in order to continue growth, emphasis will be given to cost-effective, sustainable, inclusive, knowledge-based and innovative activities to build a Smart Bangladesh.

There will be an outlook for implementing the ‘My Village My Town’ project and infrastructure projects for visible development. Resources will be mobilised for overall human resource development and employment growth through education, health care and skill development.

Assistance in agricultural mechanisation and agricultural rehabilitation and incentives in fertilisers, irrigation and seeds will continue. In addition to ensuring electricity, energy and food security, social security programmes will be consolidated and food will be distributed at low cost to the poor. The proposed budget will also provide the necessary funds to deal with climate change impacts.

Keeping the exchange rate stable against foreign currencies and reconstructing foreign reserves is also one of our main goals. Improving the investment atmosphere, and strengthening the agricultural and industrial production systems will remain our main goals as always.

There are concerns among people over Bangladesh’s foreign debt and reserves…

Answer: The allotment in our development projects is much higher now than in the past. The government has implemented many mega projects. Because of these, the increase in foreign debt is quite normal. However, our debt-to-GDP ratio is much lower (15.7 percent) than the threshold limit set by the International Monetary Fund (IMF) where, for example, foreign debt cannot exceed 40 percent of GDP. So there is nothing to worry about.

Does that mean we are heading towards debt-dependent development?

Answer: No, we aren’t. Our debt-GDP ratio is much lower than in many countries. We have significant capacity to take on debt. Our payment record is also good as Bangladesh has never defaulted on any payment. It is not right to use the term ‘debt-dependent development’.

What is the government’s goal in reducing the fuel subsidy?

Answer: The fuel subsidy is expected to drop due to the new pricing formula introduced in Bangladesh that automatically adjusts local fuel prices. Subsidies can be rationally adjusted to prepare the industry and export sector for the challenges likely to emerge in the context of Bangladesh’s graduation from the least developed country status in 2026.

The government has been increasing the budget allocation for the social security sector every year. Among the steps taken to protect the marginalised population from inflation and meet their basic needs are food grain procurement, distribution, storage, necessary budget allocation, food subsidy and food-friendly programmes.

In the budget for FY 2023-24, food subsidy has been estimated at Tk 69.15 billion, up from Tk 62.10 billion in the previous fiscal year.

The revenue collection target for the upcoming fiscal year is much higher than the current amount. The current target has not been achieved. Under these circumstances, how will the huge gap between income and expenditure be filled?

Answer: The National Board of Revenue (NBR) is taking three types of steps to increase revenue from domestic sources. These are – the digital transformation of tax administrations, widening the tax net and capacity building for tax administration.

The authorities have taken steps to initiate the Medium and Long-term Revenue Strategy (MLTRS) to increase revenue collection by modernising the existing tax system. The Income Tax Act 2023 came into effect after the government approved it in parliament.

The Value Added Tax and Supplementary Duty Act has been simplified through amendment with a view to creating a business-friendly environment and adequate revenue collection.

The NBR has launched an electronic payment system (e-payment) to ease the payment of taxes. Measures have been taken to bring the overall VAT management under an automated system.

The government is set to launch the budget with a much higher target of collecting revenue than the current fiscal year. The usage of an automated invoice system has been launched to deposit government fees and revenues directly to the treasury. All commercial banks have been added to the system.

Under this online payment system, revenue/fees can be deposited from any location in all branches of 61 commercial banks, using internet banking, debit/credit card and mobile financial services.

Besides easing tax deductions at source, eTDs (electronic tax deduction at source) have been introduced to strengthen financial discipline in tax administration.

The NBR has also taken measures such as Electronic Fiscal Device (EFD) and Sales Data Controller (SDC) to collect retail-level taxes and prevent scams. An agreement has been made with a private organisation to install 300,000 EFD/SDC machines.

Will tax benefits be given to recover money smuggled abroad? Reports say the rate of benefit is being eased…

Answer: You will have to ask the NRB as revenue collection is their jurisdiction. I also heard that some discounts will be given as it was last year. However, I cannot state the rate.

How much influence does the IMF have on the budget?

Answer: The IMF never says anything about the budget. Our discussions with the global lender focus on the reforms needed to ensure sustainable development. On that front, our tax-GDP ratio is lower than in many countries. We spoke to the agency about what can be done to increase it. Based on the discussion and in view of collective consensus, some reform measures have been taken to raise revenue.

Tackling the impact of climate change, increasing the efficiency of the financial sector, and more effective preparedness for disaster management were also discussed with the IMF.

Bangladesh is being buffeted by a reserve crisis, inflation, dollar crunch, slowing tax revenue growth, and pressure to cut subsidies and repay foreign debts – where are we headed?

Answer: The steps being taken to control inflation may hurt consumption, investment, etc and thereby reduce the GDP growth rate.

However, inflation is our main challenge now and as we need to immediately free the people from the pressure, we are not thinking about an increase in GDP growth at the moment.

According to the Bangladesh Bureau of Statistics, the rate of GDP growth in FY 2023-24 is expected to stand at 5.8 percent despite our contractionary measures. This rate is considered quite high per global standards.

Our agriculture, industry and service sectors are growing as government investment is also increasing in these sectors. That’s why it seems that the policies adopted to control inflation will not affect the rate of GDP growth much.

Strict restrictions on the import of unnecessary and luxury goods to ensure reconstruction of foreign currency reserves and stability of currency exchange rate, determination of margins at different rates in the opening of credit cards depending on the nature of imported goods, however, are not creating any obstacles in the import of daily necessities.

However, the recent change in the exchange rate of the taka has had an impact on internal inflation. In this case, a crawling peg-based currency exchange policy has been adopted to stabilise the foreign currency exchange rate. This corridor-based arrangement is expected to prevent abnormal fluctuations in foreign exchange rates.

It is expected that Bangladesh’s Balance of Payments deficit will also ease if the foreign currency exchange rate stabilises and the interest rate of borrowing from foreign sources decreases. As a result, the foreign exchange reserves will return to a strong position shortly and the crisis of foreign currency will end.