Press reports on the media briefing on Recommendations for the National Budget FY2014-15, held at the Brac Centre Inn on Sunday, 4 May 2014.
For all press reports published on Monday, 5 May 2014, click here [pdf ~ 6.9 MB]
Published in Dhaka Tribune
CPD: Stimulating investment biggest challenge to budget
Tribune Report
It said investment that remained sluggish over the years is yet to pick up after the election due to unfavorable business environment
Measures to boost stagnant investment will be the biggest challenge amid growing concerns over prevailing insecurity of individuals and property in the country, Center for Policy Dialogue (CPD) said yesterday.
It said investment that remained sluggish over the years is yet to pick up after the election due to unfavorable business environment, as the economy moved from the phase of political unrest to the phase of political uncertainty.
The local research think tank made the observations at a press briefing on budget recommendations for fiscal 2014-15 in Dhaka.
“Individual security is now under threat, further affecting already stagnant investment,” said CPD distinguished fellow Debapriya Bhattacharya, pointing fingers at the recently surging abduction incidents in the country.
“Under such situation, there are possible chances for capital flights, creating difficulties in the budget financing,” he said.
The wheels of existing industries restarted after post-poll period because of seemingly easiness in the political field, but uncertainty and uneasiness still hunted mid-term big investment, he said.
“Fundamentally, the prevailing condition are unlikely to be removed until a participatory political process is not brought back for holding a credible election,” said CPD distinguished fellow.
Terming the government’s sixth five-year plan for the development, he said the plan has become impractical to implement considering the existing economic reality. “Now, it is time to reevaluate the plan.”
CPD Executive Director Prof Mustafizur Rahman said only incentives cannot accelerate investment growth, increase of qualitative and quantitative investment should be taken into account. “Building up institutional capacity and good governance is also pre-requisite to achieve the desired growth.”
CPD Research Director Fahmid Khatun presented a paper on the budget proposals and said, along with economic factors, non-economic ones also play an equally critical role in contributing to socio-economic development of Bangladesh.
“Traditional non-economic factors – weak implementation, oversight and reforms capacities – underpin social and political environment, indirectly affecting the macroeconomic performance,” she said.
Besides traditional non-economic factors, new issues have emerged, she said, adding that new dimensions have been added by the continuation of democratic disquiet in the backdrop of the recent non-participatory national elections. “This protracted political uncertainty is definitely undercutting investor confidence in the short if not medium term.”
Highlighting present macroeconomic scenario, she said it is ‘disquieting’ and the looming uncertainties afflicting business and investment outlook has continued to persist with adverse implications for performance indicators.
The key note paper noted that the next budget should go for supportive fiscal measures to create an enabling business environment towards enhanced production and higher investment.
The CPD recommended giving special incentives for non-RMG export-oriented industries to improve their competitiveness in export market, allowing nationalised commercial banks to mobilise the required capital from the capital market by off-loading shares and increase of export development fund from the existing of Tk120 crore to support export-oriented industries.
It said the government needs to come out with an effective exit plan for the quick rental plans. A total of 16 power plants with a total capacity of more than 1,400 megawatt were set to expire by 2015.
It said annual development programme (ADP) allocation for the development of railway sector needs to be increased and the government may consider an upwards revision of the exemption limit for personal income tax to Tk300,000.
About the corporate tax it said the demand for business community for lowering the corporate tax rates on the grounds that it is high compared to other competing countries of Asia is not true. “The average corporate tax rate of Bangladesh is one of the lowest in South Asia.”
The government should go for a number of reform measures targeting public sector enterprises and organisations to improve their operational efficiency and competitive practices, it said.
“For example, the board of investment should be reorganised appropriately with a view to transform it into an effective investment promotion agency,” said Fahmida.
CPD also proposed enhancing the profile and capacity of the Implementation Monitoring and Evaluation Division (IMED) so that it can deploy modern processes and techniques while monitoring the implementation of development projects.
