#1CENTRE FOR Celebrating Towards People-Centric 30 Public Finance Management in Bangladesh Generating Knowledge, Giving Voice, Challenging Injustice Presentation on National Budgets in Bangladesh Myths and Realities Presentation by Debapriya Bhattacharya Distinguished Fellow, Centre for Policy Dialogue (CPD) and Convenor, Citizen's Platform for SDGs, Bangladesh Funded by the European Union 50 Years of EU-Bangladesh Partnership Dhaka: Wednesday, 7 June 2023 Citizen's Platform for SDGs, Bangladesh এসডিজি বাস্তবায়নে নাগরিক প্ল্যাটফর্ম, বাংলাদেশ#2Team and Acknowledgements Grateful to Mr Towfiqul Islam Khan, Senior Research Fellow, CPD, for his defining role in preparing this presentation. Special thanks to Mr Muntaseer Kamal, Research Fellow, CPD, for data support. Excellent research support was received from Ms Najeeba Mohammed Altaf, Research Associate; Ms Mamtajul Jannat, Research Associate; Ms Marfia Alam, Research Associate; Ms Shourza Talukder, Research Associate; and Mr Ifaz Kabir, Programme Associate, CPD. Valuable support was also received from the Dialogue and Communication Division and the Administration and Finance Division. National Budgets in Bangladesh: Myths and Realities 2#3How is Bangladesh's budget process rated? Cross-country comparison of OBS score and ranking over time Country Indicator 2006 2008 2010 2012 2015 2017 2019 2021 Score 39 42 48 58 56 41 36 30 Rank Bangladesh 38 44 46 28 31 66 79 95 (out of 100 (64) (57) (49) (28) (30) (57) (68) (79) countries) Score 53 60 67 68 46 48 49 37 India Rank 17 20 14 14 53 53 53 78 Score 47 64 67 46 39 44 47 30 Sri Lanka Rank 26 13 13 53 70 60 54 93 Score 20 19 18 16 24 17 21 45 Nigeria Rank 52 61 73 80 85 90 97 65 Score 32 51 55 65 62 60 58 58 Uganda Rank 43 32 32 18 24 29 36 43 No of surveyed countries 59 77 93 100 102 115 117 120 0-20 Scant or none 21-40 Minimal Insufficient • In OBS 2021, Bangladesh's score was lower than that of the global average (45) and the 41-60 Limited 61-80 Substantial 81-100 Extensive Sufficient South-Asian average (38) National Budgets in Bangladesh: Myths and Realities 3#4The ten questions 1. Why is inequality increasing as poverty is coming down? 2. Is the national budget "big" in Bangladesh? 3. How far are the budgetary targets implemented in Bangladesh? 4. Is Bangladesh becoming an economy with high growth and low tax? 5. How dependent is tax revenue on indirect taxes? 6. How dependent is ADP on foreign financing? 7. Do the macroeconomic targets in the budget FY2023-24 make sense? 8. How proper are the allocations for SSNPs, health and education? 9. What are the welcome fiscal measures in budget FY2023-24? 10. What are the fiscal measures of concern in budget FY2023-24? National Budgets in Bangladesh: Myths and Realities#51. Why is inequality increasing as poverty is coming down? Poverty rate has declined sequentially - rural poverty going down faster! Poverty Rate (Upper poverty line, %) 35.2 Poverty Rate (Lower poverty line, %) 21.1 31.5 24.3 18.7 National Year Rural Urban National 26.4 20.5 21.3 18.9 14.7 17.6 12.9 5.6 14.9 7.7 7.6 6.5 3.8 Rural Urban 2010 2016 2022 National Rural 2010 2016 2022 Urban Income Gini Coefficient Consumption Gini Coefficient 2010 2016 2022 Year 2010 0.431 0.452 0.454 0.498 0.446 Rural 0.275 0.539 Urban 0.338 0.458 0.499 National 0.321 2016 2022 0.300 0.291 0.330 0.356 0.324 0.334 • 0.482 Inequality has worsened with urban inequality increasing faster – both in terms of income and consumption, while wealth inequality is even higher National Budgets in Bangladesh: Myths and Realities - 5#62. Is the national budget "big" in Bangladesh? Public Expenditure-GDP Ratio (%) 16.50 15.74 16.09 14.22 14.65 15.17 15.20 15.27 15.22 14.88 13.27 13.25 13.04 13.05 12.20 11.49 11.59 Bangladesh ranks 137th out of 143 countries in terms of public expenditure-GDP ratio • The global median value for public expenditure (as % of GDP) is 32.2% ● FY16 FY17 FY18 FY19 FY20 ■Original Budget FY21 FY22 FY23* FY24 ■Actual Expenditure Note: * indicates that for FY23, the revised budget figure has been considered as actual expenditure Public expenditure in FY2023 has been very low compared to the annual target - to some extent by intension • Attaining the public expenditure target in FY2024 may require approx. 