Spotlight on National Budget
Syed Jamaluddin | Tuesday, 17 June 2008
THE government has proposed an expansionary budget for the next fiscal year which is 26 per cent bigger than that of the outgoing fiscal with big outlays for social safety net, subsidy, interest payment and block allocation. Under the proposed budget, non-development expenditure has increased by 38 per cent whereas the government has cut development expenditure by 3.39 per cent. This is undoubtedly an expansionary budget. Revenue target has been pushed up to foot the bill for the spending.
A large deficit of Tk Tk 305.80 billion (30,580 crores) -- 5.0 per cent of gross domestic product (GDP), is estimated. Government will borrow Tk 134.98 billion (13,498 crore) from the banking system -- a jump of 86 percent from the current year. This huge bank borrowing may limit the availability of funds for the private sector. An amount of Tk 33.95 billion (Tk 3395 crore) was earmarked as block allocation. The destination for block allocation was not mentioned in the budget. To mitigate the large deficit, government plans to increase non-bank borrowing by Tk 35 billion (3,500 crore).
Economists thanked the govt for giving priority to agriculture, food security, social safety net, subsidies for fuel, fertiliser, food and reducing import duty on raw materials and intermediate goods. But government priorities are basically short-term. Time has come to take mid-term and long term measures. The mechanism for distribution of subsidy is extremely important. Slashing the inflation rate from double digit to 9.0 per cent is difficult because of wage increase and increase in the prices of many other items which are in the offing. Fertiliser price has already gone up. Some economists have expressed doubt about the realisation of high revenue target. It is said that the present uncertainty in the political arena may affect budget execution.
The caretaker government has adopted as many as 62 ordinances and policies on legal and institutional reforms in the last one and a half years which is commendable. The Finance Adviser skipped the issue of human rights situation under the state of emergency during the caretaker regime. The government has set in motion a process of good governance to be continued in future hopefully by the new government to be elected. The government has recovered Tk 12.19 billion (1219 crore) ill-gotten money through its anti-corruption drive. This amount of money has been deposited to the national exchequer. This is a commendable step.
The members of the business community have generally welcomed the budget. There are proposals to reduce corporate tax and in import duty on capital goods and raw materials. The raising of tax thresholds in the small business sector is also seen as a plus. The minimum threshold of income tax and value added tax (VAT) for small and medium enterprises (SMEs) has been increased. The upper limit of investment in capital machinery has been enhanced from Tk 0.7 million (7.0 lakh) to Tk 1.5 million (15 lakh). Refinancing scheme of Bangladesh Bank has also been augmented from Tk 3.0 billion (300 crore) to Tk 5.0 billion (500 crore). SME Foundation has been set up to implement SME policies and strategies. The Foundation has become operational and should be able to show some results in the coming year.
Government will implement a number of infrastructure projects to reduce regional wealth disparity. It also plans to expand safety net programmes in disadvantaged remote areas, in the char and Monga-prone areas as part of balanced development programme. A task force has been created to find ways to reduce the regional disparity.
The trade license fee of Tk 1000 has been proposed to be abolished. Other proposals include reduction of duty on microbus and removal of duties on ms rod, white paper, computer equipment, fertiliser, seeds, poultry equipment, poultry feed, electronic cash register and motor cycle. The prices of these items will come down. Duty-free import of food, fertiliser and seeds will continue.
The country' major chambers have given a mixed reaction over the proposed budget. The Federation of Bangladesh Chambers of Commerce (FBCCI) has submitted additional fiscal demands to the Finance Adviser. They want green channel investment facility for 'undisclosed income' in productive sectors without paying any penalty and called for further reduction of duty on imports. According to them, the budget is investment- and business-friendly. The banking sector might face a liquidity crisis, creating problem for the private sector. Businesses will decline without political stability.
