Budget should be investment- and business-friendly

The positive side of Bangladesh economy is that every year the gross domestic product (GDP) is going up which results in an increasing per capita GDP. The size of the population, as well as economic activities, has been increasing over time. All these factors have necessitated increase in the size of government budget every year.
The Finance Minister is likely to announce a budget of about Tk 3.0 trillion for the fiscal year (FY) 2015-16. The accounting practices will demand a target of revenue earnings (NBR and non-NBR taxes & fees) at two-thirds of the budget outlay. Foreign aid and loan will account for about 30 per cent of the budget. The remaining 5.0 to 6.0 per cent will be covered by deficit financing. This writer has witnessed these practices while he was in government service.
The annual development programme (ADP) with an outlay of Tk 970 billion was passed for the FY 2015-16 in the meeting of the National Economic Council (NEC) held on May 14, 2015. The Planning Minister, after the meeting was over, briefed journalists and said that the country would achieve GDP growth of 6.51 per cent in this fiscal year and that per capita GDP would be 1,314 US dollars. All these figures demonstrate good signs of Bangladesh economy.
There were forecasts by multinational development partners and local think tanks that it would be hard to achieve 6.0 per cent GDP growth during this fiscal against the backdrop of political turmoil in the country. In an article published in The Financial Express dated April 21, 2015, this writer wrote, "It is, however, possible to calculate GDP by inserting foreign remittance and showing robust growth in the service sector (tourism, transport, hotels and restaurants) for the last quarter of the current fiscal that might end up with 6.2 per cent GDP growth." Now some other items, including the expected more than 90 per cent implementation of ADP, might have resulted in 6.51 per cent GDP growth. Even the per capita GDP of US$ 1,314, though encouraging, does not carry heavy weightage. The per capita GDP of our neighbouring country Bhutan is five times higher than that of Bangladesh. Are the levels of socio-economic development same in these two countries?
While the GDP growth and the per capita GDP symbolise a somewhat good performance of the economy, the budget targets should take into consideration the ground realities. The realities are that the Bangladesh economy has a low tax-GDP ratio as well as low investment-GDP ratio. Arithmetic suggests that given the size of the economy and the size of the budget, the tax-GDP ratio should be at least 15 per cent and investment should be to the tune of 32 per cent of GDP to achieve a GDP growth of 7.5 per cent to 8.0 per cent.
What is required at the moment is to ensure an investment- and business-friendly environment in the country. The policy makers, the business houses and the think tanks are aware of it. The prescription is also known to all. Rapid expansion of physical infrastructure, creation of economic zones (the government is embanking on this programme), attracting foreign direct investment (FDI), lessening cost of doing business, ensuring law and order, broad consensus on the political process of the country, less cumbersome system of taxation etc. can create an investment- and business-friendly environment.
Cheap labour is not the only criterion for attracting investment. Land is required first. Then communication (roads and railway), electricity & gas are required. Import of industrial machineries and raw materials should not be cumbersome. Transportation of products to local markets and for export should be safe and without any illegal subscription. The policy for foreign direct investment should be rationalised. Project loans at cheaper interest rates from abroad should be encouraged. For such foreign loans, the supervisory and guarantor's role may be vested in a special committee to be formed by the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).
About domestic loans, Bangladesh Bank, the central bank of the country, in consultation with other commercial banks and trade bodies, should provide guidelines that will augment investment. The central bank should not pursue any policy to provide undue favours to a handful of delinquent large borrowers as has been recently observed in its large loan restructuring policy. All these measures should be taken under a regulatory package. Flight of capital out of the country should not be allowed.
Added to all the measures for an investment- and business-friendly environment, the role of the politicians and the political parties is very significant in the context of Bangladesh. The country needs a sustainable democratic system. Major political parties are at loggerheads on important political issues. Democracy is a process based on people's will, consultation, compromise and settlement.
The Finance Minister may express his good intention of overcoming political crisis in the country. But he can definitely give an outline in the finance bill as to how an investment- and business-friendly environment could be created with a view to leading the country to its desired middle-income status.
 The writer is an economist and columnist.
chowdhuryjafar@yamail.com