40% growth over the actual achieved public expenditure by the end of the year National Budgets in Bangladesh: Myths and Realities 6#73. How far are the budgetary targets implemented in Bangladesh? Budget Implementation Rate (Actual as % of Original Budget) Revenue Mobilisation 100.1 96.9 95.5 93.1 91.7 83.8 83.0 82.9 79.8 75.2 74.2 70.4 Public Expenditure 97.0 93.2 90.8 89.3 89.3 85.8 86.9 86.0 84.6 84.3 81.6 80.8 80.4 79.1 80.3 81.0 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY09FY10FY11FY12FY13 FY14FY15FY16FY17FY18FY19 FY20FY21FY22 Budget implementation performance in terms of revenue mobilisation, public expenditure, and ADP has deteriorated over the years. National Budgets in Bangladesh: Myths and Realities ADP 90.0 86.5 83.8 84.0 85.1 81.5 81.8 82.6 75.8 78.0 75.2 76.0 76.6 78.2 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY227#8. . 4. Is Bangladesh becoming an economy with high growth and low tax? GDP Growth Rate (%) 7.88 7.32 6.59 3.45 Tax-GDP Ratio (%) 8.99 8.74 7.50 6.94 7.10 7.66 7.66 7.64 7.32 7.36 7.54 6.03 7.00 AFY17 AFY18 AFY19 AFY20 AFY21 AFY22 FY23(p) BFY24(T) AFY16 AFY17 AFY18 AFY19 AFY20 AFY21 AFY22 RBFY23 BFY24 Bangladesh ranks 119th out of 123 countries in terms of Tax-GDP ratio (% of GDP) The global median value for public expenditure (as % of GDP) is 32.2% National Budgets in Bangladesh: Myths and Realities 8#95. How dependent is tax revenue on indirect taxes? Share of Income Tax in Total Tax Collection (%) 33.98 34.06 32.02 32.60 31.61 32.37 32.08 29.57 29.68 29.44 30.38 31.21 29.78 27.62 25.41 25.98 AFY09 AFY10 AFY11 AFY12 AFY13 AFY14 AFY15 AFY16 AFY17 AFY18 AFY19 AFY20 AFY21 AFY22 RBFY23 BFY24 Share of VAT in Total Tax Collection (%) 36.16 36.93 36.74 37.62 38.31 39.05 35.62 35.98 35.40 35.22 35.93 35.80 36.51 37.69 36.41 35.11 AFY09 AFY10 AFY11 AFY12 AFY13 AFY14 AFY15 AFY16 AFY17 AFY18 AFY19 AFY20 Overreliance on indirect tax often undermines equity concerns. National Budgets in Bangladesh: Myths and Realities AFY21 AFY22 RBFY23 BFY24#10• 6. How dependent is ADP on foreign financing? Share of Project Aid in ADP (Original Allocation and Actual Expenditure, %) 46.9 42.1 40.2 39.7 40.6 39.1 38.7. 39.1 37.8 37.3 36.7 33.1 32.8 33.0 34.532.8 35.6 36.1 37.0 34.7 35.4 35.7 34.4 34.6 31.9 29.9 30.2 29.9 30.5 28.2 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 ■ Allocation Expenditure Still an important part of ADP is financed by foreign sources Contribution of revenue surplus (after meeting all other expenses) in ADP financing has been volatile National Budgets in Bangladesh: Myths and Realities 10#117. Do the macroeconomic targets in the budget FY2023-24 make sense? Indicators GDP growth (%) Gross Investment (as % of GDP) Private Investment (as % of GDP) Public Investment (as % of GDP) FY22 Actual FY23 Projection (MTMF 2022) FY23 Latest Outcome FY24 Projection (MTMF 2023) (MTMF 2023) 7.5 7.1 31.5 32.0 24.8 24.5 6.7 7.5 6.0 7.5 27.8 33.8 21.8 27.4 6.0 6.3 Note: Investment figures presented in the budget are different from the BBS provisional estimates for FY2023. Is the private investment figure estimated residually that is required for higher economic growth? • No impact of the macroeconomic reforms and adjustments considered National Budgets in Bangladesh: Myths and Realities 11#127. Do the macroeconomic targets in the budget FY2023-24 make sense? FY24 Projection by FY22 Actual Indicators FY23 Projection by MTMF 2022 FY23 Latest Outcome MTMF 2023 5.6 8.8 CPI inflation (%) 6.2 (May 2023) 6.0 Private Sector Credit 15.0 11.3 (growth in %) 13.7 (As of end April 2023) 