As part of the Independent Review of Bangladesh Economy (IRBD), flagship programme of CPD, a media briefing was organised on analysis of the proposed National Budget FY2016-17 at La Vita Hall, Lake Shore Hotel, Dhaka on Friday, 3 June 2016.
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Published in The Daily Star on Friday, 4 June 2016
Private investment biggest challenge
CPD says new industries, additional job creation badly needed
The challenge of attracting private investment remains as daunting as ever, as the proposed budget did not give any clear outline to mobilise additional private funds required to kick-start new industrial activities and to create the badly needed jobs, the Centre for Policy Dialogue (CPD) said in its reaction yesterday.
The GDP growth target for the next fiscal year has been set at 7.2 percent which, according to the CPD, is moderate compared to the provisional figure of 7.05 percent for the outgoing fiscal. However, to achieve this private investment has to be 23.3 percent of the GDP or Tk 80,000 crore, which is 1.5 percentage points higher than the current level.
“But there is nothing in the budget about the source of this additional money,” said Dr Debapriya Bhattacharya, distinguished fellow of the CPD, in his presentation.
In his budget speech, Muhith said that during 2010-2015, 47 lakh people entered the labour market, 98 percent of them in the local market. But he did not mention that the pace of additional job creation in 2014 and 2015 came down to only 3 lakh a year from average 13 lakh a year during 2010-13, Debapriya said.
“Jobs are there in the informal sector, but not in corporate and industrial sectors. And that is not possible either without a rise in private investment.”
He said banks’ lending rates already came down, yet private investments were not picking up. On the other hand, banks and capital markets, the two major sources of borrowing, have weakened in recent years.
On the one hand, the government wants to boost private investment and on the other, it has cut down the investment limit of total personal income to 20 percent from previous 30 percent. This will put an extra pressure on lower income groups, he said.
Prof Mustafizur Rahman, executive director of the CPD, also spoke at the budget analysis programme at Lakeshore Hotel in the city.
This year’s budget comes at a time when the economy witnesses sluggish private investment, low job creation in manufacturing sector, increase of borrowing from domestic sources to finance deficit, unachieved tax revenue and a lack of good governance in the financial sector, the CPD said.
The think-tank also sees government’s inability to take the full advantage of the current macroeconomic stability in favour of investment and employment-led GDP growth.
It also questioned the pace and the rate of implementation.
Budget implementation, be it development expenditure, non-development expenditure or revenue collection, fails to achieve the target. Debapriya questioned the incremental expenditure without improving the implementation capacity. According to him, this shows Bangladesh is weak in fiscal projection compared to other countries, including India.
The budget proposed an increase of 2.1 percentage points, both for revenue and total expenditure, and this additional spending will be met from domestic sources, led by bank borrowing. Of the 5 percent deficit, 72 percent will come from domestic sources, mainly from banks. Accordingly, interest payment for domestic debt will rise significantly.
The government should use low-cost borrowings, but that is not the case in recent years, according to the CPD.
“Debt servicing for borrowing for large infrastructure projects, such as Rooppur Nuclear Power plant and Rampal power plant, may put further pressure in future,” said Debapriya, terming deficit financing as a major weakness of the proposed budget.
The CPD is also cynical about the anticipated gross foreign financing worth $5.7 billion, an almost impossible target in view of only $2.1 billion during July-February of the outgoing fiscal year.
Though the tax-GDP ratio in Bangladesh is among the lowest in the world, revenue collection target — Tk 65,351 crore more than the revised budget — seems to be a big challenge. Of the revenue target, over 81 percent will come from NBR tax.
The think-tank said implementation of new VAT law remained a big test for the government. Packaged VAT, which has been revised significantly in the budget, will create a burden on small traders.
Tax deduction at source for all exporters at 1.5 percent from previous 0.6 percent is too high and it should be reconsidered, said the CPD. However, the increase of tax-exempted turnover limit for small and medium enterprises will support business growth and encourage entrepreneurship.
The CPD urged the government to formulate a comprehensive subsidy policy for proper utilisation of public money. Total subsidy allocation stands at 6.8 percent of the budget.
