CPD Research Fellow Mr Towfiqul Islam Khan presented Recommendations for the National Budget FY2016-17 and a report on the State of the Bangladesh Economy in FY2015-16 (Second Reading) to the media at the CIRDAP Auditorium, Dhaka, on Sunday, 17 April 2016. The reports were prepared as part of CPD’s Independent Review of Bangladesh’s Development (IRBD) programme.
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Published in The Daily Star on Monday, 18 April 2016
Design realistic budget: CPD
Star Business Report
The government should frame the budget for next fiscal year in a realistic manner as the highly ambitious goals laid out in the past several years could not be realised, the Centre for Policy Dialogue said yesterday.
“We have been recommending the same for the last several years. But this time, we are giving more emphasis because the difference between projections and implementation is rising,” said CPD Distinguished Fellow Debapriya Bhattacharya.
The CPD made the suggestions citing the budgetary targets and actual realisation between fiscal 2008-09 and 2015-16; the gap between the two has progressively risen.
For instance, a large annual development programme is always planned but the implementation invariably falls short, said Towfiqul Islam Khan, research fellow of CPD.
The design and implementation of the budget for fiscal 2016-17 must reverse this trend, the CPD said, while suggesting moderately ambitious targets and more efforts in attaining them.
The comments came at the unveiling of the independent think-tank’s analysis, ‘State of Bangladesh Economy in 2015-16 (Second Reading)’ at a press meet at the CIRDAP auditorium in Dhaka.
The CPD also shared its recommendations for the upcoming fiscal year.
“The quality standard of the budget is a matter of great concern for us. It affects credibility, transparency and consistency of the budgetary initiatives,” Bhattacharya said.
Currently, the size of the budget is 17 percent of the country’s gross domestic product, but it should be more for the sake of development of the nation.
But the major problem, he said, is in the resource mobilisation structure, citing the sluggish growth of income tax as a case in point.
In its proposal for the next fiscal year, the CPD suggested widening of the tax net, implementation of Financial Reporting Act and increased allocations for social sectors and social safety net schemes.
The widening of the tax base should be the topmost priority, it said, adding that other South Asian countries have comparatively higher tax efforts than Bangladesh.
Bangladesh manages to collect 50 percent of its potential tax revenue, which substantially below those of comparable economies such as Uganda and Vietnam.
The CPD also proposed the passage of a law against shadow owners of property to encourage voluntary disclosures of undisclosed wealth, curb the outflow of funds from the country and allow the use of the money in the economy.
Stringent punishment should be there for those who will not declare such assets even after the opportunity, Bhattacharya said, adding that income and properties should be brought under the legal structure.
Replying to a query on Panama leaks and the outflow of funds abroad, he said the government should have a committee to look into the matter.
“The CPD has been calling for actions to curb the illegal fund transfer for the last several years now. Otherwise, it will be an injustice to honest taxpayers,” he said.
The CPD also recommended for reforms in various areas, including the budgetary decision-making process and disclosure of financial accounts of state enterprises, to ensure transparency.
The financial accounts of the 29 state enterprises such as Bangladesh Petroleum Corporation and Bangladesh Jute Mills Corporation need to be made public in a transparent manner, it said.
It also sought transparency in the defence budget, saying the reporting mechanism for defence spending in Bangladesh is highly non-transparent.
Meanwhile, the independent research organisation has found the provisional GDP growth figure provided by Bangladesh Bureau of Statistics for the current fiscal year to be higher than expectations.
As per the provisional figures, growth will be 7.05 percent this fiscal year, up from 6.55 percent in fiscal 2014-15. But the elevation of GDP growth was not transmitted in other macroeconomic correlates, it said.
In the year that the 7 percent growth trap was finally overcome, the private sector investment declined, income tax growth slowed and the pace of employment generation did not make headway.
“Bangladesh has to come out of this contradiction,” Bhattacharya said.
Some 13.8 lakh jobs were created annually between 2003 and 2013, whereas a total of 6 lakh jobs were created between 2013 and 2015, according to the CPD.
“It is crucial that such acceleration in economic growth is accompanied by enhanced private investment and more quality jobs for the large young labour force of the country,” it said.
Mustafizur Rahman, executive director of CPD, said the quality of growth is important. “We need productive growth.”
Published in The Financial Express on Monday, 18 April 2016
Budget loses public trust: CPD
Private think-tank CPD pinpointed gross mismatches between estimates and real spending in recent national budgets which it said led to loss of public trust in budgeting.
Specifically mentioning huge target shortfalls on revenue earning, budget implementation and growth projection, the Centre for Policy Dialogue (CPD) at a press meet in Dhaka Sunday recommended bringing about major ‘qualitative changes’ in the next budget to make it a realistic one.
