For one and a half decades, AMA Muhith and AHM Mustafa Kamal took turns to face a barrage of scepticism in post-budget press conferences with many questioning feasibility of their growth targets, but that has not been the case for Abul Hassan Mahmood Ali.
In the former foreign minister’s first budget as finance minister, also the first of the Awami League government's fourth consecutive term, Ali has confronted a different beast: inflationary pressure.
This challenge has been acknowledged by no less a functionary than Prime Minister Sheikh Hasina herself as well as members of her cabinet and top officials.
Mahmood Ali, 81, an economics graduate who entered politics after retiring from his diplomatic career, set a modest 6.75 percent growth target after ambitious goals set over the past several years.
Speaking at the press conference on Friday, a day after presenting the budget in parliament, Ali sounded optimistic about achieving economic growth goals despite the pressures of nearly double-digit inflation.
He hopes to tame inflation to 6.5 percent.
The finance minister and his team at the press conference faced numerous questions about strategies to control inflation.
Finance Minister Ali says that top priority will be given to controlling inflation and this means that the government will continue to pursue contractionary policies.
State Minister for Finance Waseqa Ayesha Khan, State Minister for Commerce Ahasanul Islam Titu, Finance Secretary Md Khairuzzaman Mozumder and National Board of Revenue Chairman Abu Hena Md Rahmatul Muneem, among others, joined him.
During the press conference, government ministers failed to outline a clear roadmap to address long-standing irregularities in the financial sector.
In contrast, NBR Chairman Muneem defended what critics have called an 'unrealistic' initiative to legalise undisclosed money.
After a four-year pause, the controversial provision found its way back to the budget for FY 2024-25 worth nearly Tk 7.97 trillion.
“Since inflation control is our highest priority, contractionary policies will continue for some more time,” Ali said at the post-budget press conference at the Osmani Memorial Auditorium in Dhaka.
However, the government will also be careful to ensure that growth does not suffer too much in the context of this policy stance, he said.
"All the necessary support has been continued so that our agriculture, industry and service sectors can continue their normal activities.”
“As a result, growth of 5.82 percent has been achieved in the current financial year despite a contractionary policy. We will be able to achieve 6.75 percent growth in the next fiscal year.”
He hoped these measures would start to bear fruit before 2025.
“We expect it [inflation] to begin to decline by the end of this year. Let’s see. We must try. And, as you have noticed, we have reduced the scope of the budget a lot so that there is no pressure on prices.”
Ali intends to tamp down inflation even as reserves are dwindling, the global economy remains unstable, and the government is steadily increasing the price of electricity by withdrawing subsidies according to the conditions set by the International Monetary Fund under a $4.7 billion loan programme.
In the outgoing 2023-24 fiscal year, former finance minister Kamal announced a goal of restricting inflation to 6 percent. Later it was revised up to 7.5 percent. But even that goal could not be met.
According to data from the Bangladesh Bureau of Statistics, the 11-month average inflation rate in the current fiscal year until May stood at 9.73 percent, the highest in many years. This naturally means intense pressure on lower and middle-class families to afford daily necessities.
Economists are sceptical that the current finance minister will be able to stick to his confident target of 6.5 percent average inflation when it has remained above 9 percent for two years.
But Mahmood Ali remains optimistic.
"We have taken all the necessary steps to control inflation and are reviewing what further steps can be taken."
“The measures taken by us have made it possible to keep inflation at 9 percent. In the budget speech presented yesterday [Thursday], I mentioned the steps taken under the monetary policy and the fiscal policy."
Highlighting the context of inflation due to the Russia-Ukraine war after the COVID-19 pandemic, the finance minister said, “Inflation is still at 9 percent in our country. If the developed countries of the world increase interest rates in their countries to control inflation, the capital flow in our country will continue to decrease. At the same time, the volume of international trade also increased to a great extent.”
“This resulted in a large deficit in our current account balance. All in all, the pressure on the foreign exchange reserves increased and this led to a significant depreciation of the taka against foreign currencies. This is one of the main reasons why we have high inflation.”
"We have seen our neighbouring country Sri Lanka go bankrupt, and some have said Bangladesh is heading the same way. But we haven't. We're working on a continuous and dynamic model, which should be noted."
Eight cabinet members, an adviser to the prime minister, two government secretaries, the governor of Bangladesh Bank, and the NBR chairman attended the press conference.
The finance minister also let other ministers and officials answer questions related to their areas.
TITU EXPLAINS MEASURES TO REIN IN INFLATION
The officials were questioned on the feasibility of controlling inflation and the specific measures included in the budget to manage price levels.
In response, the state minister for commerce emphasised that addressing inflation is a key challenge outlined in the budget.
To alleviate some of the economic pressure, the tax on daily essentials such as rice, wheat, chickpeas, and lentils has been halved from 2 percent to 1 percent.
“The market is continually monitored by the Directorate of National Consumers Rights Protection. There has been no indication that the market has destabilised following the budget announcement,” he said.
Highlighting the government efforts to ease the inflationary pressure on people, Titu said, “We are providing subsidised food assistance to 10 million people through the Trading Corporation of Bangladesh and are considering proposals to expand this support in the future."