The think-tank also criticised the government for including so many projects in the Annual Development Programme (ADP), many of which did not get funds. “I didn’t see any serious effort and reforms to expedite ADP implementation,” Debapriya said.
The CPD reiterated its opposition to the scope for whitening of undisclosed money, terming it an unethical practice that encourages people to evade tax.
On rationalsation of customs and supplementary duties, Khandker Golam Moazzem, additional research director of the CPD, said most of the measures would protect local industries.
The allocation for education and health is a welcome move, but much emphasis has to be given on the quality, said Debapriya. He also hailed the expansion of allocation and coverage of a number of safety net programmes.
But allocation should be increased for the agro sector, said Prof Mustafizur Rahman.
Published in The Financial Express on Friday, 4 June 2016
CPD questions clarity of budget’s fiscal framework
Also finds budget financing major challenge
The Centre for Policy Dialogue (CPD) identified mobilising the targeted huge revenue principally from domestic resources as a major challenge for the next budget and also doubted fairness of a few fiscal propositions.
“We are not at all concerned about the size of the budget rather we are concerned about the financing of the budget which is highly dependent on internal resources,” said CPD distinguished fellow Debapriya Bhattacharya at a post-budget media briefing Friday.
In its budget analysis styled ‘Independent Review of Bangladesh Development (IRBD)’ the private think tank also questioned the quality of fiscal framework as it thinks the budget does not provide any monitorable transparent plan for its implementation.
“The quality of fiscal planning has been deteriorating over the last four years, which is likely to continue in FY16,” says the CPD analysis.
Finance Minister AMA Muhith Thursday placed in parliament a Tk 2.95 trillion budget for the fiscal year 2014-15 with a thrust on increasing revenues to meet at least two-thirds of the budgetary allocations.
The government set a target of 7.0 per cent GDP (gross domestic product) growth for the next fiscal and set the spending targets for different sectors accordingly from the lofty outlay.
According to CPD, the high revenue target and the absence of clear guidelines in achieving that improving efficiency of spending may lead to messing up in achieving the budgetary target. “All major parameters of fiscal framework will need to register higher growth rate to attain the targets,” it said.
The government set revenue target for the National Board of Revenue (NBR) at Tk 1.76 trillion, about 30 per cent higher than that of this fiscal, which CPD feared might not be achieved.
“The revenue projected to grow is faster than public expenditure,” says the analysis.
It noted dependence on domestic financing increased while utilisation of foreign loans and grants remained weak. To overcome the problem, the CPD suggested the government increase its foreign aid utilisation to reduce reliance on high-cost domestic borrowings to fund the budget deficit.
The CPD identified tapping more foreign assistance, sluggish exports and accelerating private investment as some more challenges for the government in the new fiscal year.
The think tank believes that sufficient initiatives have not been taken in the budget to boost private investment in the country which has remained sluggish over the past two years.
To reap the benefit of fiscal measures, the CPD stressed the need for reform of government institutions.
And to have the status of a middle-income country (MIC), Debapriya said, the country also needs political stability, consensus on national issues as well as more investment.
“But without reform nothing will be achieved,” said the CPD distinguished fellow.
Asked about achieving the status of a lower middle-income country (LMIC), Debapriya said it’s a matter of time. But it will take some more years to graduate from the league of least-developed countries (LDCs), as the country still lags behind with economic vulnerability and human assets index despite faring well in some socioeconomic indicators.
“But even then it is not impossible to achieve the status of a developed country if we stride hard to achieve the macroeconomic performance as prescribed by the mid-term fiscal frameworks,” said executive director of the CPD, Dr Mustafizur Rahman.
Held at the Brac Inn Centre at Mahakhali, the programme was also addressed, among others, by CPD Additional Research Director Dr Khandaker Golam Moazzem and research fellow Towfiqul Islam Khan. The programme was aired live on Channel-i.
Asked about the assessment of last fiscal’s performance, the CPD’s distinguished fellow said it is not up to the mark, but the real picture will be clear after 3-4 months when the actual figures will be available.