Published in The Financial Express
Security concern a major threat to fresh investment, says CPD
FE Report
The Centre for Policy Dialogue (CPD) aired growing concern over security of people and assets Sunday saying this has now emerged as a major threat to fresh investment in the country.
Raising its voice against incidents of recent abductions, at a press briefing in the city CPD Distinguished Fellow Dr Debapriya Bhattacharya said the state of insecurity is affecting investors’ confidence in undertaking new investment plans.
He said such type of insecurity both for people and assets will affect the aggregate consumption and savings significantly.
He cautioned that under such type of circumstances there are possible chances for capital flight.
He said budget financing will also face risks if the prevailing situation continues.
He also said the country will not get rid of the prevailing economic concern unless it gets back to a participatory political and electoral process.
“This will be necessary to provide confidence to the investors,” he added.
Dr Bhattacharya was speaking at a press briefing organised by the CPD to unveil its budget recommendations for fiscal year (FY) 2014-15.
Research Director of the CPD Dr Fahmida Khatun presented paper on the proposals for the upcoming national budget.
CPD Executive Director Prof Mustafizur Rahman was moderator at the briefing.
Dr Bhattacharya said stimulating investment by overcoming the stagnation will be the key challenge for the next budget.
He said revenue mobilisation that the NBR (National Board of Revenue) envisaged will also be another key challenge.
He said the government should now review its different estimates undertaken in the sixth five-year plan.
He said investment must be raised up to 30 per cent of GDP (Gross Domestic Product) to attain different projections.
“We don’t find any reason for a big jump in investment and the economic growth, so the projections under the sixth five-year plan will not be achieved,” said Bhattacharya.
This is the right time to review the estimates of the sixth five-year plan and prepare new estimates under the existing economic reality, he noted.
While presenting proposals for the upcoming national budget, Dr Fahmida Khatun said the next budget should go for supportive fiscal measures to create an enabling business environment towards enhanced production and higher investment.
She said the upcoming budget may consider expansion of subsidised credit facility for domestic market-oriented small and medium enterprises (SMEs) in order to help them recover their losses due to political turmoil in 2013.
She said special incentives for non-RMG (readymade garment) export-oriented industries will improve their competitiveness in the export market.
She said the government may consider allowing nationalised commercial banks to mobilise the required capital from the capital market by off-loading shares.She said the export development fund needs to be increased further from the existing balance of Tk 1.2 billion in order to support export-oriented industries.
She said the government needs to come out with an effective exit plan for the quick rental power plants. Agreements of some 16 power plants with a total capacity of more than 1,400 megawatt were set to expire by 2015. She noted that annual development programme (ADP) allocation for the development of the railway sector needs to be increased.
She said the government may consider an upward revision of the exemption limit for personal income tax to Tk 300,000.
She said the demand of the business community for lowering the corporate tax rates on the grounds that it is high compared to other competing countries of Asia is not correct.
“The average corporate tax rate of Bangladesh is one of the lowest in South Asia,” she said.
She said the government should not make an upward revision of tariffs on gas, compressed natural gas (CNG) and other public utilities on the grounds of reducing overall subsidy.
Rather, she suggested that the power sector should target reduction of operational inefficiency in electricity generation and distribution.
She said the government should go for a number of reform measures targeting public sector enterprises and organisations with a view to improving their operational efficiency and competitive practices.
“For example, the Board of Investment (BoI) should be reorganised appropriately with a view to transforming it into an effective investment promotion agency,” she said.
She said the government should enforce the mandatory packaging act for the selected agricultural products to expand the domestic market for the jute sacks and other jute products against the backdrop of the decline in exports.
CPD proposed enhancing the profile and capacity of the Implementation Monitoring and Evaluation Division (IMED) so that it can deploy modern processes and techniques while monitoring the implementation of development projects.
The CPD also said the government should consider forming a taskforce to spearhead the adoption of pending reform measures, including the adoption of the Civil Service Act.
Additional Research Director Dr Khondaker Golam Moazzem and Senior Research Fellow Towfiqul Islam Khan and other researchers joined the function.