The Metropolitan Chamber of Commerce & Industry (MCCI) has commended the fiscal incentives announced for the industrial sector which include reduction of corporate tax, abolition of turnover tax, continuation of tax holiday, introduction of four-tier customs duty, continuation of pre-shipment inspection, etc. The chamber is of the view that same tax treatment should be given to insurance companies, banks and other financial institutions as it is done in other neighbouring countries like India. It has regretted that the budget has largely ignored the energy sector. The MCCI has welcomed the introduction of 20 per cent dearness allowance for government employees.
The Foreign Investors Chamber of Commerce & Industry (FICCI) has voiced concern over the large deficit in the budget. This will, according to it, tighten the already strained liquidity situation. It is chamber has hailed the budgetary measures in the areas of agriculture, social security, education, information technology and environment.
The Dhaka Chamber of Commerce & Industry (DCCI) has appreciated the package for SME development. They also appreciated the steps taken for extension of tax holiday benefits for new investment.
The Chittagong Chamber of Commerce & Industry (CCCI) has welcomed the budget for various measures but they are unhappy for retaining the pre-shipment inspection system. The Bangladesh Chamber of Industry (BCI) has appreciated the proposal to reduce import duty on machinery and spare parts, basic raw materials and intermediate goods.
The Bangladesh Garment Manufacturers & Exporters Associated (BGMEA) has said that the proposed budget lacks direction on long-term plans for power sector, development of infrastructure and human resources. According to if, the proposed budget is not export friendly. Private sector should be engaged on built, own and operate (BOT) basis. Soft loan should be given for setting up effluent treatment plant.
The Centre for Policy Dialogue (CPD), a non-governmental think-tank, has highlighted a number of issues in the budget. Decision to off load government shares should be promptly implemented. National coal policy needs to be implemented immediately. According to the CPD ,decrease in duty slabs, zero duty on food stuff, fertiliser and medicines and raw cotton will help stabilise prices.
Defending the budget, the Finance Adviser said that the budget was investment friendly. The various measures will, according to him, spur growth in the economy. The main target is to raise the income of the poor. Both the Finance Adviser and the National Board of Revenue (NBR) Chairman have categorically said that there is no provision in the budget for whitening the black money. Only the legally earned undisclosed income will be allowed to be legalised after paying fines.
About allocation for agriculture, all concerned have stressed the need for implementation and monitoring. The farmers have to be made aware of budget provisions and they have to feel that the allocations are helping them and they should be able to extract the benefits intended for them. Bringing relief to the common man is the ultimate goal. Inspite of the good number of measures taken for reducing prices, some people doubt that prices may not come down. This is because prices of many other items will be increased. Fertiliser price has already gone up. Petroleum price-increase is in the offing. Some critics have questioned the increase of allocation for defence. But the armed forces have done excellent work in many areas and aided the civil administration in a befitting manner. They can not do their job without sufficient allocation of resources.
Most political parties have rejected the budget. They say that implementation of this budget will be difficult for the next government. This does not reflect the aspirations of the people.
Under the proposed budget, there will be large scale transfer payment to low income groups who have been hard hit by severe increase in prices over the last year. Because of exogenous inflationary pressure, the government can do little to reverse the price trend. The easier option is to resort to transfer payment. This is a pro-poor approach. This time no body can say that this is an anti-poor budget. Using a budget deficit to transfer purchasing power to the poor could have a growth-inducing effect on the rural and the macro-economy.
There are many good proposals in the budget. It remains to be seen how the budgetary measures will be implemented. The administration has to respond to achieve the targets, as have been laid out in the budget document. Coordinated efforts are needed for successful execution of the budget.
(The writer is an economist and columnist)
A large deficit of Tk Tk 305.80 billion (30,580 crores) -- 5.0 per cent of gross domestic product (GDP), is estimated. Government will borrow Tk 134.98 billion (13,498 crore) from the banking system -- a jump of 86 percent from the current year. This huge bank borrowing may limit the availability of funds for the private sector. An amount of Tk 33.95 billion (Tk 3395 crore) was earmarked as block allocation. The destination for block allocation was not mentioned in the budget. To mitigate the large deficit, government plans to increase non-bank borrowing by Tk 35 billion (3,500 crore).
