Immediate comments from CPD Researchers on declaration of FY2015 National Budget on Thursday, 5 June 2014.
View more press reports published on Friday, 6 June 2014.
Published in The Daily Star
Hard to attain growth target
Say economists
Sajjadur Rahman And Md Fazlur Rahman
The government faces an uphill task of achieving 7.3 percent economic growth in the next fiscal year given the dismal investment scenario, ambitious revenue generation target and lack of reforms to generate higher GDP expansion, economists said yesterday.
“The GDP growth might be a very desirable target, but the budget structure and the associated measures don’t generate confidence that this number is achievable,” Debapriya Bhattacharya, a noted macroeconomist and public policy analyst, told The Daily Star.
In order to achieve the GDP growth target, the country would need to have around 30 to 33 percent investment-GDP ratio, up from around 28 percent now.
Only 7-8 percent of the required investment-GDP ratio would come from the public sector, meaning the private sector would have to chip in with 25 percent, he said.
Private investment now stands at 21 percent of GDP as per the latest data from the Bangladesh Bureau of Statistics.
“This implies that we will need an extra four percentage points of incremental investment from the private sector. That is a highly ambitious number and has hardly ever been achieved in the nation’s history,” said Bhattacharya, the distinguished fellow of the Centre for Policy Dialogue (CPD), a leading think-tank.
While the budget is providing a wide range of tax concessions, tax rebates, harmonisation of tariff structures and cuts in supplementary duties, it would still not be enough to generate the desired levels of private investment.
A much more rigorous implementation of a large number of reform measures are needed to attain the 7.3 percent growth, he said.
The reforms will not only be in the National Board of Revenue and in implementation of the Annual Development Programme (ADP), but also in areas such as management of state-run enterprises and banks, local government financing and development administration.
“I am disappointed to see no such rigorous measures propagated in the budget.”
The noted economist said the investment in infrastructure would not immediately help the private sector, provide necessary incentives to new investors and reduce the transaction costs for current investors.
He said many of the fiscal measures taken by the budget are quite logical and practical in nature, and one would feel comfortable with the tax measures.
“But what is not immediately evident is that how much revenue will be lost because of these concessions and how much will be gained.”
Bhattacharya went on to express reservations about the deficit financing, as it will rely on higher domestic resources, mainly banks.
“What is spectacular is that the budget expects a gross inflow of $4 billion in foreign aid in the next fiscal year. Bangladesh has possibly never received that amount of foreign aid in its history.”
On 6 percent inflation target, the CPD expert said the economy will heat up if the announced high-profile infrastructure projects get the jump-start this year.
“It will be difficult to energise investment and contain inflation at the same time. Maintaining both would be quite a challenge.”
He also touched upon the issue of amnesty to black money. “The budget does not specifically mention anything about it, but it seems the old provision continues. We are on principle against it.”
“I think that it will not be possible to implement the budget,” AB Mirza Azizul Islam, a former finance adviser, told reporters, while touting the budget deficit to become acute in the next fiscal year.
“It will not be possible to meet up the deficit financing in reality. Besides, there is lack of transparency and administrative skill, integrity and honesty in implementing the development budget.”
Mustafa K Mujeri, director general of Bangladesh Institute of Development Studies, said while the budget is getting bigger every year in line with the demand, the problem of implementation continues.
“I don’t see any improvement in the capacities of the ministries and agencies relating to the implementation of budget. The problem will get acute unless we resolve the capacity constraint.”
On the barren investment scenario in the country, the economist said determined effort needs to be taken to regain the confidence of investors.
Akbar Ali Khan, a former caretaker government adviser, said the revenue generation target is highly ambitious from one point because it is large in terms of number. “But it is not that large in terms of GDP.”
“It is not clear to us whether the revenue generation target will be achieved. If it is not achieved the budget deficit will grow further, which will not bring any good to the economy.”
He said a number of big projects have been taken up for implementation with domestic financing.
“Those projects will not bring any immediate yields. If we don’t get immediate benefits, it may affect inflation.”
Prof Mohammed Farashuddin, a former governor of the central bank, too thinks achieving the 7.3 percent GDP growth would be no easy task. “But, it is possible.”
To achieve the targeted economic growth, the government would have to accelerate private investment, raise total investment and make investment more productive, he said.
The reduction in allocation for health care and education system from the ADP could have a negative effect though, according to Farashuddin.
