Managing, boosting domestic demand central to curbing inflation

'We believe elections will promote decentralization, as more activities will spread beyond Dhaka,'Finance Adviser Dr. Salehuddin Ahmed says in conversation with The Financial Express on budget

Following is the full text of the interview
Question: What is the vision of the upcoming budget, and how will it differ from previous government's budget?
Answer: The vision of this budget is to build an equitable and prosperous Bangladesh where economic and business development benefits everyone. Our goal is to improve the quality of people's life and make daily living easier through practical and inclusive policy measures.
Unlike previous governments, we are not preparing a budget filled with unrealistic promises. Instead, we are focusing on achievable, clearly defined goals within the limits of our available resources. The emphasis is on realism, responsibility, and effectiveness.
Q: What are the main challenges in implementing this budget?
Ans: The main challenge lies in budget formulation due to a significant resource gap. Our needs surpass our current reserves. While we rely on domestic sources like bank savings certificates, we must also secure foreign loans and assistance.
Bangladesh's economy has been through severe disruptions, and now we're focused on stabilization through trade expansion, job creation, and investment. Inflation remains a serious concern and could continue to be a major challenge for the next 2-3 years.
Q: Is inflation control being hindered by lack of coordination between fiscal and monetary policies?
Answer: There isn't a fundamental conflict between fiscal and monetary policies, but they need to be more coordinated. The monetary policy, through high policy rates and tight liquidity, is focusing on demand management. This has raised credit costs that affect businesses.
While these measures aim to control inflation, the bigger issue is managing and boosting domestic demand. That's the central challenge in curbing inflation effectively.
Q: What would you say on January tax hike? Is it an outcome of such policy mismatches?
Ans: Yes, it reflects a mismatch. The tax increase was a fiscal-policy move, while monetary policy was in contraction. The government needed more funds for importing essential items like food and fertilisers. VAT implementation, although difficult, was not intended just to raise taxes but to ensure revenue for public needs.
Unfortunately, many development projects have failed to yield promised long-term benefits. This budget will emphasize efficient use of allocated funds rather than indiscriminate expansion.
Q: Won't a reduced ADP (Annual Development Programme) affect employment?
Ans: Yes, it could have an impact. We're avoiding large capital-intensive megaprojects that have limited job creation for locals, as they often rely on foreign expertise. Instead, we aim to prioritize labour-intensive, small- to medium-scale local projects.
We're also boosting sectors like IT, energy, especially gas exploration, and small enterprises (CSME). Refinancing through Bangladesh Bank will support these initiatives, with special emphasis on women entrepreneurship and startups. A dedicated fund will be allocated to foster innovation and increase employment through entrepreneurship.
Q: Can the upcoming election, likely in December-June, affect budget implementation?
Ans: No, elections are not the exclusive responsibility of the local administration. The Election Commission will lead the process, and other government operations will continue as usual.
We believe elections will promote decentralization, as more activities will spread beyond Dhaka. We aim to ensure that energy supplies and public services remain uninterrupted so people feel secure and businesses can continue growing during this period.
Q: Media reports air concern over cut-down allocations for health and education in the upcoming budget. What would you say?
Ans: The reports are partially misleading. We are not cutting operational or essential programme funding. What we're reducing unnecessary infrastructure spending -- for example, building schools or hospitals without teachers or doctors.
Instead, we're increasing allocations for teacher training, equipment, and technical skills development. Especially in rural areas, we are trying to skill those low-ranged people technically. Upgrading institutions like TTCs and VTCs will produce a technically skilled workforce, some of whom can also work abroad. We also recognize the need to raise teacher salaries and fill vacant posts as there are a lot of NPO teachers. However, operational budgets will still be under close scrutiny to avoid waste.
Q: What is government direction for banking-sector revival?
Ans: Though not directly addressed in this budget, Bangladesh Bank is taking the lead on banking reforms. They are assessing the assets of 12 banks, exploring restructuring, possible bond issuance, or capital injections to improve their long-term viability.
Some banks face severe liquidity issues. While we want less dependence on banks for long-term financing, the capital market must also mature as a viable alternative.
Q: Are there incentives in the budget for capital-market revival?
Ans: Yes. We recognize the capital market has suffered due to 15 years of mismanagement, insider trading, and weak governance. Many violators have been penalized. Now, we're encouraging new IPOs and better compliance.
