Budget Aims Inflation

Budget aims at lowering inflation, Trust restored after announcement of election.

Govt announced that the next election will be held on the first week of April next year. The announcement will clear further ambiguities surrounding election. Uncertainties will be further reduced by this announcement. Though the decision will send a positive signal, it has disappointed some parties which demand early election by December this year.

Law and order condition has not improved dramatically yet. But inflationary pressure is less compared to three months ago. Lowering fuel prices will have positive impact in coming months. Governor himself reiterated that the central bank would lower the policy rate when the inflation rate would fall below 7%.

Since the revenue target has not been achieved yet, it is still uncertain whether Bangladesh will be able to grab the next IMF loan. But govt lowered import duties on LNG and refined sugar. LNG has been increasingly used in power generation and fertilizer production. It will help bringing down the cost of power generation and fertilizer production. There is a tradeoff between revenue collection and bringing down the cost of agricultural inputs. Only time will tell whether it is a good move.

Govt also raised the taxes on land purchase and apartment sale. In addition, VAT was also raised for scrap metal, real estate agencies, imported lifts etc. This will contribute to raise the price of apartments many folds. High-end apartments nowadays become liquid assets. Since tax laws allow clandestine capital in this market, many intensively used the sector to document the undocumented wealth. With some paperworks apartments can be turned into cash. This practice drove the prices of apartments higher and deprived the govt of vital revenue as taxes were lower all these years. Govt intended to stop this practice by raising VAT and other duties on land purchase and apartment sale. However, govt lowered the registration fees and claimed other VATs surpassed the lowering of registration fees.

Now time will tell how effective it will become. I think there should be two or more public companies in partnership with private companies who will build cheap apartments for lower income group across the cities in Bangladesh. Pension fund will also get a secured investment in these companies. Property prices go up year by year, so return on investment will not fall.

Lowering taxes on packed liquid milk, animal feed, neutralized soybean oil, will have positive impact in containing the inflation. The proposed budget aims at lowering inflation, a priority task for the govt. If the IMF credit is missed,there will be further tightening of belt through spending cut. I do not think govt has the capacity to grab Tk 5.6 trillion as revenue from the market next year. It has to make further spending cut to make the deficit slim. The specific election date will help to gain investors' confidence and that of overseas credit institutions, which the economy badly needs.