Discussion after the 2025 budget | The government’s over-reliance on the banking sector will create chaos in the financial sector

According to experts, the government’s excessive dependence on the banking sector to finance the budget deficit will impact the financial sector and will also harm private sector investment and job creation.

“Once again, as every year, the government’s over-reliance on the banking sector to finance the budget deficit will create chaos in the financial sector,” said M. Abu Yusuf, director of the Center for Budget and Policy at the University of Dhaka.

The center organized an event on campus.

Presenting the program paper titled ‘Review of the Proposed Budget 2024-25: Macroeconomic Reintegration, Education and Employment’, he said the deficit of this year’s budget was Tk 256,000 crore, which is 4.6% of GDP.

To finance the fiscal deficit, the government has set a domestic borrowing target of Tk 160,900 crore, of which Tk 127,200 crore will come from the banking sector, he said.

However, if the budget deficit is financed with funds collected from savings bonds or pension schemes, it will ensure financial security for the middle class and provide the government with a safe line of credit, Yusuf added.

While inflation is above 9 percent, food inflation is around 15-18 percent, he said.

“The biggest challenge for the government will be limiting double-digit inflation. This has a direct impact on people’s lives and causes social and political instability.”

Yusuf added that more measures could have been taken to curb inflation.

In his opinion, the social and financial effects of inflation can be controlled by reducing the size of the budget and reducing value added tax (VAT) and import duties on various goods.

Additionally, the income tax cap could have been raised to provide some relief to those from lower- and middle-income backgrounds.

He added that 14% will be allocated to interest repayments. budget, which will be almost equal to the total allocation for the education and health sectors.

“This is a cause for concern for us because our reserves have decreased significantly,” he noted.

Speakers at the event included former Planning Minister MA Mannan, Vice-Chancellor of the University of Dhaka, Prof. ASM Maksud Kamal and Chairperson for Research and Policy Integration for Development MA Razzaque.