Dr. Anu Mahmud :
The Finance Minister AMA Muhith has proposed his budget for 2017-2018 fiscal with the total outlay at Tk. 4,00,266 crore. The largest ever budget in the country’s history might generate complacency among some people simply because of its staggering size, but many may find the budget discouraging as it will increase the cost of living. The complete implementation of 2012 VAT law with the uniform rate of VAT at 15 per cent will shoot up the prices of commodities. For meeting the expenditure of this budget, the finance minister has also imposed tax on bank deposit. As the price of electricity will increase, it will create a domino effect on the prices of other commodities as well.
These aspects of the budget are enough to create frustration among a large section of people. Due to excise duty, people are already expressing their sentiments that they would avoid keeping money in banks, which will not favour the country’s present investment scenario also. The implementation of this huge budget, with a 35 per cent increase in size from the last year’s budget, may prove to be difficult.
Some front ranking economists have called this year’s budget ‘ambitious’ and ‘unrealistic’.
To be sure, a budget with a staggering TK 106,772 crore deficit will warrant for mobilisation of more revenue from the domestic sources. Then the government will have to borrow money from banks, which in turn will have its bearings on the private sector, impacting negatively the investment situation. Moreover, it will also be difficult for the NBR to collect Tk 293,494 crore as it has limitations.
To enable NBR in its activities, it has to expand its manpower and efficiency. There are hundreds and thousands of people of the country whose annual income are taxable but do not pay tax. That is why we believe that NBR’s capacity has to be strengthened more and it should take tougher stance on people who avoid genuine tax.
There are, however, some very positive sides of the budget. The finance minister has rightly placed focus on improving the country’s communications infrastructure and proposed substantial increase of fund for the sector. The education sector has also been given due attention. The proposal to increase tax on tobacco and tobacco products including cigarettes is heartening as it would discourage smoking. And though decrease from the current 15 per cent VAT has not been proposed, some other demands of business people have been addressed in the budget. But the expediting of the process of implementation of Annual Development Programme (ADP) will also continue to be a major challenge in the coming fiscal as most of the economists have pointed out.
According to a 2015 study by the Bangladesh Institute of Development Studies, 20 per cent of Bangladeshis are now in the middle income bracket. By 2025, this number will capture one-quarter of the population and by 2030, about one-third.
By International Monetary Fund (IMF) estimations, the per-capita monthly income in the country is at about Tk 10,132. Household incomes and expenditures are on the rise, with the economy registering a growth rate consistently above 6 per cent over the past decade.
Despite all the growth, middle class consumers will face added costs whenever they try to trade up to things that might make for a better life. From July when the VAT Act 2012 kicks in for three years, almost everything retail, from clothes to shoes to bottled water, will see a spike in prices. On top of that, the new budget has added new taxes to bigger cars, smart phones, imported cosmetics and toiletries and fast food.
Finance Minister AMA Muhith announced his 11th budget in parliament on Thursday, for the last time in this government’s term. His proposed budget has put the people through the VAT machine to take out every mint possible to be spent on a budget that is bigger by a quarter than the present one. Such measures will cause price increases at various levels from production to cost of living, as supplementary duty will be applicable to producers and VAT to the consumers.
One of Muhith’s focuses — to generate consumption demand — is also debatable because it mostly depends on public spending. The across the table VAT imposition will have a choking effect on private expenditures too.
Apart from more VAT collection, Muhith’s other source of collecting money to fund mega projects is foreign financing, which he has projected to increase by 68 per cent from that in this year’s revised budget. And if the figures are only for the sake of figures, the consequence will be a budgetary mismatch!
The government, however, seems confident with its newfound philosophy of garnering more revenues from the middleclass and from the wealthier section of the society, to provide food benefit and safety net cushion to the poorer section.
The budget appears to hit common people at their worst, as most kitchen items will see significant rise in duties. Critics have openly termed the budget as a cruel instrument in the hands of the government to collect money to maintain a highly expensive regime. Spending on high profile development activities and politically motivated projects figured out prominently in this budget. Extortion of people’s money is the main consideration.
Prof Wahiduddin Mahmud has rightly said this is an ambitious, populist budget with eyes on election. We disagree with him on the point that the government needs to do anything to please the people. The victory in the election will be ensured by corrupt bureaucrats. Others sounded similar views saying it is time to take up big expenditure projects to hide corruption.
Former Finance Adviser of the caretaker government A.B. Mirza Azizul Islam’s view is that the country’s economic situation is not good to generate so much revenue and it is not affordable for the government either.
He said that the government has to cut the outgoing budget from Tk 3 lakhs 40 thousand crore to 3 lakh 17 thousand crore leaving a unattained deficit of Tk 23 thousand crore.
To Mr. Aziz it appears that implementation of the ADP is increasingly facing setbacks over the past years at a time when the bigger part of the revenue is going to finance government establishments that include higher pay and salary of bureaucrats, Ministers, MPs and leaders of elected bodies.
Like politics the country’s economy is run for the one sided benefit of a class of people proving helpful to the government.