15.0 20.0 7.1 Export (growth in %) 33.4 (July-May 2023) 12.0 12.0 -12.4 Import (growth in %) 35.9 (July-Mar 2024) 8.0 Remittances (growth in 16.0 1.1 %) -15.1 (July-Mar 2024) 10.0 Foreign Exchange 46.5 29.9 Reserve (bln. US$) 42.7 Exchange Rate (BDT per USD) 86.3 86.2 (As of end May 2023) 98.3 (July-April 2024) 108 (as of 31 May 2023) 35.8 104.0 • No clear indication about the total accumulated external payment arrears • Not sure how in FY24 import will grow, forex reserve will improve, and exchange rate (Tk. 108 per USD as of 31 May 2023) will appreciate at the same time in FY2024 National Budgets in Bangladesh: Myths and Realities 12#138. How proper are the allocations for SSNPs, health and education? 62.2 SSNP Budget Composition (share, %) 29.7 29.2 25.5 12.3 13.7 15.3 56.5 55.5 Acceptable Quasi-acceptable Non-acceptable ■FY2010 ■FY2023 ■FY2024 • Total SSNP budget increased marginally - declined both as a share of the national budget and GDP SSNP budget continued to remain artificially inflated Seemingly unrelated allocations are reported in SSNP list CPD has classified SSNPs into three categories viz. acceptable (i.e., those that should naturally be included in the SSNP list), quasi-acceptable (i.e., those that fall somewhere in the 'grey' area), and non-acceptable (i.e., those that should be excluded from the list) Share of SSNP budget of compatible SSNPs declined from 62.2% in FY10 to 29.7% in FY23 to 29.2% in FY24 - as a share of GDP, it also declined from 1.6% in FY10 to 0.8% in FY23 to 0.7% inFY24 National Budgets in Bangladesh: Myths and Realities 13#148. How proper are the allocations for SSNPs, health and education? VGF Food SSNPS Change in SSNP Budget in FY24 vis-à-vis RBFY23 (%) Education and Health Programmes Mother and Child Benefit Program Food Assistance in CHT OMS Food friendly Program Food Subsidy (Others) Total Food SSNPs ● Change (%) -29.3 Change (%) 4.2 1.2 Student stipend for Primary education level 35.2 -9.8 18.4 Stipends for secondary, higher secondary and madrasah education level students 3.7 -30.3 -1.8 Stipends for undergraduate and postgraduate level students 6.0 Allocation for Food SSNPs has declined at a time of abnormal commodity price hike • On a positive note, allowance rate for some SSNPs have increased at last - ✓ Old Age Allowance - from Tk 500 to Tk 600 ✓ Allowances for the Widow, Deserted and Destitute Women - from Tk 500 to Tk 550 ✓ Stipends for Physically Challenged Students National Budgets in Bangladesh: Myths and Realities Stipends for students of technical education institution Stipends for Physically Challenged Students Financial support for Cancer, Kidney and Liver Cirrhosis and other patients School Feeding Programs in poverty stricken areas Total Education and Health SSNPs ● Overall allocation for education and health SSNPs also improved 17.3 17.9 0.0 -3.9 3.3 14#158. How proper are the allocations for SSNPs, health and education? Budget Allocation for Education (as % of GDP, ) 2.11 1.82 1.86 1.91 1.93 1.88 1.80 1.81 1.83 1.76 1.64 1.68 1.65 1.68 1.52 1.52 FY16 FY17 FY18 FY19 FY20 ■Budget (% of GDP) FY21 ■Actual (% of GDP) FY22 FY23 FY24 • ● Bangladesh ranks 153rd out of 159 countries in terms of government expenditure on education-GDP ratio The global median value for government expenditure on education (as % of GDP) is 4.45% National Budgets in Bangladesh: Myths and Realities 15#168. How proper are the allocations for SSNPs, health and education? Budget Allocation for Health (as % of GDP, ) 0.61 0.61 0.78 0.79 0.75 0.64 0.28 0.63 0.81 0.83 0.61 0.55 0.82 0.63 0.83 0.76 FY16 FY17 FY18 FY19 ■Budget (% of GDP) FY20 FY21 FY22 FY23 FY24 Actual (% of GDP) • . Bangladesh ranks 184th out of 186 countries in terms of general government health expenditure-GDP ratio The global median value for general government health expenditure (as % of GDP) is 3.44% Bangladesh ranks 144th out of 145 countries in terms of