Published in The Daily Star
Lack of security shakes investor confidence
CPD says economic concerns to remain unless participatory political process is restored
Staff Correspondent
The country will not get over the prevailing economic concerns unless a participatory political and electoral environment returns, the Centre for Policy Dialogue (CPD) said yesterday.
Some recent non-economic concerns like security of assets and personal lives have further shaken investors’ confidence, which prompted them to shelve their fresh investment and business expansion plans, the think-tank said at a media briefing on its budget recommendations for fiscal 2014-15 at Brac Centre Inn in the capital.
The observations were made on the basis of an analysis of the economic indicators that had been found to be on a declining trend after the January 5 election.
“Concerns over the economy will not go unless the country sees return of participatory political and electoral process,” Debapriya Bhattacharya, distinguished fellow of CPD, told reporters.
These concerns will have a negative impact on domestic savings and encourage capital flight out of the country, thus creating fund shortage for the upcoming budget.
The economy did not turn around after the national election, Debapriya said. The growth in revenue income, exports, private credit, remittances and foreign aid are all on a declining trend. Import of capital machinery, which increased for some time, has now gone into negative territory, he added.
Economic growth will slow for the third consecutive year. Surprisingly, private investment, which is the engine of Bangladesh’s consistent growth, declined by 1 percentage point this year, Debapriya said.
Only some productions that were disrupted by last year’s political turmoil have resumed after the election, he added.
Fahmida Khatun, research director of CPD, presented a paper on the overall economy at the programme addressed by Prof Mustafizur Rahman, executive director of CPD.
“Investors are yet to regain their confidence and so the country has been facing some sort of stagnation of investments,” Prof Mustafiz said.
Against the backdrop of the present economic and political condition, CPD placed its budget proposals for fiscal 2014-15, focusing on five key issues — assessment of macroeconomic developments in the outgoing year and recommendations for the upcoming year, reviewing the investment situation and proposals, fiscal budgetary recommendations relating to rural economy, social protection and non-economic issues.
On the macroeconomic trends, the think-tank said the looming uncertainties afflicting business and investment outlook had continued to persist with adverse implications for major indicators.
During the third quarter of the present fiscal year, export grew by only 3.9 percent, while the three quarters’ average growth rate is 12 percent.
Similarly, revenue and remittance have also witnessed a slowdown in growth in recent months. Private sector credit growth went down to just 10.7 percent in February and capital machinery import was negative by 1.4 percent between January and February.
Implementation rate of the annual development programme during the third quarter was lower than that of the same period in the previous year.
On the financing of the budget, CPD observed that the government had continued to rely on domestic sources. National savings instruments have helped a lot in this regard, it said, adding the stagnant investment situation forced people to invest in savings certificates.
It is anticipated that the national budget for FY 15 will face a daunting task of adding momentum to the country’s economy, CPD said. Fiscal management will also be a very difficult task for the government, it said.
The think-tank, however, said inflation remained close to the target and balance of payments was in a comfort zone. The fiscal deficit will also remain within the target.
Responding to a query, Debapriya said CPD always opposed amnesty on black money. “Allowing black money hurts the honest taxpayers.”
Published in The Daily Star
CPD opposes plans for corporate tax cuts
Star Business Report
The Centre for Policy Dialogue has expressed strong reservations about the government’s plan to lower corporate tax to boost private investment, saying the move would not have an adequate positive impact.
“The demand of the business community for lowering the corporate tax rates calls for close examination and a detailed analysis,” Fahmida Khatun, research director of CPD, said at a press conference yesterday to unveil the think-tank’s set of proposals for the upcoming budget.
The corporate tax rate in Bangladesh now ranges from 27.5 percent to 45 percent, and the finance minister and the chairman of the National Board of Revenue have already indicated that it would be lowered in the budget for fiscal 2014-15.
The logic of lowering the corporate tax rate on the ground that it is very high compared to other competing countries in Asia is not correct, CPD said.
The average corporate tax rate in Bangladesh is one of the lowest in South Asia, which is close to the average corporate tax of Southeast Asian countries, according to the think-tank.