He also mentioned that the overall macroeconomic indicators also failed to be commensurate with mid-term fiscal policies.
Regarding black money, the CPD proposed to formulate a legal framework to help bring undisclosed or black money into the mainstream economy.
In the absence of an effective mechanism to address the relevant issues, the volume of black money has only grown bigger and bigger, a large part of which has even been transferred abroad.
The National Board of Revenue (NBR) could do little to stop it. The anti-money laundering act has also not been effective either to stop transfer of illegal funds or bring the money back into the country.
Asked about Indian Prime Minister Narendra Modi’s visit to Bangladesh and settlement of various trade issues, CPD’s executive director Dr Mustafizur Rahman said it’s a great opportunity for Bangladesh to link connectivity with India and China, world’s two giant economies that import goods worth billions of dollar every year.
To have linked with their economies he also stressed the need for increasing the country’s efficiency in all relevant areas.
Regarding the second line of credit (LoC) from India, CPD distinguished fellow Mr Debapriya, however, expressed his scepticism. This should be free from conditionalities, he said.
Regarding the first LoC, he said there was only progress in the cases of import of railway wagons and buses from India but no progress made in other areas like infrastructure development.
“If US$2 billion more comes from India under LoC, these should be free from import-based conditionalities,” he said. “I am more concerned about import-based loan rather than high-cost domestic borrowing.”
Published in Dhaka Tribune on Friday, 4 June 2016
CPD: Budget rhetoric overtakes status quo
CPD Distinguished Fellow Dr Debapriya Bhattacharya discusses the Centre for Policy Dialogue’s analysis of the proposed FY2016-17 national budget at a press event in Dhaka yesterday
The budget has disparity between revenue income and expenditure in line with the present situation where investment remained stagnant, Centre for Policy Dialogue (CPD) said in its budget reaction yesterday.
“There is a problem between income and expenditure framework proposed in the budget,” CPD Distinguished Fellow Debapriya Bhattacharya said at a press conference in Dhaka.
“If you want to hit your target, you need to shot your arrow. And for this, you need to have a bow. Here, the arrow is for income and the bow is for expenditure. I cannot see strength of this arrow and bow,” he said.
The so-called development and non-development expenditure budget should be aligned with each other for bringing more transparency in the budget, he added.
Debapriya also thinks that the 7.2% GDP growth estimation was not possible to achieve.
“An additional Tk80,000 crore will be required for investment and along with this the government needs to increase Tk65,000 crore in income and Tk75,000 crore in expenditure,” he said.
A stable stock market and strong banking sector, infrastructure development, law and order, and policy assurance are the key factors to attract private investment, he observed.
About the present employment situation, Debapriya said that there had been a great change in the Bangladesh job market.
“Jobs have been created in the informal sector … not in the formal sector over the last two years, which means no quality job is being generated. Corporate sector is the ideal one that can create quality jobs, and for this, more private investment that still remained sluggish is a must.”
CPD Executive Director Prof Mustafizur Rahman said that public salary and allowances played a big role in the economic growth of the country for the current fiscal year. “For the next fiscal year, agriculture and industry sectors should be catalyst for strengthening this economic growth,” he said.
“So, if public salary and allowances are increased, goods and services should be increased
proportionately. Otherwise, it will turn into an inflation, which leads to raise nominal GDP … not real GDP.”
According to the CPD’s budget analysis paper, the increased allocation in education, gender and social safety net was a good sign for the budget. But the allocations in agricultural sector need to be increased and the reporting mechanism in defence budget should be transparent, it said.
The CPD suggests that the government strengthen its institutional capacity and bring in necessary policy reforms to implement the national budget for FY2016-17.
It made some recommendations including bringing more transparency in budget formulation, implementation and assessment procedures; establishing a Public Expenditure Review Commission; formulating appropriate follow-up mechanisms for monitoring government tax incentives; disclosing financial accounts of state-owned enterprises including the BPC; and establishing transparency in the government’s asset acquisition.