Govt to keep budgetary deficit at 5pc of GDP

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FE Report
Finance minister AMA Muhith said Wednesday the government would keep the fiscal deficit at 5.0 per cent of GDP (Gross Domestic Product), despite a sluggish revenue growth.
But the minister said he would go ahead with an "adventurous" development budget involving Tk 305 billion, even if he was aware of the history of lower-than-expected implementation record.
"We'll keep budgetary deficit at 5.0 per cent of GDP," he told a roundtable on "Macroeconomic challenges in 2009-10" in the city.
"The previous government kept it (deficit) at 4.9 per cent. Price stability and salary hike of public servants will put huge pressure. But I think, we'll not allow it to go beyond the reasonable limit," he added.
His comments come as revenue collection for the current fiscal is estimated at Tk 669 billion, Tk 24 billion below the target.
Mr Muhith said this fiscal's Annual Development Programme (ADP) would be a typical large one, even though the revised one still remained unrealised.
"It's a difficult choice. This choice is adventurous. We've to provide (support) for confronting the impact of global crisis," he said.
He said the fall in farm loans and capital machinery imports would have a "knock-on" effect on the economy being hit by the global recession.
"We'll be feeling the pain until the first half of the next fiscal. Even growth will be subdued in the first half of FY 10 before picking up in the second half," Mr Muhith said.
Policy Research Institute (PRI), a local research institute, and The Financial Express jointly organised the roundtable with its chairman Dr Zaidi Sattar in the chair.
Executive director PRI Ahsan H Manusr presented the keynote paper at the roundtable, while executive director of Centre for Policy Dialogue Dr Mostafizur Rahman and director general of BIDS Dr Mustafa K Mujeri were designated discussants on the paper.
Mr Muhith said the upcoming budget would raise public investments to 30 per cent to foster state-sponsored investments.
He said public expenditure would also be enhanced to 20 per cent from the current 16 per cent.
Former finance adviser Dr Mirza Azizul Islam said promises by the government must be contained.
"This government will pursue another big ADP of Tk 350 billion. It will be tough to implement it. No government could do it in the past," he told the elite audience.
Dr Islam, a former UN economist, called upon the new government to provide its clear views on the privatisation and the fate of closed factories.
"I get different views on privatisation. Already, Chittagong Chemical Complex has been re-opened. So, what is the actual stance?" he asked.
Dr Khan, also chairman of Regulatory Reform Commission, said quality of public expenditure, not budgetary deficit, is the major problem in Bangladesh.
"Our budget deficit is actually lower than that of the Indian federal government. But we've the problem of quality spending. Most of the projects are taken up without rigorous analysis," he added.
He warned that the government is set to face the biggest challenge in implementation as it moves to the PPP model.
"We set up IDCOL with $300 million to give sub-ordinated loans. It invested in only one large power project. But it got no such projects in six years," he said. "Allocation is not a solution. Real problem is implementation."
He also said the government's massive subsidy would be frittered away unless it is administered properly.
Country director of the World Bank Xian Zhu said this government would present its first budget at a time amid an unfolding global crisis.
Given the "tough" timing, the bank executive said he wondered whether foreign investors would be interested at all to finance Bangladesh's infrastructure projects.
BIDS head Dr Mujeri said the government should respond to the global crisis in a way so that it cannot spawn liquidity crunch.
"We need to ensure macro-economic stability and improve social safety protection.
Bangladesh must overcome its weaknesses if it wants to capitalise on the global economic rebound after 2010, said Dr Mostafizur Rahman , who heads local think tank CPD.
"These weaknesses-an insular financial system and lower foreign investments-may have saved us, but should be overcome to take advantage of the global market's upturn after 2010," he said.
"We need to be pro-active, rather than reactive," he added.
Chief executive officer of Bangladesh Foreign Trade Institute Dr MA Taslim said urged the government not to change the basic parameters of budget to help businesses take informed decisions.
"The fundamental weakness of Bangladesh's budget is it is unpredictable. Nobody knows who is going to be benefited or hit," Mr Taslim said.
Dr Sattar said since the global recession is knocking the door of Bangladesh, it is "tough times" for the country and the world.
He said his institute, although in operations for six months, would continue its efforts to do "unbiased" and "objective" economic research and analysis in line with the country's ambition to become a middle-income nation in a decade.
Dr. Mansur in his presentation said the government should formulate a realistic budget against the backdrop of slowing economy, sluggish revenue growth and intensifying power problem.
"The budge must start addressing the structural fiscal issues to maintain fiscal sustainability, improve resource allocation and improve public sector service delivery over the medium term."
He also said the budget should set a realistic revenue target as the government needs high revenue to cover its ambitious spending plans.
On fiscal stimulus, he said: "There is no need for government fiscal stimulus beyond what has been announced through the monetary and fiscal package."
However, the government would need to continue the announced incentives for the affected sectors at least through the first half of the next fiscal year, he said.
He also said recognising the failure of traditional ADP-based approach, the government should go for PPP-based infrastructure investment programme.
"ADP-based investment programme should be limited to areas where private sector investment would be difficult to attract."
Dr. Mansur said the real GDP growth rate will be lower at 5.5 to 6.0 per cent compared with 6.5 per cent targeted under the budget.
"Despite this slowdown, Bangladesh's performance has been one of the best globally."
"Global recession has certainly affected Bangladesh through the export sector and general investors' sentiment, which translated into slower manufacturing and services sector activity and lower investment."
"Robust agricultural sector output and strong domestic demand, supported by continued strong inflow of workers' remittances, helped sustain domestic economic activity."
On remittances, he said: "Bangladesh is probably the best performer globally in 2008-09 and the outlook still remains positive albeit at a slower pace."
He also added despite the slowdown in economic activity and an expansionary fiscal stance taken in the budget, fiscal policy in 2008-09 has not been expansionary at all.