“The argument that a lowering of the corporate tax will have a positive impact on private investment is not robust,” Khatun said.
In the backdrop of overt dependence on debt-based financing for investment by the corporate sector, a reduction of corporate tax rate may not have an adequate positive impact on investment.
If supportive measures such as a business-friendly environment and supportive infrastructure are not put in place, then an increasing investible surplus through lowering of corporate tax rate will likely have only a limited impact on investment, according to CPD.
The think-tank also placed several proposals for the next national budget, which if materialised will result in “higher” growth.
To improve the investment situation, the government may consider a number of fiscal measures such as expansion of subsidised credit facility for domestic market-oriented SMEs to help them recover their losses due to political turmoil, special incentives for export-oriented industries other than garments to improve their competitiveness and so on.
The Export Development Fund needs to be increased further from the existing balance of Tk 120 crore to support export-oriented industries. Tax holiday privileges provided to selected sectors need to be assessed from an efficiency point of view: whether it will be more preferable to go for selected ‘strategically’ and ‘potentially’ important sectors.
CPD said the government may also consider a number of fiscal measures for a set of targeted industries.
For instance, an increase in the exemption limit for VAT for SMEs from the existing Tk 80 lakh to Tk 1 crore, reduction of import duty on raw materials for the furniture and pharmaceutical sectors and withdrawal of import duty on networking machinery and data transmission link.
About public investment, the government should strengthen its monitoring activities to ensure speedy implementation of fast-tracked projects like the Dhaka-Chittagong four-lane highway, eleven large-scale power plants, expansion of gas connection in the industrial zones, completion of the Leather City in Savar and relocation of factories from Hazaribagh.
CPD found that there is a significant gap between the grower and retail level prices of agricultural produces. In order to ensure a fair price, it recommended setting up an agriculture price commission with adequate resource allocation.
A food safety authority should be set up to implement food safety rules and regulations.
CPD said the government should establish information technology centres across rural areas with funds from development partners.
These centres should have computers with high-speed internet connection and be openly accessible to the rural population.
The think-tank also called for an increase in overall allocation to social protection programmes.
It said a number of studies indicate that less than half of the eligible poor are receiving social benefit in Bangladesh. In view of this, the number of beneficiaries will need to be increased.
The administration of social safety net schemes needs to be rationalised and consolidated as well.
Published in The Independent
Participatory democracy must to regain investors’ confidence: CPD
Staff Reporter
The civil society think-tank Centre for Policy Dialogue (CPD) yesterday said investors’ confidence will not be restored unless the country returns to a participatory democratic polity. Nowadays, three key non-economic concerns – policy continuation, security of assets and lives – are negatively affecting the confidence of investors and are also forcing them to refrain from making big investments, the think-tank came up with the observations at a media briefing on its budget recommendations for the 2014-15 fiscal year at BRAC Inn Centre in the capital.
Debapriya Bhattacharya, distinguished fellow of CPD, said many investors thought that normalcy will return to the country’s trade and investment sector, as well as the political arena, after the elections. But they were proved wrong as many economic indicators, including remittance, export, import, credit flows to the private sector and foreign aid have showed a downward trend in the last couple of months, said Bhattacharya.
Although integrated export and import increased in the last two months, the import of capital machinery is considerably low, he pointed out. After the elections, the economy started rolling again as the country’s production capacity became active due to the restoration of supply chain system and temporary relief from pre-election violence, he added.
But the uncertainties and frustration among the investors in making mid-term big investments remained mainly due to uncertainty of policy alteration with government change and security of assets and lives, he said. “If these three non-economic concerns prevail, uncertainty will increase not only in investments, but also in internal savings and consumption framework,” he added.
Besides, the tendency of money laundering will also increase, he said, adding that financing the next budget (2014-15) will, too, be difficult.
He said, “The prevailing economic concerns will not be removed unless it gets back on a participatory and electoral system.”
