Enhancing fiscal space, prioritising expenditure and foreign financing, ensuring good governance, and protecting the interests of vulnerable and disadvantaged groups should be considered for public finance management in the upcoming fiscal year, said the Centre for Policy Dialogue (CPD) today.

"Any attempt to enhance the fiscal space should focus on generating more resources as well as sealing the leakages," it said in its State of the Bangladesh Economy in FY2023-24.

The think-tank said the upcoming budget for 2024-25 should make efforts to widen the tax base. 

"To this end, initiatives such as taxing the digital economy and digitalising the taxation system need to be given due attention," it said, adding that analysing current tax exemptions in-depth using data analysis needs to be a top priority for the government. 

There are also frontier issues that need to be addressed immediately, such as the meaningful taxation of wealth and property, and the growing digital economy. 

As part of sealing leakages, curbing illicit financial flows must be high on the government's agenda. At the same time, the highest effort should be given to limit tax evasion and tax avoidance, it said. 

On prioritising expenditure, the CPD said the framework for public expenditure in FY2025 needs to consider the ongoing rise in the price of essentials. 

"The current austerity measures must be maintained in a way that their impact on the social safety net, health and education sectors, agriculture, and small and medium enterprises (SMEs) becomes less burdensome."

Also, prior directives to curtail "unnecessary and luxury" public expenditure (which includes the purchase of government vehicles and international travel) should be continued, it said.

Exit plans need to be formulated in the case of fiscal incentives towards exports and remittances. If a market-based exchange rate regime is eventually put into place, the resultant depreciation should be able to cover the fiscal incentives currently being provided, according to the think-tank. 

Considering the declining foreign exchange reserve situation, the government should prioritise implementing all foreign-funded ADP projects, it said.

"The government should give higher priority to implementing projects that are very close to their completion, it said.
The CPD said availability of financing from foreign sources hinges upon the ADP design and implementation capacities of the government agencies. Thus, rapid improvement in these aspects has become an exigency. 

In the case of availing budget support, policy reform ends up being the determining factor. Thus, the government will need to become more accommodative in this regard, the CPD said. 

According to the CPD, the political economy dynamics of Bangladesh have frequently impeded substantial reforms, even while the stakeholders have acknowledged their needs. 

For example, political economy factors have played a significant role in the postponement, cancellation, and reversal of revenue mobilisation-related reforms, such as the preparation and implementation of the new Act on VAT, income tax, customs, related automation as well as tax administration reforms. 

In addition, the government must review public expenditure, especially in light of the hefty price tag of public investment projects and devise a strategy to ensure value for public money. 

"It goes without saying that good governance and political buy-in from the highest level is a prerequisite in this regard," the CPD said. 

It called for protecting the interests of vulnerable and disadvantaged groups.

While the enhancement of fiscal space and prioritisation of public expenditure ought to be the centre stage in the public finance framework for FY2025, the associated economy-wide implications and equity concerns should not be undermined. 
"Supporting the vulnerable and disadvantaged groups should be the central focus of fiscal management in FY2025. The design of both revenue- and expenditure-related measures needs to be taken into cognizance."