Private investment biggest challenge

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.