Bhattacharya also said that the big challenge of the next budget is to increase the flow of investment by removing the prevailing stagnancy in investment flows. Preparing the next budget with a concrete financial framework is the second challenge, he added.
Besides, the country may experience a deviation from maintaining continuous 6 per cent GDP (Gross Domestic Product) growth rate this year mainly due to the stagnant situation in both public and private investment flows, he observed.
The press briefing was attended, among others, by Prof Mustafizur Rahman, executive director of CPD, Khaleda Akhter, senior research associate of CPD, and Towfiqul Islam Khan, senior research fellow of CPD.
Published in The Independent
CPD for rationalising tax incentive structure
Staff Reporter
It says no to legalising undisclosed money
The Centre for Policy Dialogue (CPD) at a pre-budget briefing on Sunday highlighted the urgency for rationalise the existing tax incentive structure to ensure equal distribution of wealth among all stakeholders.
To ensure “distributive justice”, the civil society think tank also urged the government to reset and rationalise the tax incentive structure in the upcoming budget. The government, the CPD said, must have a plan to phase out the incentives gradually. It also suggested the government to stay away from continuing the provision for legalising undisclosed money or wealth in any form, and requested it to consider phasing out the tax holiday while taking into account the renewal of rental power plants.
“We had always opposed the provision of legalising any type of illegal income and facilities. We’re opposing such provision this time, too,” said CPD distinguished fellow Dr Debapriya Bhattacharya at a media briefing on CPD budget recommendations for the next fiscal (2014-15) BRAC Centre Inn in the city.
To this extent, the National Board of Revenue needs to be vigilant to curb tax evasion from trade mispricing, re-invoicing and misdeclaration, it said, and suggested that a strong and well-reputed specialised taskforce should be set up to deal with this issue appropriately.
“It is not possible to meet the increased budgetary demands for Annual Development Programmes in the next fiscal from internal sources,” said Debapriya stressing more emphasis on raising the availability of internal resources. Without proper availability of international resources, formulating extended budget and raising investment flows will not be possible, he added. The distinguished fellow also opposed NBR’s decision to reduce corporate tax.
Dr Fahmida Khatun, research director of CPD, in her keynote paper presentation, placed several budget recommendations for the next fiscal year, highlighting the present economic condition.
In the budget proposals, the think-tank said the national budget for FY 2014-15 will face a daunting task in instilling momentum in the performance of the country’s economy. The stabilised state of the macroeconomic situation will help the government to undertake the needed countercyclical policies, the CPD said, adding that the recent slowdown will make the task challenging.
Thus, it recommended that the fiscal policy package for 2014-15 needs to go for consolidation of public expenditure with prudent prioritisation, intensification of revenue mobilisation drive from the perspective of both structure of fiscal measures, enforcement of related measures and paying attention to financing of fiscal deficit with greater emphasis on foreign financing.
The upcoming national budget for 2014-15 should go for supportive fiscal measures to create an enabling business environment towards enhanced production and higher investment.
The next budget may consider a number of fiscal measures to improve the prevailing situation, including expansion of subsidised credit facility for domestic market-oriented SMEs, to help them recover their losses due to the recent political turmoil. The other measures may range from special incentives for non-readymade garments export-oriented industries to improve their competitiveness in export markets, boosting the export development fund from the existing balance of Tk. 1.2 billion in order to support export-oriented industries, increase of tax exemption limit for VAT for SMEs to Tk. 1 crore from the existing Tk. 80 lakh, reduction of import duty on raw materials used in the furniture sector, pharmaceutical sector, withdrawal of import duty on networking machinery, data transmission link and increase of tax ceiling for individual tax payers up to Tk. 3 lakh from the present Tk. 2.20 lakh.
Published in The Daily Sun
Investment stalemate to increase capital flight: CPD
Staff Correspondent
The prevailing stalemate in private investment will lead to a rise in capital flight from the country, the Centre for Policy Dialogue (CPD) said Sunday and blamed the economic downturn on prolonged political instability.
