Finance Minister AMA Muhith, MP recently presented the National Budget 2016-17 in Parliament. We shall pick up some selected items from his budget speech and try to examine them in the light of the ground realities we are to reckon with.Â
The Tk. 3406.06-billion budget is apparently big, and albeit ambitious, but from expenditure side it is only 17.4 per cent of gross domestic product (GDP). Bangladesh economy is growing fast that needs to be nurtured by larger expenditure to boost investment and growth. When the minister says that he deliberately kept the targets up, it should be construed as a desperate bid on his part to reach certain goals of socio-economic development.Â
Yes, one can call it an expansive budget - augmenting revenue and expenditure to reach high investment and growth trajectory. It is true that failure in tax reform and weak performance of the annual development programme (ADP) gave rise to a major concern during the current fiscal year (2015-16). Implementation of the proposed budget for the next fiscal year will depend on the success in tax collection and improving implementation capacity of the ADP.
For FY 2016-17, the revenue target has been set at $31 billion (12.4 per cent) of GDP and proposed expenditure to the tune of $43 billion (17.4 per cent of GDP), that would result in a budget deficit of 5.0 per cent of GDP.  In the revised budget of 2015/16, revenue collection and expenditure were 10.3  and 15.3 per cent respectively, again indicating  a budget deficit of 5.0 per cent of GDP which is generally considered as a safe limit.
Considering past performance of failure in reaching the target of revenue generation, the proposed budget is indeed ambitious. But the target is not unattainable if (a) reforms are implemented, (b) VAT law is passed, (c) NBR (National Board of Revenue) Â activities are automated and modernised, (d) a dedicated team of trained manpower overlooks the generation process, and (e) tax base is expanded. It appears that the Tk.450.00 billion of additional taxes is to come by raising the rate of taxes rather than expanding the base. However, two steps need urgent attention if the finance minister desires to go near the goalpost. First, roughly 2.0 million people have TIN but returns are submitted by 1.2 million. The task is to bring those defaulters into the net. Second, it is being argued that in Bangladesh, about 15 million people have a per capita income of $5000. The taxmen should chase them and see whether they pay taxes.
Our Tax/GDP ratio (NBR tax) at only 8.7 per cent of GDP in FY2016 is one of the lowest in the world and. Undoubtedly, this points to a fundamental flaw in tax administration and in tax collection. Tax/GDP ratio in neighbouring countries is much higher (India 16.6 per cent, Nepal 10.9 per cent, Sri Lanka 11.6 per cent and Pakistan 10.2 per cent).
The proposed budget envisages a 29 per cent rise in spending, indicating that non-development expenditure will be substantially higher than development expenditure. A large part of the non-development expenditure is swallowed by salary and allowance (20 per cent rise from the preceding year), and interest rate payments).While the recent rise in pay and allowances of government servants is appreciated, pay rise should be performance-based.Â
There are two laudable features of the budget: (a) 10 mega projects under first track, and (b) dealing them separately in the budget speech reflects seriousness of the projects in investment and growth. But some of the projects are fraught with long delays in completion, cost overrun and corruption. Can we hire professional project directors rather than leaving them in the limbo of inefficient bureaucrats? Can we make one project and one director? Can we punish those who fail to implement projects on time? Speeding up of mega projects can save money and generate employment.
The other distinctive feature of the budget is increased allocation for social sectors. Education now claims 2.5 per cent of GDP - much higher than earlier budgets, though sadly, still below the South Asian average. Likewise, allocation will be increased for social safety nets and health. But to make the social targets successful, the government should strengthen its collaboration with non-governmental organisations (NGOs). For example, BRAC has rich experience in pre-primary, primary and secondary school-level teaching. A government-NGO partnership, especially in social sectors, could bring in fruitful results.Â
GDP growth rate target for FY 2017 is 7.2 per cent compared with estimated 7.1 per cent in FY 2016. In the last five years ending 2016, GDP growth averaged 6.4 per cent while investment rose from 28.3 to 29.4 per cent of GDP. In this period, private investment stagnated to about 22 per cent of GDP while public investment rose from 5.8 to 7.6 per cent. Â The trend may repeat in FY17 unless obstacles like energy and transport crisis, poor business confidence, weakness in financial sector, etc. are removed
Budget deficit is estimated at 5.0 per cent of GDP in FY 2017, same as in the previous budget. What is, however, important is financing of budget deficit. The government is relying more on domestic source (3.1 per cent) and less on external financing (1.9 per cent of GDP). Arguably, domestic borrowing is much costly because of high interest on savings certificate.  Experts opine that domestic financing should be limited to 2.0 per cent of GDP and  utilisation of external resources should be improved.  Mentionable, there is 22 billion undisbursed external assistance in the pipeline.Â
Pension for private sector is a welcome move, and so is the provision for subsidy in agriculture. But agricultural credit mostly goes to large and medium farms at the cost of marginal ones.
The government should not recapitalise state-owned banks which are involved in scam and should not subsidise loss-making state-owned enterprises. The tax at source for RMG may be fixed at 1.0 per cent, tax of interest earned by pensioners should be withdrawn, VAT law should be strictly implemented, VAT should be 10 per cent across the board and access to credit for small and medium-sized enterprises should be made easier in the interest of boosting private investment.
The writer is a Professor
 of Economics atÂ
Jahangirnagar University. abdulbayes@yahoo.com
On proposed 2016-17 national budget
Abdul Bayes | Published: June 24, 2016 00:00:00 | Updated: June 23, 2016 21:38:07
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