The Finance Division recommended that the government avoid indefinite loans and discourage the import of luxury goods to deal with macroeconomic pressures resulting from the Russian-Ukrainian war.
He also suggested a slight gradual increase in electricity, energy and fertilizer prices to keep government subsidies at a reasonable level.
The recommendations came during a meeting of the Budget Coordination Council, chaired by Finance Minister AHM Mustafa Kamal, as part of the preparation of the budget for the financial year 2022-23. The meeting also assessed the current economic situation and defined the next course of action.
The Division has proposed that the size of the next budget should be Tk 6,77,874 crore or 15.4% of GDP. It would be 12% higher than the current budget of Tk 6,03,681 crore, or 17.5% of GDP.
The revenue collection target would be Tk 4,33,000 crore, of which Tk 3,70,000 crore would be collected by BNR, the sources said.
Minister of State for Planning Shamsul Alam said the import of luxury and unnecessary items should be discouraged to reduce pressure on foreign exchange reserves.
He said agricultural subsidies would continue but subsidies could be reduced for several other sectors.
The Russian-Ukrainian war puts pressure on the world economy and also on that of Bangladesh. And if war rages, the government will have to take action, he said.
Outlining the budget for the fiscal year 2022-23, the Finance Division proposed to keep the grant allocation below 1% of GDP. He also suggested a gradual adjustment of subsidies for oil, energy, gas and fertilizers.
If the price is not adjusted, around Tk 18,000 crore will be needed for electricity, Tk 15,000 crore for fertilizer and Tk 12,300 crore for LNG import in the next fiscal year.
In the current financial year, subsidies for electricity amount to Tk 9,000 crore, for LNG import to Tk 6,000 crore and for fertilizers to Tk 9,500 crore.
The prices of these items have increased due to the Covid pandemic and the Russian-Ukrainian war. An additional Tk 50,000 crore has been set aside for these sectors.
The Division also suggested avoiding open-ended loans as they are unlikely to help reduce poverty and facilitate growth. He said an increase in government lending would pose a risk to fiscal management.
Proposals have also been made to increase the Letter of Credit (LC) margin up to 100% to discourage people from importing luxury and unnecessary goods.
Sources said the budget deficit had increased by more than 5% of GDP in the past two years due to the Covid pandemic. For the current fiscal year, it is estimated at more than 6% of GDP.
The Division advised bringing the budget deficit below 5% of GDP over the next two years.
In the first eight months of the current fiscal year, the current account deficit reached $12.83 billion, a surplus of $825 million over the same period of the previous fiscal year. Indeed, the country’s imports rose to $58.77 billion in the eight months of FY22 from $40 billion in the same period of FY21.
The current account deficit is a measure of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports.
The Division has recommended gradually adjusting the exchange rate of the dollar against the taka to encourage exports and remittances, sources said.
Shamsul Alam said: “Our inflation has increased recently. National production has increased but not at the expected level. Restrictions on luxury and unnecessary goods are necessary to keep foreign exchange reserves at a satisfactory level.”
“No restrictions will be imposed on the import of essential items and productive sectors.”
He further stated that agricultural subsidies would continue and would not be reduced.
“During the Covid pandemic, the agricultural sector has relieved us… We will give more subsidies to agriculture.”
Shamsul said the government would provide energy subsidies. “But it can be reduced if it exceeds the tolerance threshold.”
The Division has also proposed the phasing out of additional lending facilities offered during the pandemic.
She observed that the financial health of commercial banks is weakening due to the increase in non-performing loans, which have driven up LC costs.
He also suggested taking initiatives so that mega-projects can be completed in a timely manner.
At yesterday’s meeting, the main lines of the next budget were presented and directives were given to the ministries concerned to participate in its preparation.
Broadly, the size of the annual development program will be Tk 2,46,207 crore and that of the revenue budget will be Tk 4,31,657 crore.
Of the revenue expenditure, Taka 76,412 crore will be allocated for salaries and allowances, and Taka 80,275 crore for interest payments on public debts.