Saleh Akram :
The question whether GDP growth target set for next fiscal can be achieved or not was raised right from the day of announcement of the Budget 2014-15. Economists, planners and financial experts in their remarks and observations, termed the projected growth target as much too ambitious. Academicians, researchers and policy experts expressed similar views.
As a matter of fact, prospect of achieving the ambitious GDP growth target as proposed in Budget 2014-15 appears increasingly bleak amidst fear of political unrest coupled with capacity deficiency in handling a large annual development programme (ADP) outlay, higher revenue target and uncertain investment mobilisation.
Economists observe, the country’s economy is currently in a very sensitive stage necessitating appropriate policy measures to accelerate economic growth. Challenges for the government in the coming days are many – improving law and order, developing the infrastructure, including smooth gas and power supply to induce local and foreign direct investment, creating a credit-friendly situation for industrial entrepreneurs, ensuring good governance in the financial sector, ensuring collection of targeted revenue, checking corruption in public spending and containing inflation.
The budgetary outlay for the current fiscal that began from July 1 has been set at Tk 2.5 lakh crore, including a Tk 86,300 crore ADP fund. The budget also carries a deficit of Tk 67500 crore.
With possibility of a looming political uncertainty in the days to come, the need for peaceful solutions to conflicts is imperative to ensure a smooth journey towards attaining the middle-income status for the country by 2030. Although public investment has increased, it can not be an alternative to private investment, which is crucial for accelerating economic growth. The damages inflicted by the political unrest last year to the national economy, also dented the confidence level of the intending investors causing a slower growth of investment in the private-sector. An investor never wants to put his/her investment at risks when there is political uncertainty around and a consensus in the political arena becomes a dire necessity.
The country’s economy is likely to be in jeopardy again by political turmoil after Eid as BNP already threatened to stage anti-government demonstrations to press home their demand for a dialogue over holding a free, fair and acceptable election.
Meanwhile, some structural flaws have been identified in the public finance plans. The income and expenditure structure, which mainly depends on the speculative target of revenue collection, remains a critical area. If the government fails to achieve the target, high borrowing from the banking system will result in fuel inflation. Besides, the budget for fiscal 2014-15 envisages higher foreign aid mobilisation, which may not be possible unless the government improves its project implementation capacity.
Although the current state of the economy indicates a relatively stable export-import situation, remittance and investment inflow reflects a sluggish growth and fell far short of requirement. Given the current state of economy, more emphasis should be given to strengthening of the key policy issues to facilitate investment and accelerate growth. The government in its budget for fiscal 2014-15, targets 7.3 percent growth in GDP.
Higher GDP growth target needs the optimum utilisation of resources with appropriate policy measures for boosting credit, investment, employment and production performance.
As it is, GDP growth rate shall remain stagnant at 5-6 percent unless anything disastrous happens to the economy.
Meanwhile, Asian Development Bank (ADB) in its Asian Development Outlook (ADO) 2014 projected lower GDP growth unless higher investment is recorded in the infrastructure sector.
For the fiscal 2013-14, ending on June 30 last, ADB had forecast a downturn in GDP growth from 5.6 percent compared to 6.o percent in the previous fiscal (2012-13).
The ADB said the garment industry has been facing challenges in adopting tough compliance and safety standards. According to ADB, growth should improve in the following year (fiscal 2014-15) to 6.2 percent, but a major boost will follow only with if ramped up investment in infrastructure takes place.
It has argued that domestic demand remained depressed in the first half of the year because of the prolonged political unrest ahead of parliamentary elections in January 2014 which dented consumer and investor confidence.
ADB predicted that the current account balance will stand at a minus 0.5 percent at the end of fiscal 2013-14, ended June 30 last, while the inflation would rise to 7.5 percent.
The country is maintaining a surplus in current account since the last fiscal despite a fall in foreign remittance. Bangladesh Bank sources reveal that the current account saw a surplus of $ 2.65 billion in February this year, which came down to $1.38 billion at the end of April.
The central bank said the surplus was the result of higher export income and a fall in petroleum import.
At the end of April, country’s trade deficit increased to $5.89 billion from $4.94 billion at end of March, according to Bangladesh Bank sources.
Income from merchandise exports stood at $27.37 billion in 11 months during the July-May period against import bills of $30.21 billion in 10 months from July to April of last fiscal.
The central bank says the growth in export income has been measured at 12.56 percent against a 10.54-percent rise in import.
Private sector credit grew by 9.41 percent during the July-May period over the corresponding period of the previous financial year against 8.89 percent during the corresponding period of 2012-13 fiscal.
Business leaders have often been citing higher bank interest rates as the main reason behind lower borrowing in the private sector.
They also raised voice against a strict regulatory procedures regarding loan classification and provisioning that imposed embargo on loan renewal and fresh disbursement to defaulters.
Inflation increased slightly by 0.02 percent to 7.78 percent in May as the consumer price index (CPI) of some food items rose, as shown in data released by the Bangladesh Bureau of Statistics (BBS). The BBS says, food inflation in the rural areas rose to 8.72 per cent in May this year from 8.52 per cent in April last fiscal. The inflation non-food items also increased to 4.71 percent last month from 4.81 percent in the previous month.
Data show that inflation in urban areas came down by 0.04 percentage points to 7.92 percent in May this year, while the rural inflation increased by 0.08 percentage points to 7.27 percent during the same period.
The same, however, fell by 0.07 percentage points to 5.16 percent in May compared to 5.23 percent in April. The Finance Minister has set a target of restricting the average inflation to 7.0 percent throughout the 2014 calendar year, as announced in the budget speech. However, inflation has already soared up in the current month of Ramadan.
As things are progressing, the National Board of Revenue (NBR) is unlikely to achieve the revenue collection target (Tk 1250 billion) set for the immediate-past fiscal. The NBR authority had been arguing that a cut in tax at source on export earnings, sluggish business activities due to political impasse and a reduction in banks’ income resulted in lower revenue income. The tax authority has so far collected Tk 103600 crore in revenue during the July-May period of the 2013-14 fiscal. The Tax authority, however, is confident that it will be able to achieve the collection target, as significant revenues are collected in June every year.
Meanwhile, the government has been criticised for the low ADP implementation rate, caused mostly by deficiency in fund mobilisation and lack of capacity. The immediate past fiscal started with a low rate of mplementation, but at the end of June (2014), the status has jumped to an abnormal 91 percent.
The government spent Tk 54900 crore, out of total (revised) Tk 65900 crore of the ADP outlay, according to figures released by the planning ministry.
The Finance Minister has often been saying that the government could not utilize the foreign aid as it would have liked to mainly due to lack of capacity.
The government’s deficit-financing plans include borrowing Tk 24200 crore from foreign sources and Tk 43200 crore from the domestic sources, including Tk 31200 crore from banks with the rest from sales of savings certificates, paper bonds and other non-bank sources.
Apart from some inherent weaknesses of our economy, state of our fund utilization capacity and corruption at project implementation levels, remain as deterrents to development and block economic growth.
(Saleh Akram is a well-known TV personality and writes on economic issues)
