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Bangladesh budget: No good news for poor, low-income people

The government plans to reduce expenses, cut subsidies on power and social safety net programs
Poor and low-income people have their meal from a free street kitchen in Bangladeshi capital Dhaka during the Covid-19 pandemic in August, 2021.

Poor and low-income people have their meal from a free street kitchen in Bangladeshi capital Dhaka during the Covid-19 pandemic in August, 2021. (Photo: Munir Uz Zaman/AFP)

Published: June 11, 2024 11:27 AM GMT
Updated: June 11, 2024 12:02 PM GMT

Retired private job holder Nahid Miah finds it ‘amazing’ how Bangladesh’s annual budget continues to be a boon for the country’s rich people at the expense of ordinary, poor masses who struggle to make ends meet.

“This is a strange country. It keeps siding with the rich and dishonest people leaving its poor alone in extraordinary crisis,” said Miah, 60, a resident of the national capital Dhaka.

A father of three daughters, Miah needs to spend about 40,000 Taka (US$341) per month for family maintenance. He is worried about the quick depletion of his savings amid inflation and price hikes.

Miah spoke to UCA News shortly after Finance Minister Abul Hasan Mahmood Ali unveiled the budget for the 2024-2025 fiscal year worth 7,970 billion taka (about US$68 billion) on June 6.

During the budget speech, the minister admitted that the government needs to reduce expenses to control high inflation and the US dollar crisis in the South Asian nation of more than 170 million.

He also proposed a series of measures that analysts say threaten to inflate energy prices, hike prices of daily essentials, increase job cuts, and leave farmers in poverty and migrants in substandard working conditions.   

Miah alleged that the budget is poised to increase the cost of living for millions of families.

'A farce' to benefit the rich

“Budget has always been a farce. This is a document of privileges distributed among the powerful,’ said Fayez Uddin, a shopkeeper in Dhaka.

This comes as millions of Bangladeshi poor and low-income people continue to suffer due to a worsening economic crisis fueled by inflation, depleting dollar reserves, high cost of living, and ballooning foreign debts.

Like other years, the new budget allows the “whitening of black money” – the undisclosed income if the money is used to purchase immovable assets like apartments, land, and other resources with a 15 percent tax.

For years, anti-graft campaigners have slammed this provision, saying it effectively encourages and sustains corruption in the country by the rich and elite class. 

Economists say the “whitening of black money” legitimizes the amassing of ill-gotten wealth through abuse of power and corruption, which is a major cause behind endemic poverty in the country.

On the other hand, people with legal income beyond taxation thresholds are required to pay up to 30 percent income tax.

Dhaka-based independent think-tank Center for Policy Dialogue (CPD) says the black money provision undermines the rule of law and good governance.

Between 2018 and 2020, Bangladesh ranked among countries where the number of extremely rich people increased exponentially, according to US-based wealth information provider, Wealth-X.

Swiss Bank UBS revealed that the number of Bangladeshi billionaires who control about 10 percent of the national GDP, reached 1,700 last year.

Last year, total defaulted loans in Bangladeshi banks stood at a staggering 1,820 billion taka, leaving several banks on the brink of collapse.

Media reports showed much of the defaulted money has been laundered to various countries in Europe and North America where many Bangladeshi rich have made homes by buying expensive properties.

“Measures such as reducing expenses and import and increasing export are not the solution to end existing inequality,” said M.M. Akash, an economist and professor at Dhaka University.

Money launderers and loan defaulters must be punished instead of being rewarded, he said.

Key challenges facing the government – inflation and devaluation of taka against the dollar – are likely to continue, he said.

'A betrayal of the poor'

Inflation remained at about 10 percent for the past two years and the poor cut protein from their meal to make up for their falling purchasing power, studies showed.

Yet, the budget proposed reducing allocation to social safety net programs. About 46 percent of the social safety net allocation of 1,360 billion taka is earmarked for paying pensions to government employees, interest on national savings certificates and agricultural subsidies.

Economists called it a betrayal of the poor to include items such as pension and agricultural subsidies in the social safety net budget which is expected to directly help the poor.

There are 125 programs under the social safety net and their actual allocation was only 54 percent of the sector’s budget, down from 67 percent last year, said an analysis of the CPD.

“The social safety net should have been expanded given high inflation,” said Mustafizur Rahman, executive director of the CPD.

The allocation in agriculture and its associated sectors, employing about half of Bangladesh’s labor force, mostly rural poor, decreased by 15.5 percent, compared with 2024, according to the CPD.

The agriculture sector subsidy has been reduced by 32.7 percent compared with last year, the agency said.

The budget reduction in the agriculture sector came as a shock for farmers who are facing a crisis due to back-to-back natural disasters, extreme heatwaves and Cyclone Remal.

Some farmers reportedly gave up farming due to the high price of production and low price of crops.

The cut in power and energy subsidies has come as another blow to millions of poor and low-income people like garment workers and farming families who are still reeling from several rounds of energy price hikes in the past two years.

Rising unemployment, cost of living

The government's decision to reduce expenses and the Central Bank’s plan to increase interest rates are likely to cut jobs and increase unemployment rates, the CPD said.

The budget, however, does not promise any new measures for Bangladeshi migrants who remit billions of dollars back home each month, yet face rampant abuses and exploitation in their workplaces.

The budget imposes a one percent import duty on raw materials of some industries, potentially increasing the risk of the cost being passed on to the consumers.

It increased the import cost of hospital equipment from 1 percent to 10 percent, potentially inflating people’s medical costs. Bangladesh’s out-of-pocket medical expense is 74 percent, one of the highest in the world.

Taxes were also increased on ironing, tourism activities, mobile phone purchases and talk times, water filters, fridges, fruit drinks, and energy-efficient bulbs.

The government plans to continue 25 percent and 45 percent taxes on sanitary napkins and baby diapers despite uproar from civil society groups.

Import duties on certain essential items such as dialysis filters and dialysis circuits, polypropylene yarn, manganese, and cashew nuts are reduced.

The budget also proposed a one percent reduction in the import duties on rice, wheat, onion, maize, potato, edible oil, salt and sugar.

“Complete absence of market control makes it obvious these tax reductions will help increase businessmen’s profit and will not get reflected at the retail level,’ said Rahman of the CPD.

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