“If we can manage alternative financing for the Padma bridge project, some of the money earmarked for the project could go to the health and education sectors.”
Published in Daily Sun
Mixed reaction from economists, business leaders
Ahammad Parvej Khan and Hasibul Aman
Country’s leading economists and trade leaders made a mixed reaction over the proposed national budget for the 2014-15 fiscal year.
Economists termed the budget as unrealistic and ambitious while business leaders observed that it is business-friendly one, particularly most favorable for the RMG industry.
With a view to giving a big boost to economy, Finance Minister AMA Muhith Thursday placed Tk 2,50,506 crore budget in parliament, setting a target of 7.3 percent GDP growth with a revenue-earning target of Tk 1,82,954 crore.
The budgetary targets might not be achieved, some economists said in their immediate reactions, terming some targets “unrealistic”.
Spurring the much-needed private investments would be a major challenge for implementing the budget, especially achieving the targeted 7.3 percent growth, they observed.
Given the current revenue mobilisation scenario, the set revenue-earning target is likely to falter, which could further widen budget deficit and ultimately squeeze the scope of private credit and private investment, putting huge pressure on economy as well as shooting up inflation, said economic analysts.
“I don’t see the proposed budget is not worthy of implementation because the set targets seemed not to be realistic,” said Dr AB Mirza Aziz, former economic adviser to a caretaker government.
According to him, all the targets of revenue earning, annual development plan, and external resource mobilisation were “unrealistic.”
He explained achieving a 7.3 percent growth would require investments of 28 or 29 percent of GDP, where the private sector has to contribute 24 percent of annual output, which might not be possible.
He added that revenue earnings would surely undershoot the target, which could shot up government’s bank borrowing as well as inflationary pressures.
He, however, said it was hard to predict at this stage whether inflation would hike further as lowering of some supplementary duties has been proposed that could also ease inflationary pressure.
Commenting on the budget, executive director of the Centre for Policy Dialogue (CPD) Prof Mustafizur Rahman said the targeted growth would require huge private investments. “The required jump in private investments would be very difficult,” he remarked.
He stressed on institutional strengthening, creating conducive environment for enhancing investments and quality public expenditure for implementing the proposed budget.
As some taxes and duties lowering has been proposed, earning the targeted revenues would require huge “tax efforts,” he said.
About narrowing budget deficit with foreign financing, Prof Rahman said getting foreign funds is not a problem but their utilisation lacks quality because of poor implementation capacity.
BIDS research director, and also a renowned economist, Dr Zaid Bakht said, “It was very usual that the government would go for an expansionary budget eying to jump start the economy.”
But he also thinks that achieving a 7.3 percent growth may not be possible as it involves huge private investments, for which he did not see many bold steps in the budget.
The flagging private investment situation will also continue in the next fiscal year because the problems hindering investments especially those linked to infrastructures will also continue in the FY 2014-15.
He predicted that the growth could be at best 6.2 percent in FY15, given the prospect of investments.
However, he do not consider the revenue earning target ambitious as 16 percent revenue growth has been projected in the budget over the last year.
But the growth would be much higher at 30 percent, if the current fiscal year’s revised revenue earning target of Tk 1.40 lakh is not achieved, which could put pressure in the coming days, he observed.
He said revenue earnings and implementing big projects under the ADP would be very critical for the budget implementation, also stressing on growth supported expenditure and enhancing implementation capabilities.
Federation of Bangladesh Chamber of Commerce and Commerce (FBCCI) President Qazi Akram Hossain termed the budget as business-friendly.
Admitting that it has been a big budget, Akram said that if there is no high ambition, achieving target becomes difficult.
Stressing the need for having package VAT for the small traders, Qazi Akram said, “It’s very important for shopkeepers and there had a 3 to 4 percent of blanket that has to be withdrawn.”
He said in achieving the target of revenue collection of Tk 149,720 crore, the NBR officials has be transparent and accountable, they must suppress rather should be public oriented in collecting revenue from people.
In many countries the people want to pay the income tax but get no chance whereas in our country people have no tendency to pay tax because of various complexities, so the NBR officials has to act in turning people’s habit to pay tax through their behaviors and making easy process.
President of Bangladesh Garments Manufacturers and Exporters Association (BGMEA) Atiq Islam termed the budget as RMG-friendly one.
“Although it will be challenging to implement such big volume of budget but I must say it’s certainly a business-friendly and RMG friendly budget”, Atiq said.
