The upcoming budget will incorporate key recommendations from the task force aimed at controlling inflation and expanding social security programs. To achieve these goals, significant changes will be made to government spending and resource mobilization.
Finance Ministry officials stated that the economy suffered severely under the Awami League government. Following the fall of Sheikh Hasina's government on August 5 of last year, the interim government formed this task force to steer the country's economy back on track.
The task force submitted a report titled 'Re-strategizing the Economy and Mobilizing Resources for Equitable and Sustainable Development' on January 30, offering several recommendations for the upcoming budget. This comes in response to the damage caused to budget management due to corruption, inefficiency, and waste during the previous administration.
Finance Ministry officials have stated that all ministries and departments have been instructed to align their budget formulation with the fundamental principles and recommendations of the task force. These principles include poverty reduction, human resource development, addressing climate change, optimizing resource use, and ensuring a balance between GDP growth and the overall budget allocation.
Dr. Fahmida Khatun, Executive Director of the Center for Policy Dialogue (CPD) and a member of the task force, said, “The steps taken by the finance department are positive in light of the resource scarcity caused by the long-term revenue deficit. The interim government can reduce the size of the budget for the fiscal year 2025-26 to Tk 790,000 crore, thereby reducing reliance on additional debt to cover the budget deficit.”
The Awami League government had initially announced a budget of Tk 797,000 crore for the 2024-25 fiscal year. However, the interim government revised this, reducing it to Tk 740,000 crore, and also cut the Annual Development Program (ADP) from Tk 265,000 crore to Tk 216,000 crore.
One of the key recommendations of the task force, headed by former Director General of the Bangladesh Institute of Development Studies (BIDS), KAS Murshid, was to uphold economic discipline.
The task force report stated, "Financial policy should be aligned with monetary policy to keep inflation under control. If the government runs a large budget deficit and borrows excessively, inflation could rise due to concerns over an increase in the money supply."
Dr. Zahid Hussain, the former lead economist of the World Bank’s Dhaka office, described the recommendations as precise. He stated, “The previous government’s expansionary revenue policy failed, and the contractionary monetary policy also did not yield results. As a result, high inflation has persisted in recent years."
According to a report by the Asian Development Bank (ADB), the average inflation for the fiscal year 2022-23 was 9 percent, it reached 9.7 percent in 2023-24, and is expected to rise to 10.2 percent in 2024-25.
To shield the population from inflationary pressures, the taskf orce recommended prioritizing poverty reduction programs. These include old-age allowances, disability allowances, mother and child support initiatives, and food security programs targeted at poor and vulnerable populations.
The task force highlighted that the current allocation to the social security sector is significantly inflated due to the inclusion of pensions for retired government employees, interest on savings certificates, and the procurement of equipment for earthquake and disaster management. As a result, the task force recommended that social security programs be managed according to international standards.
The report pointed out that in the 2024-25 fiscal year, 2.5 percent of GDP and 17 percent of the total budget have been allocated for social security. However, excluding irrelevant sectors, the actual allocation is only 1.2 percent of GDP and 7 percent of the total budget.
According to the International Labor Organization (ILO) Global Social Security Report 2024-26, Bangladesh spends only 0.9 percent of GDP on social security, which is significantly lower than the South Asian average of 3.8 percent. For lower-middle-income countries, the average is 4.2 percent, while for upper-middle-income countries, it is 8.5 percent.
The task force also emphasized the need for an effective Annual Development Program (ADP). They recommended that the government focus on making the ADP "manageable" while addressing issues related to implementation capacity, coordination among agencies, and foreign aid management.
Additionally, the task force suggested restructuring the National Board of Revenue (NBR) by separating its policy-making and operational functions. They also proposed automating the tax and customs collection system, abolishing the regional system, and enhancing the NBR's capacity. Bangladesh's tax revenue ratio dropped to 8.6 percent of GDP in the fiscal year 2022-23, the lowest in South Asia, which has hampered adequate spending on education, health, and social protection sectors.
To address these challenges, the task force recommended the introduction of domestic bonds to support Bangladesh’s transition from a least developed country by 2026.
Translated by AM
