Finance Minister AMA Muhith placed Thursday in parliament (Jatiya Sangsad) a fat budget that intends to take the economy out of the '6.0 per cent growth trap', spurring both private and public sector investments.
In the quest for higher economic growth, some macroeconomic advantages, including low inflation, declining rates of interest, stable exchange rate, healthy foreign exchange reserve, positive balance of payments will be on the side of the finance minister in the next fiscal.
But the finance minister will be required to address a few fault lines in areas such as revenue mobilisation, implementation of the Annual Development Programme (ADP), external trade, manpower export and inflow of foreign assistance.
Mr. Muhith, who has little control over political developments, admitted the important role that politics played in economic growth and expressed the hope that good sense among the political parties for the greater interest of the people would ensure 'political stability'. Â
"Our main objective in this fiscal year's budget will be to break free of the 6.0 per cent growth trap, and climb up to higher growth trajectory", Muhith said banking on 'proper and timely implementation' of development plans and reform programmes. Â
However, many experts have already dubbed the proposed budget 'unrealistic' in terms of the tax revenue targets set for the National Board of Revenue (NBR).
The budget sets the objective to increase total private investment, a key ingredient for boosting growth, to 24 per cent of GDP in the medium term (2016-18) and scale up public sector investment to 7.8 per cent of the GDP.
The finance minister presented a list of economic growth enhancing projects and programmes that would receive priority attention in the case of public investment.
He also promised to take initiatives for removal of obstacles to private investment. But his promises ran short of addressing the regulatory and governance related problems. Â
The proposed budget for the fiscal year (FY) 2015-16 is bigger by Tk.550 billion over that of the outgoing fiscal. The NBR has been tasked to arrange Tk.1.76 trillion despite the shortfall of Tk.150 billion in tax revenue earning during the FY 2014-15.
The finance boss himself has described the NBR revenue target for the next fiscal as 'ambitious'. Yet he expects to mop up the largest amount of revenue---36.8 per cent of the projected total tax revenue of NBR--- from the taxes on income and profit. The shortfall in income tax revenue earning has been estimated at about Tk. 60 billion in the outgoing fiscal.
The finance minister, however, pinned much hope on the 'reforms' carried out in the NBR. While making power point presentation, the finance minister went beyond the budget speech and mentioned about the assurance given by the incumbent NBR chairman about reaching the tax revenue target for the upcoming fiscal. Â
The budget drew mixed reactions from economists some calling it appropriate to put the economy on a higher growth trajectory, but others seeing it yet another missed opportunity to address the issue of deep-seated structural reforms and create an enabling environment, in terms of political stability, physical infrastructures, bureaucratic efficiency, for attaining higher economic growth.
Muhith has proposed some changes in tax thresholds that would offer some relief to the individual taxpayers. Publicly traded companies, banks, insurance and financial institutions other than merchant banks will be paying 2.5 per cent less tax on their profits in the next fiscal. However, the tax rate for listed tobacco companies has been
increased by 5.0 per cent to bring them at par with the non-listed tobacco companies.
With a view to plug the tax revenue leakages, Muhith has imposed tax on poultry industry and restructured the tax rates of poultry feed, dairy, pisci-culture, shrimp and horticulture etc.
The finance minister has proposed changes in supplementary duty rates in the case of wide variety of imported goods, apparently, with the objective of reducing the level of protection enjoyed by the domestic industries in various sectors of the economy for long. He has also proposed to increase the source tax on apparel exports from 0.3 per cent to 1.0 per cent. Â
The non-development revenue expenditure in the proposed budget is equivalent to 9.6 per cent of the GDP, 1.2 per cent higher than that of the revised budget for the FY 2014-15. The allocation proposed in the next fiscal's ADP is equivalent to 5.7 per cent of the GDP, higher by 0.7 per cent than that of revised ADP for the outgoing fiscal.
The budget deficit in the upcoming fiscal has been estimated at 5.0 per cent. The deficit in the outgoing fiscal has also been estimated at the same level. Â
The government with a view to financing the estimated resource deficit plans to borrow more from the country's banking system by around Tk.70 billion and less from non-banking sources, including the national savings instruments.
The implementation of the new pay scale for public servants will cost the government an additional amount of Tk160 billion in the next fiscal, thus, contributing to the rise in budgetary deficit. The spending on gratuities and pensions paid to the government servants would also go up by nearly Tk. 30 billion.
Besides, the spending on domestic interest payments would go up by more than Tk. 50 billion on account of savings tools the sale of which soared during the outgoing fiscal year. However, the government would be spending less on subsidies and incentives for the first time in many years as one of the subsidy guzzlers, the Bangladesh Petroleum Corporation (BPC), has stopped consuming subsidies, thanks to the falling international oil prices. Â
According to budget documents, industrial sector grew by 9.6 per cent and services sector 5.83 per cent in the outgoing fiscal. The industrial sector growth thus was the second highest in nine consecutive years. The growth rate of services sector was the highest in three consecutive years despite allegation of widespread disruptions caused to the economy by the political troubles during the third quarter of the outgoing fiscal year. Similarly investment as percentage of GDP was the highest in 14 years since 2001-02. Â
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