Bangladesh sets contractionary budget, cuts growth target | FinanceAsia

Bangladesh sets contractionary budget, cuts growth target | FinanceAsia

Bangladesh has proposed a contractionary funds in the legislature for the macroeconomic time 2024-25 starting July 1, 2024 in the face of unflinching global economic conditions and a significant dollar absence. &nbsp,


Additionally, it anticipates being heavily rely on foreign debt for development projects and to borrow heavily from the finance industry.


The budget was put in place on June 6 by Bangladesh’s finance minister, Abul Hassan Mahmood Ali, who had been widely criticized for having no effective strategies to lower inflation, which had been at a high rate of 10 % for more than a year, causing severe pain for lower-mid-income groups of people as the condition deteriorated since the end of the war in Ukraine.


Only a few weeks after the local currency experienced a sizable depreciation against the US Dollar following the introduction of a” crawling peg” system to determine the exchange rate, the BDT7.97 trillion ($ 68 billion ) budget was agreed. This was in line with the International Monetary Fund’s ( IMF)’s ) recommendation to stop foreign currency reserves from falling as they were free.


Currently Bangladesh has just$ 18.6 billion of foreign currency reserves, according to the IMF’s computation method. However, the online trading supply now stands somewhat over$ 13 billion, hardly enough to cover three weeks’ of goods.


The government was forced by the paltry forex reserve to substantially reduce imports over the past few years, which negatively impacted business outputs and increased inflation.


Progress target&nbsp,


For the next fiscal year, the finances has proposed a 6.75 % fiscal progress, which economists and economists predict is not possible. The government has predicted 5.8 % growth at the end of the fiscal year while its initial growth goal was 7.5 %.


The government has also set a goal to reduce the current rate of nearly 10 % to 6.5 % in the upcoming fiscal year. The federal has planned to lower import duties on big, important commodities in order to achieve the target. The finance minister, a moment after presenting the budget to parliament, at a article- budget media briefing, but said, people will have to wait until next December to get the rate of inflation down to a” reasonable limit”. &nbsp, &nbsp, &nbsp,


However, the economists ruled out the possibility of sluggish prices because they believe a duty cut on commodities alone would not be effective in lowering prices. Moreover, they believe the government, in the funds, has announced to change energy oil prices four times a month to reduce rebate spending, fuel prices will go further up in the coming days leading to the further escalation of inflation. A rise in fuel prices always leads to higher prices for other goods and services.


The finance minister’s proposed budget has a deficit of BDT 2.56 trillion, which accounts for 4.6 % of the nation’s gross domestic product ( GDP ). The finance minister wants to use domestic and foreign borrowing to pay off the deficit. Of the total, some BDT1.61 trillion will be borrowed from domestic sources of which BDT1.375 trillion will come from the banking sector.


Non- performing loans


Already Bangladesh’s banking sector is plagued with non- performing loans worth BDT1.82 trillion, the highest in the history of Bangladesh. Additionally, billions of taka are encased in the courts as loan defaulters are sued by banks. &nbsp,


Five banks with poor financial health are set to merge with five relatively strong banks to avoid closure, in another sign of trouble. Exim Bank would acquire Padma Bank, Sonali Bank would acquire Bangladesh Development Bank, Bangladesh Krishi Bank would acquire Rajshahi Krishi Unnayan Bank, National Bank would buy United Commercial Bank, and City Bank is set to acquire BASIC Bank in accordance with potential merger plans, while City Bank is set to acquire BASIC Bank.


To support development projects, the government has set a goal of borrowing BDT970 billion from abroad in the upcoming fiscal year. With external debt already exceeding$ 100 billion in March, the target is viewed as very high. As the conflict in Ukraine continues, the world economy struggles, and Bangladesh is failing to permit the repatriation of profit by foreign investors due to its severe dollar dearth, economists fear that foreign direct investment will decline in the new fiscal year. &nbsp, &nbsp, &nbsp,


Businesses believe that excessive government borrowing will dry up resources, which means that the private sector may not be able to grow their businesses. Employment generation will also be hindered severely, with the rate of unemployment increasing.


” The excessive borrowing by the government from the banking sector hinders the credit flow to the private sector”, Mahbubul Alam, president, Federation of Bangladesh Chambers of Commerce and Industry ( FBCCI), said in a reaction.


There is no directive in the proposed budget on how to help maintain local industry, especially given the country’s rising cost of doing business, according to Anwar Ul Alam Chowdhury, president of the Bangladesh Chamber of Industries (BCI).


The leading think tank, the country’s Centre for Policy Dialogue, claimed that the government did not take into account the impact of the proposed budget’s ongoing macroeconomic policy adjustments.


” The inflation projection for FY 2025 certainly appears to be overambitious”, the CPD said.


Dr. Salehuddin Ahmed, a former governor of Bangladesh’s central bank said, the proposed budget will fail to meet various targets as it does n’t have enough “bold steps”.


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