out-of-pocket expenditure on health per capita as (%) of GNI per capita National Budgets in Bangladesh: Myths and Realities 16#179. What are the welcome fiscal measures in budget FY2023-24? Welcome Measures 1. Annual tax-free income threshold increases for general people, female, physically challenged, war-wounded gazette freedom fighters, third-gender taxpayers 2. Environmental surcharge on multiple vehicles 3. Increase in travel tax - oversee migrant workers may be kept out of it 4. Gain tax doubled for flat and land registration 5. SD and applied prices of various cigarette items have been raised 6. VAT exemption for some locally manufactured home appliances extended till June 30, 2025 7. VAT exemption for computer and ICT extended till June 30, 2026 8. VAT exemption in excess to 5% at the production stage of optical fibre cable till June 30, 2024 National Budgets in Bangladesh: Myths and Realities 17#189. What are the welcome fiscal measures in budget FY2023-24? Welcome Measures 9. Increased TTI (43% from 15.25%) on cashew nut imports 10. CD on imports for elevators raised from 5% to 15%, while for escalators, it has been increased from 1% to 15% 11. CD on low-capacity electric panels was increased to 10% from its previous rate of 1% 12. Reduction of VAT from 15% to 5% ethylene glycol, terephthalic acid, and hot rolled stainless steel in coils 13. Withdrawal of 7.5% VAT on textile waste's sale, exemption of AT on Solar Powered Water Desalination Plant imports 14. 15% VAT levied on cashew nuts, fresh dates, dried dates and non-fortified basmati rice 15. Duty tax exemptions on imported materials for hotel industries withdrawn National Budgets in Bangladesh: Myths and Realities 18#199. What are the welcome fiscal measures in budget FY2023-24? Welcome Measures 16. VAT free threshold increased for handmade biscuits and cake 17. Concessional facility for local opal glassware manufacturers and switch/socket industry 18. Exemption of VAT at the production stage on anti-malarial and anti-tuberculosis drugs 19. Raw materials for medicines, medical products and some health care products will be imported at a concessionary rate 20. The beverage and carbonated industry is subjected to a 25% SD for carbonated soft drinks, 35% SD for energy drinks, and 15% VAT applicable for both National Budgets in Bangladesh: Myths and Realities 19#2010. What are the fiscal measures of concern in budget FY2023-24? Measures of Concern 1. Minimum Tk. 2,000 tax on every TIN holder who is below the taxable income 2. Wealth surcharge threshold raised 3. Appointment of tax return preparers (TRPs) which will generate a ‘broker class’ 4. Imposition of 7.5% VAT compared to the prior 5% VAT at local manufacturing stage on iron or steel for LPG cylinder 5. Increased VAT on mobile phone manufacturers/assemblers at the local state 6. 7.5% VAT instead of 5% on several home items 7. Specific Duty on cement clinker raised for both manufacturers and importers from the already higher levels 8. CD on imported bicycle parts increased to 15% from the existing 10% rate National Budgets in Bangladesh: Myths and Realities 20#2110. What are the fiscal measures of concern in budget FY2023-24? Measures of Concern 9. Specific duty on import of petroleum products replacing existing ad valorem tariff 10. Price level and tax on Bidi unchanged 11. 15% VAT is imposed on ballpoint pen 12. 20% SD on paper cups, plates, and bowls 13. VAT (excluding AT) and SD on import of certain raw materials used in the production of sanitary napkins and diapers National Budgets in Bangladesh: Myths and Realities 21#22Parting thoughts • The claims are not confirmed by evidence • Serious delivery shortfall and uneven implementation . Whatever progress in terms of budgetary variables did not improve global rankings National Budgets in Bangladesh: Myths and Realities 22#23Thank You ✈ cpd.org.bd f cpd.org.bd You cpdbd Tube CPDBangladesh