Budget 2022-23: Inflationary concerns not addressed adequately

The finance minister deserves congratulations for presenting the proposed national budget for the 2022-23 fiscal year. This budget has been presented in the context of an unprecedented economic crisis that neither Bangladesh nor the world has seen in several decades. The poor are the worst victims of this economic crisis. Therefore, it has been emphasised that governments must devise policies that would revive the economy and save people from poverty and deprivation.

In the run-up to the tabling of the national budget, containing inflationary pressure and providing relief to the poor and the low- and fixed-income groups have been at the centre of recommendations. Additionally, increasing export and remittance income, reducing import expenditures, expediting revenue collection, and rationalising public expenditure by curtailing unnecessary costs and prioritising employment generation projects are issues that needed to be emphasised in the budget.

If one looks at the inflationary measures that are proposed in the FY2022-23 budget, there are ample reasons to be frustrated on several grounds.

First, the proposed budget does not have any visible and adequate measures to contain inflationary pressure on people. The tax-free personal income threshold per year remains the same at Tk 3 lakh. The Centre for Policy Dialogue (CPD) suggested raising this threshold to Tk 3.50 lakh, given the pressure of rising food inflation and income erosion induced by the Covid-19 pandemic.

Second, as opposed to no tax relief for the low-income households, there are a few measures that are targeted for higher income groups: i) The limit of annual tax-free allowances in addition to salaries, such as housing, transportation, and healthcare, has been increased from Tk 5.5 lakh to Tk 10 lakh; ii) The rate of tax rebate on investment has been proposed to be increased from 10 percent to 15 percent; iii) Special tax treatment will be provided at various rates for undisclosed assets. There are proposals for reducing corporate tax. This may help businesses to grow, but will not help the low- and middle-income groups.

Third, as for direct support measures including allowances under social protection, no substantive increase of allocation is observed. The allocation for social safety net programmes is 16.75 percent of the total budget. Sadly, this is lower than the revised budget of FY2021-22, where allocation for social safety net is 18.78 percent. To ensure food security, the need for availability of essential commodities at reasonable prices through open market sales (OMS) by the government is essential. The government is distributing 500,000 tonnes of rice and 509,000 tonnes of wheat through OMS in the outgoing fiscal year. The budget speech mentions that in the lean season, during September-October and in March, food assistance equivalent to 30kg of rice at Tk 15 per kg will be provided to five million low-income households every month. But the number of households requiring such support is much bigger. Also, more items should be covered under the OMS system.

Fourth, the finance minister had earlier mentioned that the universal pension scheme would be introduced from FY2022-23. This is presented in the budget speech, which highlights that it will ensure old age protection under a sustainable and well-organised social security framework. However, there are no details on the implementation of this scheme.

Fifth, the recommendation for reducing import tax from some essential items has not been included in the proposed budget. The CPD has earlier mentioned that at least 29 imported essential food items currently face a high incidence of tax. Some of these items – rice, palm oil, lentils and sugar – could have been considered for tariff reduction. Regarding the import tax reduction, the government's worry on lower domestic resource mobilisation is understandable. However, there are several measures that have been proposed for the higher income groups that would reduce tax collection. This also raises concern on tax justice.

Sixth, the proposal to increase the subsidy on agriculture will help the poor. However, ensuring prices to farmers for their products is most important, so that farmers are encouraged to produce more. The government has indicated that the prices of gas and electricity will be adjusted gradually. The government has already increased the gas prices, both at the household and the industry levels. This will increase inflationary pressure on the common people. Of course, subsidies will have to be gradually removed, since they encourage inefficient resource utilisation. They also deprive the government from revenue collection. However, in the current context, it should be phased out gradually.

Seventh, the inflation target for FY2022-23 is set at 5.6 percent. Such a target is based on two unhelpful assumptions. First, the enormous economic challenges faced around the world will be over by next year. As it is, inflation does not reflect the real pressure of prices, since the commodity basket of people has changed. If the consumption pattern of the poor is taken into consideration, inflation would be in the range of 10–15 percent. In fact, the price data provided by the Trading Corporation of Bangladesh (TCB) shows high prices of all major essential items. Second, the finance minister has probably assumed that even if the global economy does not turn around, Bangladesh will continue to thrive and solve all economic problems on its own. It seems the policymakers have overlooked the global economic context and the predictions by international organisations. The International Monetary Fund (IMF) has revised its projection of global growth from 6.1 percent to 3.6 percent for 2022. The World Bank says global growth will come down to 2.9 percent this year, as opposed to 5.7 percent in 2021. Earlier in January 2022, the World Bank had projected that the global growth would be 4.1 percent. Worse, it has also forecasted that most countries would face recession and there will be stagflation, as was experienced in the 1970s.

So, how Bangladesh will remain insulated from such critical circumstances has not been clarified by the finance minister through budgetary measures.

Dr Fahmida Khatun is executive director at the Centre for Policy Dialogue (CPD). Views expressed in this article are the author's own.