At a press conference held to place its economic analysis and recommendations for the upcoming new budget, the think-tank leaders viewed that a participatory and pluralistic democratic policy, driven by an inclusive and credible national election, is imperative to restore the much-needed confidence among investors to check the outflow of money.
The CPD predicts that the growth in Gross Domestic Product (GDP) will remai below 6 percent due to political volatility in the first half of the current financial year (FY) that disrupted economic activity severely.
Speaking at the press conference at the Brac Centre Inn in the city, CPD distinguished fellow Debapriya Bhattacharya said that the growth rate in private investment in the country fell sharply though banks have adequate liquidity lying almost idle.
“The reason is the political instability, which destroys the confidence of the investors,” he told reporters, in reply to a question.
He adds: “The investment stalemate is alarming as it will lead to upturn in capital flight from the country.”
Opposing the provision for whitening black money like previous years, the civil-society watchdog said that such practice would encourage transactions through undisclosed sources and prolong the mindset of dodging tax by evading the rule of law.
Also, it thinks, there is no reason to reduce corporate tax as Bangladesh still charges low rate of tax on the corporate business entities enlisted with the capital market.
The CPD suggested the government to go for gradual phasing out of tax incentives for major industries like readymade garments (RMG) in a planned way and provide such incentives on new products which possess export potential, aiming to diversify the export basket.
Criticising the government’s existing framework of budget, Debapriya said the government is planning budget each year on unrealistic basis.
“Last FY, the government had said that the use of foreign aid was 40 percent of budget deficit. But, later, we came to know that the actual utilisation of foreign aid was only 6 percent,” he said, adding “There should be fairness in the process of budget planning and implementation.”
He said the recent political volatility causes huge loss to small and medium enterprises in small towns, and suburban and rural areas but incentives such as loan-rescheduling and tax incentives go to the large-scale industries like RMG. He said the government should rationalise the size of budget with maximum priority on avoiding borrowing from banks and optimum utilisation of foreign aid instead.
He pointed out that non-development expenditure like re-capitalisation to state-owned banks increases the burden on the government for no cause.
“Banks are lending money to bad men, losing capital and seeking further injection of capital from government. This is a vicious circle—the government should discourage it,” he told the journalists.
CPD executive director Mustafizur Rahman said the government should firmly start implementing big projects like Padma Bridge, Rampal power plant and Rooppur Nuclear Power plant on urgent basis in order to regain economic vibrancy.
And in implementation of these projects, the government should ensure ”maximum transparency”, he said.
In the keynote presentation, CPD’s research director Dr Fahmida Khatun said though the macroeconomic state of the country appears to be somewhat stable in recent months, the economy has experienced a high degree of volatility in the first six months that might drag the GDP growth below 6 percent for the first time in last five years.
She observed that the looming uncertainties are afflicting business and investmen with adverse implications. “Uncertainties still persist thoug temporarily there has been evidence that political disquiet is over,” she said.
She said export growth remained below targets while import of consumer goods and capital machinery declined in January-February period compared to the corresponding months of the previous FY.
Among other major economic indicators, flow of remittances and collection of revenues also fell behind the targets, she noted. She said the ADP (Annual Development Programme) implementation rate during the third quarter (January-March) was only 16 percent while it was 19 percent in the same time of previous FY.
She said the challenge for the government ahead is to restore enthusiasm in the economy by enacting fresh plans for mid and long terms by revising the Sixth Five Year Plan. She said elimination of non-economic factors like corruption and irregularities is indispensable to make the economy vibrant again to move ahead.
The government should go for fast implementation of institutional reforms which are in the pipeline.
For the FY 15, the CPD also recommended that the government form an Agricultural Price Commission to ensure fair price of farm produce to growers. Government subsidy and financial aid remained at only rice-based agricultural production and ignored other farm products.
Its recommendations also include raising the exemption limit for personal income tax from Tk 2.20 lakh to Tk 3 lakh with concomitant adjustments in other slabs and increase in old-age allowances from Tk 300 per month to Tk 500 and that of the persons with disability from Tk 350 to Tk 500.