The CPD economic analysts noted that the recent budgets had yawning differences between budgetary targets and realities on the ground in terms of the revenue receipts, annual development programme (ADP) execution and budget funding.
The original budgets show sharp differences with revised ones and later with actual expenditures and receipts, they said to substantiate their observations on the flip side of budgeting.
Thus, the policy think-tank concluded, budget is losing its trustworthiness. The budget-making process lacks transparency as well, it said.
“It is a big frustration for us that the budget does not match with the ground realities,” said Debapriya Bhattacharya, a distinguished fellow at the CPD.
He pointed out gaps in financing, both domestic and external.
“The income tax receipt is 14-year low in terms of growth [the calculation was based on the first six months of the current fiscal year at 6.8 per cent],” he commented at the meet arranged at the CIRDAP auditorium for releasing its budget recommendations. In its recommendations the centre said that the tax evasion and leakages through illicit financial outflow also have to get priority attention for remedies in the ensuing budget.
The CPD, however, argued that the size of the budget is not a matter of debate rather it should be much widened.
“The budget size might be 20-24 per cent of the GDP from the existing around 17 per cent,” Mr Bhattacharya said.
In its critical view of the financial management the CPD denounced the scams in the financial sectors, including the reserve heist.
CPD research fellow Towfiqul Islam Khan presented the recommendations. He said the quality of a budget depends on the balance between targeted expenditure, income and real spending.
The paper said the BBS provisional growth of GDP as 7.05 was found to be higher than expectation.
Public administration and defence, education, health and social safety-net contributed to the higher service-sector growth which led to such acceleration in GDP growth.
But the CPD sees great challenge for the finance to retain the trend over the next years.
“To my view, the main challenge is to retain it and further expansion of it,” Mr Bhattacharya told the meet.
On the other hand, CPD executive director Dr Mustafizur Rahman said the provisional growth of the economy often does not match with the actual one.
However, the CPD urged the government to set up a statistical commission to validate the macroeconomic correlates.
It noted that the revenue mobilisation is likely to miss the annual target on a large scale, by around Tk 380 billion, from original estimation.
The possibility of mobilisation of more domestic revenues in FY2017 will be closely related to the possibility of the capacity to improve both the quantity and quality of public expenditure, the centre said.
It noted that the people are not gaining from the fall of prices of fuels on the international market.
The CPD stressed the need for transparency about BPC’s actual liabilities, urging the government to ensure that the benefits of the fall in the prices of fuels on the international market go to the people.
“Efforts to mobilise more financial resources to service the expenditure targets have to be underpinned by measures geared towards institutional reforms,” the CPD said.
The measures should include, among others, expansion of the tax base, introduction of a Benami Property Bill, changes in tax procedures for exporters, greater use of ICT-based tax compliance, operationalisation of Transfer Pricing Cell and expanded use of ADR.
Implementation of the speedy financial reporting act also came under focus.
The CPD said the detailed financial accounts of the state-owned organisations should be in place in the budget.
It felt the need for a financial reform commission to provide an objective and in-depth assessment of the current health of the banking sector as well as non-banking financial markets and recommend measures to address the attendant problems and for enhancing performance of financial institutions.
The policy think-tank recommended reform in the statistical sector.
Published in Dhaka Tribune on Monday, 18 April 2016
CPD: Focus on quality budget to retain economic growth
A quality budget is a must for sustaining the economic growth of the country, said Centre for Policy Dialogue (CPD) yesterday.
“The government GDP growth projection of 7.05% for this fiscal year is led by public investment, putting its sustainability at risk in future,” observed CPD at a press conference held at CIRDAP auditoriam in the city.
The upcoming national budget should focus on quality budget and employment generation-led growth for retaining over 7% growth, the think-tank told the press conference organised to present its budget recommendations for the fiscal year 2016-17.
“For a long time, we continue to talk about the quality budget. A gap between budgetary projection and implementation is increasingly growing, which has reached its peak this fiscal year, and because of this, budget loses its credibility,” said Debapriya Bhattacharya, distinguished fellow of CPD.
He continued: “Projection should be on revised budget but not on original budget to make it realistic.” According to the CPD, of the additional GDP growth projection, the government salary hike accounted for 80% and industry and agriculture 20%.
Presenting a keynote paper, CPD research fellow Towfiqul Islam Khan said: “The driving force of GDP growth projection is the public servant’s salary and allowance hike, weakening sustainability of economic growth.”
Actual revenue growth repeatedly missed its target due to lax implementation of rules, lack of tax compliance and weak governance, observed Khan.
He also stated that many planned reforms had fallen behind schedule due to negligence, inertia and failure to recognise the urgency of reforms.
Rejuvenation of private investment has again remained elusive while public investment performance was the weakest in recent years, he said.
