Published in Dhaka Tribune on Friday, 5 June 2015.
The budget may have enough plans to attract investment but higher bank borrowing may affect credit flow into private investment, which may eventually hamper growth, analysts said.
Abnormally high revenue target and absence of clear guideline to improve efficiency of spending money mean that the budget has failed to balance income and expenditure. They warned that the pay hike proposals for public servants might accelerate inflation in the coming fiscal year.
Increasing advanced tax for the readymade garment sector will not be harmful if the government can help the sector, currently facing some challenges, in a targetted way such as relocating factors, they said.
The following are some noted economists’ instant reactions to the budget that Finance Minister AMA Muhith placed in parliament yesterday.
Mirza Azizul Islam, former finance adviser
The budget has some positive sides but at the same time some targets are not in line with reality. Positives include lower corporate tax and prioritising of infrastructure developing. But 30% revenue income target look unrealistic because at present the realisation is only around 10-11%. Higher bank borrowing target is also undesirable because it will limit flow of credit into private investment which may end up denting growth.
Mustafizur Rahman, Executive Director, CPD
The size of the proposed budget is okay in term of the GDP estimate but there is an imbalance between income and expenditure. Revenue income depends on how efficiently institutions work.
Trying to meet deficit with foreign aid and grants is a risky choice because it will require successful implementation of foreign-funded projects. If government increases advance income tax for the readymade garments sector, which is facing challenges now, then the government should help them in a targetted way such as relocating factors and setting up effluent treatment plants.
Zaid Bakht, research director, BIDS
The proposed budget is expansionary because it aims to attract private investment by boosting public investment. The implementation of of pay hikes for government employees might fuel inflation. For reining in inflation and better macro economic management, the government needs to be cautious with fiscal and monetary policies.
Ahsan H Mansur, executive director, PRI
This budget will be a good test case if fiscal stimulae work. There are effort to encourage both public and private investment, which is much needed to pick up growth. But it depends on how the government implements it. If investment plan is implemented, revenue will increase and growth will accelerate.
Binayak Sen, research director, BIDS
The budget seems to be lacking a guideline on how to implement the annual development programme to upgrade people’s living standard. Poor development expenditure performance rate is a perennial problem. The public private partnership scheme was ignored as there has been very little progress with past projects, most of which advanced only as far as getting names. The government has also moved away from decentralising the budget by allocating 5% or 10% for strengthening local governments.
Business Initiative Leading Development (BUILD)
The proposed budget has some positive elements, but at the same time there are some issues which may hamper growth. Reducing public limited tax by 2.5% is a good decision, withdrawal of 5% upfront tax at source on treasury bonds, reduced rate of capital machinery and higher import tax slabs, reduction of VAT for the RMG sector compliance items are some positive steps. But the private sector is a bit alarmed because of an ambitious revenue target. Increase in public sector investment is noticeable, but private sector investment has not responded accordingly.
Chamber of Commerce and Industry (DCCI)
Borrowing Tk38,53 crore from the banking sector would decrease money flow to the private sector, hampering private investment. Agriculture budget is promising but the government should lower tax on local purchase of poultry.