“Efforts are underway to establish permanent locations for TCB dealers and to ensure some products are sold at their original prices alongside subsidised items."
"Importantly, there have been no announcements about increasing commodity prices. On the contrary, we have announced reductions,"
Titu outlined several measures: reducing the import duty at source for some products from 2 percent to 1 percent, rationalising milk powder import duty, occasionally reducing commodity tax, withdrawing the minimum VAT on 10 products, lowering duty on 10 products, and eliminating supplementary duty on 19 products while reducing it on 172 products.
He noted that these tax reductions have been gradual, with other charges to be rationalised by the NBR over time.
‘NO NEED TO WORRY’ ABOUT BANK BORROWING
Finance Minister Ali targeted to secure funds to feed over 17 percent of the proposed Tk 7.97 trillion budget through bank loans.
The government will rely on bank loans to cover the large budget deficit, preferring local banks over low-interest foreign loans.
To fund this spending, he plans to raise Tk 5.41 trillion from the government revenue, which will be a big challenge to implement.
Despite this, the overall deficit between the government’s spending and revenue will be Tk 2.51 trillion, which is still 8 percent higher than the revised budget for the fiscal year 2023-24.
The deficit, at 4.6 percent of gross domestic product or GDP, is the lowest in the past decade.
Ali plans to borrow Tk 1.27 trillion from abroad and nearly Tk 1.61 trillion domestically. Of this, Tk 1.38 trillion will be from the banking sector, which is 17.25 percent of total government spending.
Finance Secretary Khairuzzaman Mozumder, accompanying Ali at the press conference, addressed concerns about government borrowings from banks exacerbating a liquidity crisis. He clarified that such borrowings are not the cause of liquidity issues within banks.
"We prioritise foreign loans as a standard approach, but as we graduate from the category of Least Developed Countries, these loans are decreasing. Consequently, we are increasingly turning to domestic sources," he explained.
Khairuzzaman also discussed the government's shift in borrowing strategy: "Historically, our focus was on savings certificates, which, while secure, come with higher interest costs. This is why we're steering away from them and toward utilising the banking system more."
The secretary revealed that the government's borrowing from banks in the current fiscal year exceeded its target by 18 percent. Despite this, Khairuzzaman is optimistic that the full Tk 1.37 trillion projected for borrowing in the upcoming financial year starting Jul 1 might not be necessary.
"When setting our targets, we anticipate a deficit since NBR may not meet the revenue goals. However, the actual amount borrowed from banks may be less if NBR's revenue collection exceeds expectations," he said.
Hasina's Finance Adviser Mashiur Rahman said that borrowing from banks is a common practice necessary to keep banks functioning.
“The problem of non-performing loans didn't happen overnight and has been influenced by various factors including bank weaknesses and economic conditions.
“The Awami League government is committed to reducing this issue.”
NBR BOSS DEFENDS OPPORTUNITY TO LEGALISE BLACK MONEY
The proposed budget includes a clause reintroducing the whitening of investments, such as black money, undisclosed assets, land, flats, and shares, by paying a 15 percent tax.
Criticising the decision, the Centre for Policy Dialogue or CPD said that offering a 15 percent tax rate to legalise black money is neither morally, nor economically justifiable, especially when the maximum tax rate for individuals is set at 30 percent.
The think tank argued that this penalises regular taxpayers.
Minister Ali asked NBR Chairman Muneem to respond to queries as reporters raised the issue at the press conference.
Despite defending the legalisation of black money, the NBR chairman could not say if anyone had done it before or how much money was involved.
Muneem explained, "When such amnesty is given, it's often perceived as a way to convert black money into white. However, this particular amnesty is aimed at addressing undisclosed assets that exist for various reasons."
He emphasised that many countries provide similar opportunities to declare assets that were previously unreported for unavoidable circumstances.
This measure, he claimed, was in response to demands from the business community and the common people, aiming to facilitate compliance and prevent money laundering.
Muneem said that black money typically does not benefit the national economy and is often spent abroad.
The government hopes to bring this money into the mainstream economy, encouraging individuals to declare their undisclosed assets and comply with tax regulations.
When asked if former inspector general of police Benazir Ahmed's black money could be legalised by paying a 15 percent tax, the NBR chairman responded that Benazir's case is currently under legal review.
The matter of Benazir Ahmed's assets has now fallen under criminal (legal) proceedings. Whether his assets can be legitimised by paying the 15 percent tax is now a legal question.”
GOVERNOR GAGGED
The tension between journalists and Governor Abdur Rouf Talukder over restrictions on media access to the Bangladesh Bank spilled into the post-budget press conference.
His move sparked outrage and led to a media blackout of his statements and of press conferences held by the Bank.
As Ali offered insights into the details of the budget, the conspicuous silence of Governor Talukder was both glaring and at times deafening.
In the press conference, the press itself decided to mute one of the key speakers - the governor.
As the finance minister moved to the Q&A session after his written speech, President of the Economic Reporters' Forum, ERF, Mohammad Refayet Ullah Mirdha, threatened to boycott the press conference if Rouf made any statement.
At that moment, when the minister looked towards Rouf, the governor indicated through a gesture that he would not speak.
And so he sat there, frozen out, remaining unusually silent for nearly two hours.