He also welcomed the industrial decentralization policy undertaken in the budget.
Atique said owners of the risky RMG factory owners will be benefited much as the government has made the import of pre-fabricated structure materials duty-free.
Former President of Dhaka Chamber of Commerce and Industries, (DCCI), Asif Inrahim told daily sun that reducing the rate of corporate tax by 2.50 percent is a positive move this will inspire corporate tax payers much more in further investment.
He said, but addition of tax on mobile phones will fall impact on development of telecommunication network across the country.
Asif Ibrahim said the ambition of attaining 7.3 percent of GDP growth will certainly require boosting investment and facilitating the trade and commercial activities so that the sector may keep expected contribution in the growth.
Passing his reaction over the budget, vice-president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Md. Hatem thanked the government for being highly cordial regarding the RMG sector.
“The government has made the import of fire safety and building safety equipments duty free for the sustainable development of the sector which was a burning necessity for this sector, at the sector responding to our appeal the government has also turned the import of steel fabricated structure materials duty free so that the owners of closed garments factories can shift their factories to makeshift building made by steel fabricated structure until trhey can build another complete building”, Hatem said.
Hatem, however, expressed his concern over the proposal for imposing 1 percent environment surcharge.
Founder President of Bangladesh Women Chamber of Commerce & Industry (BWCCI) Selima Ahmed congratulated the government on announcing the continuation of 100 crores taka as grant for women entrepreneurs in the national budget.
“We also welcomed the announcement to extend the credit facilities to women entrepreneurs and believe that the proposed budget for the fiscal year will economically empower women entrepreneurs more and accelerate the overall development of our country,” she added.
She recommended introducing tax-free income limit up to Tk. 350,000 for women, serving priority based quota for women entrepreneurs in proposed economic zones, facilitating free registration for women entrepreneurs in international trade fairs, introducing separate women entrepreneurship development policy and introducing single digit interest rate for women entrepreneurs against bank loan to be incorporated in the revised budget 2014-15.
Published in The Independent
Targets tough to achieve
Warn economists
Several economists have observed that the government will face manifold challenges in achieving the different targets set in the proposed budget. Former financial adviser to the caretaker government, Dr ABM Mirza Azizul Islam (Dr Mirza Aziz), said, “The government has set a revenue target of Tk. 1,49,720 crore for the next fiscal, which would be rather tough to achieve.” “The revenue target for NBR in FY 2014–15 has been set at Tk. 1,49,720 crore,” Muhith said in his budget speech. Of the total target, he said, 38.40 per cent will come from income tax, 37.74 per cent from value added tax (VAT) and the remaining 23.86 per cent from customs duty.
The finance minister added that Tk. 25,480 crore will come from income tax, Tk. 31,120 crore from corporate tax, Tk. 1,150 crore from excise duty, Tk. 16,850 crore from import VAT, Tk. 37,570 crore from local VAT and Tk. 7 crore from turnover tax.
Muhith also mentioned that customs duty will contribute an amount of Tk. 14,580 crore, supplementary import duty Tk. 4,275 crore, and local supplementary duty Tk. 17,785 crore.
About the GDP target, set at 7.3 per cent, Dr Mirza Aziz pointed out that it was quite a challenge for the government as private sector investment was low. However, he observed that public investment is increasing day by day, which would encourage the private sector.
Centre for Policy Dialogue (CPD) executive director Prof. Mustafizur Rahman said total investment must increase to 34 per cent of the gross domestic product (GDP). At present, the rate of public investment remains at 7 to 8 per cent, so the private sector’s investment has to be increased to 26 per cent for achieving the GDP growth target.
About the budget deficit, he pointed out that the government has proposed meeting a large portion of the deficit from banking sources. He suggested paying attention to foreign aid for managing the deficit as Bangladesh has goodwill for repaying debt. The government should place emphasis on utilisation of foreign aid for managing the deficit, he added.
The CPD’s executive director welcomed the proposal for different reforms, terming them a good sign for developing the administration. Without reforms, such a big development budget cannot be implemented, Dr Mustafizur Rahman pointed out. He also described the proposal for incentives to the small and medium entrepreneurs (SMEs) as good.
Former Bangladesh Bank governor Dr Mohammed Farashuddin said, “A five per cent deficit in the budget is usual for a developing country.”
