Bangladesh's Budget Revenue to Rise by 5% in 2024-2025 Amid Economic Growth

Bangladesh is set to experience a 5% increase in budget revenue for the 2024-2025 fiscal year, driven by enhanced tax revenue collection and economic growth. The International Monetary Fund (IMF) forecasts a 6% growth rate for the nation's economy during this period.

Why this matters: This increase in budget revenue and economic growth has significant implications for Bangladesh's development and stability. It could lead to improved living standards, increased investment, and enhanced global competitiveness, but also poses risks of inflation and currency fluctuations if not managed properly.

The Bangladeshi government has outlined several reforms aimed at achieving this revenue target. These include scrutinizing and rationalizing tax exemptions, expanding digitalization and automation in tax administration, and tapping into non-tax revenue sources. The government aims to increase the revenue-GDP ratio to 19.55% by 2031 and 24% by 2041, aligning with the 'Perspective Plan of Bangladesh 2021-2041' targets.

Despite these optimistic projections, challenges remain. Bangladesh's Long-Term Foreign-Currency Issuer Default Rating was downgraded to 'B+' from 'BB-' by Fitch Ratings, citing a sustained weakening of external buffers. This downgrade is expected to increase the cost of accessing foreign finance, with higher risk premiums for trade financing and increased fees for letter of credit (LC) confirmation.

The IMF has suggested lowering government expenditure and raising revenue collection. The government plans to set a revenue target of approximately Tk 5.5 trillion, with the National Board of Revenue (NBR) expected to generate around Tk 4.8 trillion. Additionally, the budget deficit is expected to be Tk 2,57,000 crore in the coming fiscal year, a decrease from Tk 2,61,785 crore in the current fiscal year.

Inflation remains a significant concern, averaging 9.7% in FY24, well above the central bank's target of 7.5%. The persistence of high inflation is attributed to domestic supply shortages, import restrictions, and a weaker exchange rate. The Bangladesh Bank has introduced a crawling peg to increase exchange-rate flexibility, aiming to address FX market distortions and support significant reserves build-up.

The medium-term growth outlook for Bangladesh remains favorable, supported by a robust ready-made garment sector, demographic dividend, and stable remittance inflows. However, growth is expected to moderate to 5.3% in FY24 as a US dollar shortage is likely to impact investment and high inflation reduces consumption.

The government is also facing a prolonged economic crisis, with dwindling foreign currency reserves being a significant challenge. Measures taken by the Bangladesh Bank to increase foreign currency reserves have not been fully effective. The country will receive between $3 billion and $3.5 billion in budgetary support from the World Bank, Asian Development Bank, and Asian Infrastructure Investment Bank.

Bangladesh's budget revenue is expected to increase by 5% in the 2024-2025 fiscal year, driven by increased tax revenue and economic growth. However, the country faces significant challenges, including high inflation, a US dollar shortage, and a downgraded credit rating, which could impact its access to foreign finance.

Key Takeaways

• Bangladesh's budget revenue to increase by 5% in 2024-2025 fiscal year.
• IMF forecasts 6% economic growth, driven by tax revenue and growth.
• Government aims to increase revenue-GDP ratio to 19.55% by 2031 and 24% by 2041.
• Fitch Ratings downgrades Bangladesh's credit rating to 'B+' due to weakened external buffers.
• Inflation remains a concern, averaging 9.7% in FY24, above the central bank's target.