Interviewed By Akhlaqur Rahman Sachee, Team MBR

Mr. Mamun Rashid is a distinguished banker and economic analyst in Bangladesh, boasting over 26 years of experience in the banking industry. Currently, he chairs Financial Excellence Limited, an institution committed to enhancing Bangladesh's financial markets. Additionally, he serves as chairman of the board of directors at Marie Stopes Bangladesh and president of ShopUp. He is the immediate past managing partner and country head of PricewaterhouseCoopers (PwC) Bangladesh. His illustrious career encompasses leadership roles at three international banks, namely ANZ Grindlays Bank, Standard Chartered Bank, and Citibank N.A., with experience spanning both Bangladesh and international locations. Team MBR was fortunate enough to have a conversation with Mr. Rashid and receive his take on the national budget for FY2024–25.

Akhlaqur Rahman Sachee: The parliament passed the BDT 797,000 crore budget for FY2024–25 on June 30, 2024, which is only 4.6% bigger than the previous fiscal year. Would you kindly shed some light on the differentiating features of the FY2024–25 budget from the FY2023–24 budget?

Mamun Rashid: The national budget for FY2024–25 emphasises stability, featuring a modest 4.6% increase from the previous fiscal year’s budget. While public investment may see a slight decline, the budget aims to boost private investment. It targets controlling and lowering the inflation rate to 6.5%, while tax exemptions are expected to rise. This fiscal plan focuses on consolidation and stimulating economic growth.

Akhlaqur Rahman Sachee: FY2022-23 ended with foreign exchange reserves of USD 24.75 billion as per BPM6, whereas it dropped to USD 18.65 billion by the end of May 2024. Would you kindly share with us if the ambitious target of achieving foreign reserves of USD 32.3 billion is practical? What are the measures that need to be undertaken to stabilise the foreign reserves?

Mamun Rashid: Between May 2022 and May 2024, Bangladesh's foreign reserves declined significantly by USD 6.1 billion. Given this trend, reaching the target of USD 32.3 billion by the end of FY2024–25 appears ambitious. To stabilise reserves, Bangladesh may consider the following strategies.

• Boosting exports to increase foreign currency inflow.

• Attracting foreign direct investment to bring in more dollars.

• Encouraging remittances to flow through official channels.

• Potentially receiving external financial assistance.

• Letting market forces determine the exchange rate.

Akhlaqur Rahman Sachee: The budget for FY2024–25 aims to achieve economic growth of 6.75%, whereas global economic growth is projected to slow down to 2.6%, which is slightly above the recession threshold as per UN Trade and Development. Would you kindly discuss the factors that may help the country beat the global economic growth rate and achieve the target economic growth during a period of global economic slowdown?

Mamun Rashid: Bangladesh's ambitious target of 6.75% year-on-year economic growth is challenging amidst a sluggish global economy and slowing domestic production. To achieve this goal, the country can stimulate domestic spending through targeted government investments and tax incentives. A weaker currency may make exports more competitive, but close monitoring of inflation is essential. Emphasising industries less affected by the global slowdown and attracting foreign investment can sustain export strength. Upgrading infrastructure, enhancing workforce training, and streamlining regulations can boost overall efficiency. However, success depends on effective policy implementation, a stable global market, and careful inflation management.

Akhlaqur Rahman Sachee: During FY2023–24, the point-to-point inflation rate was over 9% in all the months of the fiscal year. Would you kindly share with us the measures that have been incorporated into the FY2024–25 budget that can drive down inflationary pressure?

Mamun Rashid: Bangladesh's high inflation necessitates strategic measures in the FY2024–25 budget. Anticipate tighter government spending and targeted subsidies for essential goods to alleviate the burden on citizens. Collaboration with the central bank on interest rate adjustments may also be part of the strategy. Additionally, streamlining the supply of essential goods and enhancing transparency are critical steps. While these measures aim to curb inflation, their success will depend on effective implementation and external factors.

Akhlaqur Rahman Sachee: The FY2024–25 budget is projected to experience a fiscal deficit of approximately BDT 251,600 crore, of which more than 50% is going to be financed by domestic bank borrowing. How is this measure going to impact the lending and borrowing market, in your opinion?

Mamun Rashid: The government's borrowing binge from the domestic banking system in order to finance the budget deficit will impact lending and borrowing in the private sector. As a result of that, banks may have less money to lend to businesses and individuals as they lend more to the government. At the same time, increased borrowing by the government could drive up borrowing costs for everyone and may also contribute to larger impaired loans, especially in the SME sector. This can hinder economic growth by making it tougher for businesses to get loans to invest.

Akhlaqur Rahman Sachee: By the end of FY2025-26, Bangladesh needs to achieve a tax-to-GDP ratio of 9.5% as per the target set by the International Monetary Fund (IMF). Would you kindly share with us if the tax measures are adequate to accomplish this target?

Mamun Rashid: Whether Bangladesh's tax measures will reach the IMF's target of 9.5% of the tax-to-GDP ratio by FY2025-26 is uncertain because public details on the specific tax measures are limited, making it difficult to assess their effectiveness. Even well-designed policies can face challenges in tax collection. Furthermore, Bangladesh's success hinges on economic growth. While the budget aims to stimulate this, a sluggish global outlook and domestic pressure on consumption create obstacles. Overall, while the government's goal is ambitious, the effectiveness of the tax measures and broader economic conditions will determine whether the 9.5% target is achievable.

Akhlaqur Rahman Sachee: According to the proposed personal income tax structure, the 10% tax slab threshold has been raised to BDT 850,000 from BDT 750,000, and the highest tax rate has been raised to 30% from 25%. Do you think that the proposed tax structure is adequate to address income inequality?

Mamun Rashid: The proposed personal income tax structure in Bangladesh has some mixed effects on income inequality. Raising the threshold for the 10% tax bracket offers some relief to middle-income earners. However, this benefit is limited. The bigger change, which is increasing the top tax rate and the wealth tax, targets high-earners. This can generate more tax revenue, but its impact on overall inequality depends on how efficiently the revenue is used. Ideally, these funds would be directed towards social programmes that benefit lower-income groups, which could help narrow the income gap.

Akhlaqur Rahman Sachee: Rising interest rates can impact the small and medium-sized enterprises (SME) sector, which is a major contributor to GDP and employment. What are the supplementary measures that should be in place alongside the budgetary measures so that the SME sector can flourish, in your opinion?

Mamun Rashid: Rising interest rates, often used to combat inflation, can hinder the growth of small and medium-sized enterprises. To address this challenge alongside budgetary measures, several important steps can be taken.

Firstly, governments should establish or enhance credit guarantee schemes that partially back loans for SMEs. This reduces the risk for lenders and can lead to lower borrowing costs for businesses.

Secondly, promoting alternative financing options, such as microfinance institutions and angel investor networks, can help SMEs access capital beyond traditional banking channels.

Lastly, streamlining regulations and providing business skill development programmes can empower SMEs to operate more efficiently and navigate economic challenges effectively.

By implementing these strategies alongside budgetary support, policymakers can create a more favourable environment for the vital SME sector to thrive.