“But it is important to know how to manage the deficit. If the government depends on local banking sources, it will affect private sector investment,” he said, adding, “The government should be careful about deficit management so that the private sector does not face challenges.”
Regarding undeclared money, the former BB governor noted that the provision for a 10 per cent penalty for legalising it should be for a fixed period of time, adding that the government should monitor it without any questions.
He expressed his appreciation of the fact that the lion’s share of the budget has been allotted to the transport sector as public investment in infrastructure encourages the private sector to go in for further investment.
Regarding allocations for the Padma Multipurpose Bridge (PMB) project and the four-lane Dhaka-Chittagong highway, he said these were vital for the nation, but opined that it would have been better if the government could tap funds from foreign sources instead of local ones.
The transport sector has received the highest priority in the budget, with Tk. 8,100 crore being allocated for the construction of the PMB project.
Farashuddin said the allocation to the transportation sector would curtail the shares of the education and health sectors. The government should try to mobilise funds for the Padma bridge so that the budgetary allocations for health and education can be enhanced.
Published in The Observer
Businessmen hail, economists cautious
Staff Correspondent
Industrial entrepreneurs and business leaders have hailed the proposed budget for 2014-15 financial year, but the economic analysts are cautious in their opinion as they believe the big budget tough to implement.
Economists of the independent think tank Centre for Policy Dialogue (CPD) in their instant reaction said it would be challenging
to earn the revenue target set in the proposed budget.
Keeping of consistency in income and expenditure would be the main challenge of the budget, said Dr Debapriya Bhattacharya, senior fellow of CPD.
“The proposed budgetary measures are logical though the budget appears ambitious,” he said. The economist was talking to journalists in his office in Dhanmondi to express his instant reaction to the proposed budget.
Executive director of CPD Prof Mustafizur Rahman stressed on applying information technology and improving institutional capacity for ensuring the revenues earning target.
He also underscored the importance of expanding tax net-both for direct and indirect taxes- as the finance minister has proposed slashing tax rate in different sectors.
“The budget is apparel industry friendly,” said Md Atiqul Islam, president of Bangladesh Garments Manufacturers and Exporters Association (BGMEA). He thanked for different incentives proposed in the budget, which would help flourish the garment sector.
Abdul Awal Mintu, former president of the Federation of Bangladesh Chamber of Commerce and Industry (FBCCI) said that target set in the budget would be impossible to implement.
“The government failed to reach its targeted revenue income in the outgoing fiscal year. It has no ability to earn the revenue, as stipulated in the proposed budget for new fiscal,” Mintu, also the adviser of BNP chairperson Khaleda Zia said.
Published in News Today
Reactions
Implementation big challenge: FBCCI
Economists and business leaders on Thursday expressed mixed reaction over the budget proposal for the fiscal 2014-2015 saying that the targeted growth of 7.3 is achievable, reports BSS.
They hailed the proposed budget but said attracting both local and foreign investment and implementation of the big budget outlay would be challenge for the government. Finance Minister AMA Muhith on Thursday placed the annual budget of Taka 250,506 crore for fiscal 2014-15 at the parliament this afternoon.
In a reaction to the budget proposal, Executive Director of Centre for Policy Dialogue (CPD) Professor Mustafizur Rahman said achieving the growth would be a challenge for the government. He favoured inclusion of information technology in the government strategies to attain the higher revenue target. Prof Mustafiz said although the targeted 7.3 growth is ambitious, the steps favoured in the budget proposal to achieve the target are rational.
The economist, however, expressed disappointment over the strategies to attract investment at individual level. Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), at a budget reaction, today praised the government for proposing a pro-people and time-befitting budget. Mir Nasir Hossain, a former FBCCI president, said the government should take adequate steps to lower bank interest rates to help grow trade and commerce in the country. He also stressed the need for removing barriers to investment for achieving higher growth.
Anu Mohammad, an economist, said Bangladesh will go a long way in terms of economic prosperity if proper steps are taken to utilize the hard-earn money of expatriate Bangladeshis. President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) M Atiqul Islam described the government as garment-friendly one and said the budget proposal clearly indicates that the government is with the industry. He hailed the government for exemption of import duty for some raw materials of garment industry. This duty waiver will encourage garment owners to set up compliant factories further, said BGMEA chief. “The budget will help Bangladesh overcome from the image crisis the country faced after the Rana plaza disaster,” said Mohammad Hatem, acting President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).