“In view of the discussion above, the upcoming budget will need to raise the quality of budgetary and fiscal planning and put emphasis on the needed reforms,” said Khan.
He said current economic growth projections should be reviewed in view of composition of incremental GDP, which is unlikely to lead to high job creation.
According to the keynote paper, if the growth rates of FY2015 (6.55%) and FY2016 (7.05%) are compared, of the extra growth of 0.5 percentage points, 0.4 percentage points is expected to be contributed by the national pay scale revision. “This then draws attention to issues of both quality and sustainability of the GDP growth.”
“Pace of new employment generation also was unlikely to gain momentum in the backdrop of slowdown in private investment,” reads the key-note paper.
In a recent media report that during the last two years, between 2013 and 2015 (July-September), only 6 lakh jobs were added to the Bangladesh economy (annual average being only 3 lakh).
This is a drastic drop from the 13.8 lakh jobs that were created annually (on average) between 2003 and 2013, said the paper.
The nature of recent acceleration of GDP growth suggests that it is largely driven by rise in public salaries, it said.
“It is highly likely that such boost will last for one more year when the second adjustment is made in view of the newly approved government pay scale (allowances). It is crucial that such acceleration in economic growth is accompanied by enhanced private investment and more quality jobs for the large young labour force of the country,” said the paper.
CPD Executive Director Professor Mustafizur Rahman said: “Employment generation is important for quality growth, which will increase people living standard.”
He recommended the government for strengthening national statistical department for data revolution required for implementing SDGs.
CPD Additional Research Director Khondaker Golam Moazzem said private investment was not picking up in line with the rising public investment.
Published in New Age on Monday, 18 April 2016
CPD for bigger-sized budget, quality improvement
The Centre for Policy Dialogue on Sunday advocated a bigger-sized budget for the country and suggested an improvement in the budget structure.
The independent think-tank observed that the current size of the budget was smaller considering the volume of the country’s economy.
It emphasised that improving the budget structure was required for sustaining the higher economic growth rate the government projected for the current fiscal year.
At a press briefing on its recommendations for the next budget in Dhaka, the CPD raised questions over the quality and sustainability of the government-estimated GDP growth at 7.05 per cent for the current fiscal year as the estimated growth was largely driven by rise in the salaries of government employees.
The organisation recommended that the next budget should be in favour of poor, investment, production, employment generation and reform, and conscious of global risks.
It also demanded ensuring transparency in the budget making process.
‘The size of the budget in terms of both income and expenditure should be bigger considering the growing size of the country’s economy,’ said CPD distinguished fellow Debapriya Bhattacharya at the briefing at the CIRDAP auditorium.
It seems that the budget size has increased but it is not large enough compared with the size of the country’s economy, he said.
The current size of budget is around 17 per cent of the country’s GDP (gross domestic product), which still remains smaller compared with that of the similar economies and it can easily reach up to 24 per cent of the GDP, he said.
Terming resource mobilisation as the main problem in raising the budget size, he said the CPD found that around 50 per cent of people having taxable income did not pay income tax in the country.
Regarding the GDP growth, he said that there were inconsistencies between the highest GDP growth (projected) in recent times and some other macroeconomic correlates like income tax collection, job creation and private investment.
‘What kind of situation is this when the economy is set to grow by the highest rate while, in the same year, income tax collection growth experienced a 14-year low, private investment declined and no headway in the pace of employment generation,’ Debapriya said.
In reply to a question, CPD executive director Mustafizur Rahman said that the estimated GDP growth for the current fiscal year might decrease a little bit in the final calculation in line with the revised budget by the end of the year.
Generally, the provisional estimation of the Bangladesh Bureau of Statistics is changed either upward or downward in the final calculation, he said.
‘But the main concern of the growth is its quality and sustainability,’ he said.
So, the government should seek growth in GDP in the productive sectors as salary hike does not create any job and it will not happen every year, he added.
The CPD also emphasised improving the quality of budget structure to reduce the difference between the original budget and its implementation.
The differences between budgetary projections and their implementation have been widening over the years, creating problems in transparency, continuation and trustworthiness in fiscal measures, it said.
The next budget should be more robust by setting the targets based on the revised budget figures instead of the original ones set in the previous year, it said.
The CPD also sought discussions in a transparent way on how the country would make investment and modernise its defence sector in line with its role in UN peacekeeping, its involvement in country’s development activities, disaster management and securing sea boundary.
The organisation also projected that the revenue collection might fall short by Tk 38,000 crore of the target of Tk 2.08 lakh crore.
It also recommended forming financial reforms commission and national statistics review committee for bringing reforms in the areas.
