Restoring macroeconomic stability should be the top priority for policymakers amid a challenging environment for the interim government, the Centre for Policy Dialogue (CPD) wrote in its budget recommendations yesterday.

"This requires targeted interventions to address inflationary pressures, stabilise the exchange rate, and ensure fiscal prudence," it said.

The think-tank presented its recommendations for the upcoming national budget for fiscal year (FY) 2025-26 at the CPD office in Dhaka.

The CPD said that the interim government inherited an economy characterised by high inflation, subdued revenue collection, sluggish budget implementation, a liquidity crunch in the banking sector, and fast-depleting foreign exchange reserves.

Fahmida Khatun, executive director of the CPD, remarked, "The upcoming budget must prioritise the protection of vulnerable and disadvantaged groups and economic recovery.

"Short-term corrective actions are needed, along with medium-term reforms in resource mobilisation, public finance management, and spending efficiency," she said.

DO NOT HIKE GAS PRICES

The CPD proposed not hiking gas prices, saying it would adversely impact the inflation scenario -- particularly concerning non-food items.

The warning was sounded as consumer prices, despite easing in the last two months, have stayed over 9 percent since March of 2023, eroding purchasing power, especially for low-income households.

Last month, the Bangladesh Energy Regulatory Commission proposed increasing gas prices for new industries to Tk 75.72 per cubic metre, up from the current Tk 30, which drew widespread opposition.

"At this stage, if the proposal to hike gas prices is accepted, it will likely impact inflation adversely. The uncertainty in the global economy owing to the tariff war might add to this," Fahmida added.

The Bangladesh Bank's target to contain inflation within a 7-8 percent range by end-June 2025 is likely to be missed if gas prices are raised, she said.

RAISE TAX-FREE INCOME LIMIT TO TK 4 LAKH

The CPD also recommended raising the tax-free income threshold to Tk 4 lakh in the next fiscal year's budget to ease the burden on taxpayers amid high inflation.

Currently, the tax-free income threshold stands at Tk 3.50 lakh, which was set in the current fiscal year.

"Inflation eased in the last three months, perhaps due to the seasonal effects and policy intervention. However, it rose earlier in the current fiscal year. Furthermore, food inflation rates were substantially greater in rural areas than in cities," Fahmida said.

"People are depleting their savings to buy food. In this situation, we believe it [raising the floor] will be logical."

ALLOCATE BUDGET FOR JULY UPRISING INJURED AND MARTYRS

The CPD recommended allocating financial assistance in the upcoming national budget to support the families of those killed and injured in the July uprising last year, which led to the ouster of the Awami League government.

"During the July movement, nearly 1,400 people were killed, and 14,025 others were injured," said Khatun, citing reports from the Office of the United Nations High Commissioner for Human Rights.

"It is crucial to allocate funds for these individuals and their families."

The think tank also urged the interim government to introduce a scholarship programme to finance the education of those injured or disabled during the uprising until they complete their undergraduate degrees.

OVERHAUL NBR, REVISE VAT CUTS

The CPD also called for reforms to the National Board of Revenue (NBR), including developing a modern tax structure, digitisation, creating a consistent tax policy, and establishing a hassle-free tax payment system.

Besides, the CPD recommended withdrawing a 5 percent value-added tax (VAT) on tuition fees for English-medium schools.

Furthermore, CPD suggested exempting all taxes on imported books.

It also proposed reducing the corporate tax rate for private universities, medical colleges, dental colleges, engineering colleges, and institutions offering information technology education from the existing 15 percent to 10 percent.

TRUMP'S TARIFF WAR WON'T HELP BANGLADESH

At the event, Prof Mustafizur Rahman, a distinguished fellow of the CPD, rejected the notion that Donald Trump's return to power and his tariff policies would open new export opportunities for Bangladesh.

Instead, he cautioned that Bangladesh's export prospects could become "constrained and stagnant".

"There is an assumption that the tariffs on China could benefit Bangladesh, as we are competitors in the US market," Rahman said.

"However, after the US imposed a 25 percent tariff on China in 2016, our exports to the US initially declined, despite a rebound this year. So, I don't believe there is a direct benefit for us," he added.

One key reason is that China's ready-made garment (RMG) exports to the US largely consist of man-made fibre garments rather than cotton-based products.

"In contrast, Bangladesh's RMG exports are almost entirely cotton-based. Therefore, in the market segment where China faces tariffs, Bangladesh does not directly compete with them.

"It is crucial to recognise the diversity within the RMG sector when analysing these trends," he said.

Secondly, various economists have pointed out that the tariff war initiated by Trump could have a negative impact on global economic growth, including that of the United States, Rahman said.

"A slowdown in US economic growth would reduce consumer demand and contribute to inflation, ultimately leading to a decline in overall import demand," he said.

For export-dependent countries like Bangladesh, this means that demand for products in the US market could also be negatively affected.

This ongoing global tariff war could have far-reaching adverse effects on global growth. The potential decline in US economic growth and demand could limit and even stagnate our export opportunities.

"Such a situation is undesirable," Rahman said.

"We hope that ongoing discussions, including those between Canada and the US, will prevent this situation from worsening further. If the situation deteriorates, it will not yield any positive outcomes for the global economy or Bangladesh."