Former Governor of Bangladesh Bank Dr Salehuddin Ahmed said budget is now the engine of mobilizing more revenue for the government to enjoy luxurious life, public procurements have become expensive and source of money laundering. Lots of money is going to unnecessary foreign tours of government leaders and bureaucrats.
Contrary to it there is no credible move to create encouragement for investment and job creation for the young unemployed millions.
“Owing to the fact, people from lower and lower-middle income group would face pressure. Even it will put pressure on the overall GDP,” Debapriya Bhattacharya, distinguished fellow of CPD, said at a press conference while presenting the Centre for Policy Dialogue (CPD)’s opinion about the proposed national budget.
The tax structure proposed in the budget for financial year 2017-18 will push up production cost and consumer expenditure, ultimately causing a rise in inflation,
b) Terming the proposed budget an ‘economic illusion’, Debapriya said there is no clear explanation of income and expenditure in the budget.
c) The Gross Domestic Product (GDP) growth rate has been set at 7.4 percent in the fiscal year.GDP growth will not make enough sense without creating jobs and reducing unemployment, he noted.
d) “If jobs are not created and unemployment rate doesn’t decline with the growth, this growth rate will not make enough sense.” In order to keep the GDP growth in the right direction, there is no alternative to fetching more private investment.
e) “An additional Tk 66,000 crore in private investment and Tk 50,000 crore in public investment will be required in FY 18 to achieve the GDP growth target. But private investment’s share in GDP is expected to rise by 0.2 percentage points only.” The target of foreign finance has been used as a tool for meeting the deficit.
f) “High foreign financing target with an 80.5 percent growth over the FY 17 has been set with anticipated gross foreign aid flow of $7.6 billion. But Bangladesh has the highest record of using $2.7 billion in foreign aid FY 16.”
g) Criticising the overall trend in ADP implementation, he said the last quarter syndrome in ADP affects the quality of public investment and raises questions on quality.
h) Sectors like transport, power, education, ICT have got the major share of ADP allocation, though a balance is needed between the basic sectors so that people can get the optimum benefits.
i) Referring to the poor progress in fast track and mega projects, he said most projects did not make considerable progress except the Padma Bridge.
j) About the uniform VAT rate, the finance minister has announced uniform 15 percent VAT for three years but it is not clear whether it will be changed after the deadline.
k) “A growth rate of 15.3 percent has not been achieved in current FY. It is not clear to us that how it is possible to mobilise Tk 248,190 crore in revenue by boosting the growth to 31.8 percent.”
The proposed Taka 4.0 trillion-plus national budget for the incoming fiscal year (FY), 2017-18, can, perhaps be, tagged, somewhat befittingly, as ‘unsurprising’ and ‘uninspiring’. It is ‘unsurprising’ as it treads the same, familiar path of yester years — projecting high, performing low and leaving gaps between promises and outcomes. And furthermore, it is ‘unsurprising’, because most of its key features — size, targets resource mobilisation and allocation patterns etc., were largely made public before its formal announcement
Thursday last. Why is the proposed budget ‘uninspiring’? It, as this paper considers, is so, because it broadly admits implementation capacity-related problems that constrain efforts for optimal budgetary outcomes but it provides no practical operational guide, beyond mere scratching of the surface, to help overcome such constraints. It does not thus move beyond a status quo stance on the same. This is a hard truth, however unsavoury it may be to the authorities concerned.
(To be continued)
This is the eleventh national budget that has now been announced by Finance Minister Mr. AMA Muhith, a very experienced and seasoned guard at one of the most vital ministries of the government. Very few finance ministers elsewhere get such a distinctive opportunity. Mr. Muhith deserves ‘kudos’ for performing the task — an arduous one, no doubt — of formulating the national budget for so many years. He would have certainly been credited more, if the action course for improving the delivery capacity of the government, in the light of his vast experiences in this field, would have been spelt out, more clearly and not in business-as-usual ways. He has proposed the new national budget for FY 2017-18, setting its overall expenditure target at a new record level, with four notable targets — achieving gross domestic product (GDP) growth at 7.4%, boosting aggregate investment to 31.9% (8.6% in public sector plus that of private investment at 23.3%), containing budget deficit within the limit of 5.0% and keeping the inflation rate down to 5.5%. All other goals and objectives of the proposed budget are, by and large, in line with those of the Seventh Five Year Plan, the Perspective Plan and the UN-adopted Sustainable Development Goals (SDGs) — and those too, in the context of the Medium Term Macroeconomic Framework. As the taste of the pudding lies in its eating, the implementation part of the proposed budget will have the most critical bearing on efforts to fulfil its stated goals, objectives and targets.
The accounting frame of the proposed budget, like its previous ones, has been drawn along the routine lines, delineating the sources from where resources or funds would be coming and to where the same would be going. Details of every head of account on both receipts and expenditure sides are provided therein. This is the budgetary ‘number game’ and here the attention has unfailingly been given to keeping budget deficit — the gap between the projected overall expenditure and the estimated aggregate revenue and other receipts — within the limit of 5.0 per cent. That ‘arithmetical’ exercise has, quite expectedly, been carried out meticulously in the proposed budget on an incremental basis, from both sides — receipts and expenditures.
