A tricky budget

The budget for fiscal 2017-18 comes at a time when the economy is on a 7 percent growth trajectory and witnessing falling inflation.

Political calm, which is a rare occurrence in Bangladesh, is another advantage the government has been enjoying for the past three years.

Yet, the economy is facing a good number of challenges, which, if not addressed, are likely to stunt growth and bring disorder in macroeconomic management.

Of the challenges, the most important ones are declining export and remittance growth and stagnant private investment.

The deteriorating condition in the banking sector, especially the state banks, is another point of concern.

The continued infrastructure deficiencies and the high cost of doing business pose to derail growth.

Amid this situation, Finance Minister AMA Muhith will place his ninth consecutive budget in parliament today.

The size of the budget would be Tk 400,266 crore, which is nearly four times the size of the budget of fiscal 2008-09, the last before the current Awami League government assumed power.

To meet the growing expenditure needs, Muhith is adamant about the roll-out of the new VAT law, which prescribes a uniform 15 percent VAT on most goods and services available in the country, on July 1, when fiscal 2017-18 commences.

The total revenue target is likely to be 29 percent higher at Tk 288,000 crore.

A big chunk -- Tk 248,000 crore -- will come from the NBR, 34 percent higher than the current year's target, according to the National Board of Revenue.

“We see an over-pressure in the revenue target and the government looks 'extreme' instead of being 'moderate' in this regard,” said Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue.

The finance minister could have looked for alternative sources of money such as foreign aid and low-cost bank loans to meet the financing needs. Traders, businesspeople and the public are equally worried about the fallout of imposing a flat 15 percent VAT, he added.

The recent trend in private investment is showing promising signs, said Debapriya Bhattacharya, distinguished fellow of the CPD.

Provisional estimates of the government show that private investment has increased slightly to 23.01 percent of GDP this year from 22.99 percent a year ago.

He also urged the government to slash the personal income tax rate for the lowest threshold to 7.5 percent from 10 percent, which he said would help boost people's disposable income, especially those belonging to the middle-class.

“This cut will bring more revenue to the state as it will increase domestic demand,” Bhattacharya added.

How the finance minister addresses the other challenges -- growing public expenditure, borrowing from costly savings tools, gas and electricity crisis, infrastructure deficiencies, unemployment and declining foreign aid -- would be of great interest, analysts said.

Infrastructure gaps and inadequate energy supply, combined with the high cost of doing business, remain the main obstacles to the realisation of Bangladesh's growth potential, according to a recent World Bank report.