We want ICB to play a bigger role, especially in mutual-fund management. Despite already allocating BDT 30 billion, outcomes have been suboptimal. We'll request Bangladesh Bank to allow ICB-managed mutual funds into the capital market, and the government may provide counter-guarantees.
State-owned enterprises like Unilever, Power Grid, and EGS will be encouraged to offload shares. Currently, many big firms avoid the stock market because they easily access bank loans. To change this, we are considering widening the corporate-tax gap between listed and non-listed companies (currently at 5%) to encourage public listing.
Our focus is also on improving access to finance, particularly through government banks-to deepen the capital market and benefit all investors. We came to know that some insiders of the Securities and Exchange Commission and others are involved in creating discrepancies on the share market.
Q: Why NBR stalemate happened? Development partners had long been pushing for separation of NBR's policy and implementation functions.
Ans: In no countries policy preparation and tax collection are done by same people. What people at the NBR were doing-- they had been preparing SRO, making its interpretation, providing judgement, which means everything done by them.
When a businessman goes to the tax commissionerate and makes appeal, the commissioner lessens tax. Discrepancies were there. In new law, the power to issue SRO has been given to parliament; the NBR itself won't be able to do that.
In 2008, the government also tried to make the separation, not necessarily now doing so on IMF and World Bank's advice. But that time the government could not do so, because the employees at the NBR do not want it.
We have told them that there is no compromise on separation of the NBR. In policy wing, economists, development experts, statisticians, economic forecast-makers need to be employed.
The tax-policy wing will be a small office while the implementation wing will be bigger one. There was misinterpretation--the vested interests have created confusion among them.
NBR has not been dissolved, it has been restructured.
Q: Isn't field-level experience needed for tax policy?
Ans: Yes, the experience is needed. But they fear officials from admin cadre will occupy the posts. Also people from taxes will be employed here. We want to modernise NBR. Whatever money the government gave to NBR, they spent that for skills development of people. There was no need to spend such a huge amount of money for their training.
Q: There was no project for automation
Ans: Yes, they did not automate the revenue collection. If they had automated the process-- let me give an example -- what would happen. Some 1.6 million people submitted tax returns. Those who went to the offices to pay tax--we heard in the past--the tax officials were asking for bribes.
Q: Corruption is everywhere… Please have a look on TIB reports.
Ans: Corruption in NBR is very deep. None will tell you that he paid bribe to clear his tax return. But in case of other government offices, you will make it open if you had to pay bribe to get gas or electricity connection. But businessmen fear if they tell about paying bribe, the NBR officials will make them hostage next year. If automation is done, these bad practices will go, thus the NBR officials did not automate the process.
Q: There are many officials who are against the new ordinance. Needs an amicable solution?
Ans: I will go for a solution. But if they start discussion with negative mindset, no solution will come. They are asking for withdrawing the ordinance. No, it can't happen. Yes, come and discuss, who will man the division, what will be career path. There will be no job cuts.
Personally one is honest, not the system. Because, the system allows one to do corruption, be dishonest. One commissioner in Chittagong has assessed the tax some Tk 1.0 billion, but he later lowered it down to only Tk 400 million. Why so? Definitely he did it against getting at least Tk 100 million as bribe.
In the United States, none needs to go to the tax offices. They pay taxes online. But in Bangladesh you need to go to a tax office and when you go, you need to pay.
Through the strike they have already stopped revenue collection everywhere--in seaport, land port, airport. Especially, before the budget, collection of Tk 30 billion to Tk 40 billion is being hampered.
They claim they were doing very well. Do you think if they were really doing well, the tax-GDP ratio stays at 7.5 per cent?
Q: What measures are there to lower higher US tariffs?
Ans: We have lessened duty on cotton import to zero. We have lowered duty to zero in case of 10 products that are being imported from USA. However, importing LNG from USA is very costly for us. We will increase regional trade.
Q: The stalemate over IMF's loan tranches is over now. Are we raising foreign- dependence in preparing budget?
Ans: IMF is giving budget support by June. Not only IMF, the World Bank and ADB are also giving support. What we will do, this time higher dependence will be on domestic resource.
We want to lower tax expenditure which means there are many tax exemptions given through SROs. We will cut these exemptions. RMG sector is getting tax exemptions last 40 years claiming them infant industry.
If we don't increase FDI, remittance, export, we cannot lessen dependence on foreign sources for budget implementation.

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