On the revenue receipts’ side, the major thrust for resource mobilisation has been proposed to be placed on value added tax (VAT) and supplementary duty (SD), by putting the VAT Act of 2012, after some amendments, into effect from July 01, 2017. The Finance Minister has kept up to his earlier words — maintaining VAT at a uniform rate of 15 per cent at the retail level, notwithstanding the pulls and pressures from all concerned quarters for lowering it. However, he has sought to ‘pacify the resentment’ of the businesses by extending the list of exemptions under VAT and expanding the limit for turnover tax, in its place, in order to keep the small businesses and retailers out of the VAT network at this stage. Yet then, the collection of VAT under the proposed budget for FY 2017-18 has been estimated at a level that is 33% higher than the revised estimates about tax revenue earnings, in the form of VAT, for the outgoing fiscal. On the whole, the Finance Minister has pinned much hope — and hopes, it is worthy to note here, build sooner than knowledge destroys — on incremental tax revenue earnings from income and corporate tax, import and export duty, VAT and SD to the extent of about Taka 640 billion, representing an increase by about 34.5 per cent over such earnings in the outgoing fiscal.
Mr. Muhith has himself noted that he is deliberately opting for an ‘ambitious’ target for revenue mobilisation for the forthcoming fiscal. He is doing this, in order to implement the government’s specific and integrated programmes “to accomplish its goals of transforming the country into a ‘Middle income’ one by 2021 and a ‘Developed’ one by 2041.” But the fact that the overall revenue collection in the outgoing fiscal would witness a shortfall to the tune of Taka 240 billion in the revised budget compared to the estimated one in the original budget, does not provide much realistic grounds to agree with the rationale for setting the revenue collection target at such a higher level under the proposed budget. One has to be overtly over-optimistic about a quantum leap in efficiency of the National Board of Revenue (NBR) that collects the most part of the tax receipts to realise this target. On this count, the Finance Minister, if one goes by his narrative, is himself highly confident of the NBR’s competence and efficiency, that is stated to have been bolstered by what the government has so far been done to expand its human resource base and outreach and to upgrade skill and capacity of its manpower.
All concerned would rightly expect the NBR to do all the needful to widen the country’s tax base and to help earn more tax revenues, in an environment where tax compliance is promoted and encouraged by a tax-payers’ friendly revenue regime. Here discretion will certainly be considered no part of valour that leads to non-transparency and lack of accountability. On the revenue mobilisation side, the government has also to be more up and doing about raising non-NBR tax and non-tax receipts. At this stage, it will be relevant to underline the imperatives for exercising utmost caution so that the new VAT and SD regime does not trigger inflationary pressures beyond what has been targeted in the proposed budget. Any such emerging pressure, to any disproportionate extent, will certainly pose an additional macro-economic risk. Such a risk will discourage investment, particularly in the private sector.
In his FY 2017-18 budget speech, the Finance Minister has elaborated much on the positives about the socio-economic situation, now obtaining in the country. He has listed many successes to this effect, while narrating the implementation status of his earlier budget commitments. Such successes do certainly need to be acknowledged with an open mind by all concerned. But the weaknesses that still persist in the economy do also equally need to be taken note of. The danger of growing non-performing loans (NPLs) in the banking sector, the ailing state of affairs in the public sector banks that require heavy doses of transfusion of public funds to keep them afloat through recapitalisation, the perennial loss-making state-owned enterprises, the cost over-run factors concerning particularly large or mega public sector development projects that are largely associated with oft-repeated time extensions for their completion, low or poor quality of public expenditures in a wide array of areas etc., constitute some of such major weaknesses. The Finance Minister has indirectly mentioned some of those but has not provided any specific and credible guideline about fixing them. There are of course no quick fixes to all those long-persisting weaknesses but there must be a credible time-bound plan of action for overcoming them.
The budget with its annual time-frame is, of course, not expected to provide the answers to all the problems — the weaknesses and the threats. But when the Finance Minister prefers to go too long on the narrative about the positives — the strengths and opportunities, while being too short on the weaknesses or flaws or risks (including those looming ones), then one might find it difficult to see the wood for the trees. Acceleration of investment, in both public and private sector — a prime need for Bangladesh to step up the pace of its inclusive growth process for reaching the goal of middle-income status by 2021 — will greatly depend on undertaking deep structural reforms to address the existing weaknesses.
Clearly, the country’s economy has done otherwise commendably well in past several years, notwithstanding some unfavourable exogenous and endogenous circumstances. But there is yet no reason for over-confidence. Strengthened institutions and capacity development are priorities for Bangladesh if its full economic potential is to be harnessed. In this context, the FY 2017-18 budget speech raises expectations but does not provide strong grounds for generating hope on plausible grounds. Actions can only make the difference. At this stage, all concerned would look forward to supportive actions coming in the forthcoming fiscal, in an undistracted way, to take the economy forward on a steadily sustained, sustainable and inclusive growth path.
