Dr. Anu Mahmud :
(From previous issue)
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.
(Concluded)