In the next budget, there should be a linkage of NGO finances with the government spending on different social sectors, presentation of detailed financial accounts of the state-owned enterprises, a clear declaration of implementation of the Financial Reporting Act-2015, the CPD said.
CPD research fellow Towfiqul Islam Khan presented the written budget recommendations at the briefing. Its additional research director Khondaker Golam Moazzem also spoke at the programme.
Published in Daily Sun on Monday, 18 April 2016
CPD for quality budget, fiscal planning
Suggests open hearing on BB fund heist
The Centre for Policy Dialogue (CPD) on Sunday said the budget for 2016-17 fiscal must address the emerging internal and external issues by raising the quality of budgetary and fiscal planning through necessary reforms.
The local think tank has identified public expenditure leakages, low revenue growth, lack of tax compliance, weak governance, and low private and public investment as some of the old tensions that might hurt the economy.
CPD made the suggestions in its budget recommendations for the upcoming national budget for 2016-17 fiscal. Emerging issues, including financial and capital market weaknesses, global economic slowdown and recent financial security concerns also pose a threat to the economy, according to CPD’s budget recommendations.
“Budget framework for FY2017 has to be more robust by setting the targets based on more realistic revised budget figures of the elapsing year,” it said.
“What absent is the quality of the budget,” CPD Distinguish Fellow Dr Debapriya Bhattacharya said at a press briefing at Cirdap auditorium while putting forward the recommendations for the upcoming budget.
“The quality of budget plans and implementation is highly indispensable to accommodate high expenditure plans and prevent economy from external risks,” Debapriya said.
A larger budget in all aspects
CPD recommended that the size of the upcoming national budget should be larger both in terms of revenue collection and expenditure targets.
Debapriya said now the size of budget is 17 percent of the country’s GDP, which can be 20-24 percent of GDP in any developing country. He also said the next budget has to be more robust by setting the targets based more on realistic revised budget figures of the outgoing year.
Debapriya said the country’s annual budget is ambitious but it was not ‘much ambitious’ compared to the size of the economy, growth in GDP and the prospect of the economy.
He noted that the budget plans and implementation leaves a big gap gradually, adding that the gap is also rising between revenue plans and outcome and target of foreign assistance and its utilisation.
Noting that some 50 percent of possible taxpayers still remain outside the tax net, he said the government needs to expand the tax base. “The growth of income tax collection is the lowest this year when the GDP growth rate reached a new height,” Debapriya said.
Open hearing on BB fund heist
The think tank suggested the Parliamentary Standing Committee on Finance Ministry to arrange an open hearing over the Bangladesh Bank’s fund heist.
“What is our parliamentary standing committee’s role when Parliament in Philippines opened public hearing on the issue?” Debapriya said in reply to a question at the press briefing.
Robust policy and transparency are priorities
The think-tank also finds absence of pragmatic policy on reforms crucial to management of the country’s financial sector, NGO’s use of foreign finance and local government financing, which together resulting in widening gap between fiscal policy and implementation.
CPD also observed a serious absence of transparency in the government.
“We didn’t see any explanation about the use of Bangladesh Petroleum Corporation’s profits earned from the lower fuel price in international market. Even, till today, there is no announcement of adjusting fuel prices locally though the government is loudly saying about it for last few days,” said Dr Debapriya.
“The defense budget should be fairly discussed. Because, defense budget become a strong part of our economy, since defense get involved in construction of many infrastructure projects, post-disaster recovery service and assisting other agencies,” Dr Debapriya noted.
Earlier, while presenting the budget recommendations, CPD’s research fellow Towfiqul Islam Khan said the current tax-GDP ratio stood only 8.5 percent, which needed to be raised to 14.1 percent by 2020 to attain economic goals as planned in annual budget.
He said the target of budget should be institutional reforms and readiness in adopting external shocks. He said IMF (International Monetary Fund) warned countries across the world of another looming sluggishness amid persistent crisis in Europe, U.S and other region and countries.
“Our exports and remittances can be hurt. We must have readiness to absorb the external shocks; and this initiative must be incorporated in the national budget,” he said.
Taking consideration the overall aspects, Khan said private sector credit growth fell slightly in the immediate past year. “It is the matter of concern that the capital machinery import declines.”
CPD thinks that there is no need to increase the ceiling of tax-free individual income right now. It argues that the government now is facing a huge income shortfall.
Currently, the ratio of revenue collection is 43 percent of potential taxable revenues. It is 65 percent in Uganda and Vietnam.
“Our view is ‘no need for raising the ceiling’ right now,” Khan said.
CPD also recommended establishing a number of commissions are Local Government Finance Commission, statistical commission to validate macroeconomic correlates, Independent Financial Sector Reform Commission.
It also suggested government to rethink on the future of loss-making state-owned enterprises.