Published in The Independent on Monday, 9 June 2014.
Fiscal incentives not enough to stimulate private sector growth
Mirza Azizul Islam tells ERF post budget meeting
Staff Reporter
Merely fiscal incentives will not stimulate the staggering private sector investment, the prime requisite for achieving the proposed 7.3 per cent GDP (Gross Domestic Product) growth in the next fiscal, said former finance adviser to a caretaker government AB Mirza Azizul Islam on Sunday. To stimulate the private sector’s investment in the next fiscal, Islam said, some other basic constraints such as scarcity of land, shortage of power and energy, political instability and uncertainties, and lack of institutional efficiencies have to be addressed and resolved properly.
“But, we did not experience any specific plan or allocation in the proposed budget for addressing these investment constraints,” said the former adviser while addressing a discussion meeting on “Budget for 2014-15: Will it boost growth and investment,” organised by the Economic Reporters’ Forum (ERF) at Jatiya Press Club yesterday.
“There are enough reasons to raise question whether this budget will be supportive for investment and how much it will help achieve the proposed 7.3 percent GDP growth,” also asked the former adviser.
The meeting was attended, among others, by ERF president Sultan Mahmud, founder of Bangladesh Women Chamber of Commerce and Industry Selima Ahmed, former chairman of Bangladesh Securities and Exchange Commission Faruk Ahmed Siddique, additional research director of Centre for Policy Dialogue Khondaker Golam Moazzem, Professor of Economics Department of Dhaka University MA Taslim, research director of Bangladesh Institute of Development Studies (BIDS) Dr Zaid Bakht, Ifad Group director Tashfeen Ahmed and ERF General Secretary Sajjadur Rahman.
In the budget proposal, a number of fiscal incentives, including reduction of supplementary duties on some intermediary industrial raw materials and reduction of corporate tax rate of non-listed companies, have been taken to stimulate the private sector investment, Islam said.
To remove the present stagnancy in private sector investment in next fiscal, only fiscal incentives are not enough, he said adding that rather, the government has to remove some other basic investment constraints.
Besides, the government failed to implement the proposed Annual Development Programmes (ADPs) due to lack of institutional efficiencies, he said adding that institutional efficiency is very much instrumental for successful implementation of the proposed budget.
Only through raising salary, institutional competence will not be increased. Rather, some non-budgetary measures have to be taken, Islam pointed out.
Underscoring the need for proper feasibility study at the time of selecting sites for establishing Special Economic Zones (SEZs), Islam urged the government to select SEZs through conducting discussion with the business people.
Expressing doubt over realization of the proposed Tk 149, 720 crore revenue target and the receipt of proposed foreign aid, Islam said the government will face some difficulty in financing the proposed public expenditure in the next fiscal due to probable shortfalls in NBR’s revenue and foreign aid.
As a result, the government will have to borrow more from the banking sector to meet the public expenditure, which will be resulted in pushing the inflation further up, he added.
BIDS research director Zaid Bakht said, “Although there have been fiscal incentives for boosting investment, the basic issues of improving overall investment climate including electricity, gas and infrastructure issues are not well-attended in the proposed budget.”
In the proposed budget, many unapproved projects have been including in the list of ADPs based on political influences, he said adding that there is lack of credibility on the quality of public expenditures.
“If the government fails to improve the quality and implementation of the undertaken projects, the targets of both private sector investment and the GDP growth rate will not be achieved,” Bakht noted. “At the end of the day, private investment will be affected unless there is a conducive political environment,” he said.
The existing political stability must have to sustain and the uncertainty which still prevails need to be resolved to create a business-friendly political environment, observed the economist.
Otherwise, he said, fiscal incentives taken in the budget will not be able to ensure the target of achieving 7.3 per cent GDP growth. If entrepreneurs go for fresh investments enjoying the fiscal incentives proposed in the budget, they will face various problems in reality, said Golam Moazzem. He said that there was no specific outlines how gas, electricity, land and other infrastructures will be provided for the investors.
“So, the target for growth and investment is ambitious,” the CPD economist said mentioning that the country needs investment worth about Tk 75,000 crore within the next one year, which never happened in the past.
BSEC former chairman Faruq Ahmed said, “We’re observing with concern that higher targets are being set. As a result, a credibility gap is prevailing. If it goes on, people will take budget lightly.”
Terming the proposed target of keeping the inflation rate within 6 per cent in the next fiscal as unrealistic, Professor MA Taslim said there will be a possibility of energy price hike and inflation of food prices in the international markets in the next fiscal.
The government said that the political instability had made the private sector investment sluggish, he said defying the government’s claim.
The growth of private sector investment has been experiencing the downward trend from the fiscal year 2010-11, when there was no political instability, he said.
He pointed out that the private sector investment became stagnant due to frequent financial scams, including capital market crash, Hallmark loan scandal and fraudulent activities by Destiny and UniPay.