Economists thanked the govt for giving priority to agriculture, food security, social safety net, subsidies for fuel, fertiliser, food and reducing import duty on raw materials and intermediate goods. But government priorities are basically short-term. Time has come to take mid-term and long term measures. The mechanism for distribution of subsidy is extremely important. Slashing the inflation rate from double digit to 9.0 per cent is difficult because of wage increase and increase in the prices of many other items which are in the offing. Fertiliser price has already gone up. Some economists have expressed doubt about the realisation of high revenue target. It is said that the present uncertainty in the political arena may affect budget execution.
The caretaker government has adopted as many as 62 ordinances and policies on legal and institutional reforms in the last one and a half years which is commendable. The Finance Adviser skipped the issue of human rights situation under the state of emergency during the caretaker regime. The government has set in motion a process of good governance to be continued in future hopefully by the new government to be elected. The government has recovered Tk 12.19 billion (1219 crore) ill-gotten money through its anti-corruption drive. This amount of money has been deposited to the national exchequer. This is a commendable step.
The members of the business community have generally welcomed the budget. There are proposals to reduce corporate tax and in import duty on capital goods and raw materials. The raising of tax thresholds in the small business sector is also seen as a plus. The minimum threshold of income tax and value added tax (VAT) for small and medium enterprises (SMEs) has been increased. The upper limit of investment in capital machinery has been enhanced from Tk 0.7 million (7.0 lakh) to Tk 1.5 million (15 lakh). Refinancing scheme of Bangladesh Bank has also been augmented from Tk 3.0 billion (300 crore) to Tk 5.0 billion (500 crore). SME Foundation has been set up to implement SME policies and strategies. The Foundation has become operational and should be able to show some results in the coming year.
Government will implement a number of infrastructure projects to reduce regional wealth disparity. It also plans to expand safety net programmes in disadvantaged remote areas, in the char and Monga-prone areas as part of balanced development programme. A task force has been created to find ways to reduce the regional disparity.
The trade license fee of Tk 1000 has been proposed to be abolished. Other proposals include reduction of duty on microbus and removal of duties on ms rod, white paper, computer equipment, fertiliser, seeds, poultry equipment, poultry feed, electronic cash register and motor cycle. The prices of these items will come down. Duty-free import of food, fertiliser and seeds will continue.
The country' major chambers have given a mixed reaction over the proposed budget. The Federation of Bangladesh Chambers of Commerce (FBCCI) has submitted additional fiscal demands to the Finance Adviser. They want green channel investment facility for 'undisclosed income' in productive sectors without paying any penalty and called for further reduction of duty on imports. According to them, the budget is investment- and business-friendly. The banking sector might face a liquidity crisis, creating problem for the private sector. Businesses will decline without political stability.
The Metropolitan Chamber of Commerce & Industry (MCCI) has commended the fiscal incentives announced for the industrial sector which include reduction of corporate tax, abolition of turnover tax, continuation of tax holiday, introduction of four-tier customs duty, continuation of pre-shipment inspection, etc. The chamber is of the view that same tax treatment should be given to insurance companies, banks and other financial institutions as it is done in other neighbouring countries like India. It has regretted that the budget has largely ignored the energy sector. The MCCI has welcomed the introduction of 20 per cent dearness allowance for government employees.
The Foreign Investors Chamber of Commerce & Industry (FICCI) has voiced concern over the large deficit in the budget. This will, according to it, tighten the already strained liquidity situation. It is chamber has hailed the budgetary measures in the areas of agriculture, social security, education, information technology and environment.
The Dhaka Chamber of Commerce & Industry (DCCI) has appreciated the package for SME development. They also appreciated the steps taken for extension of tax holiday benefits for new investment.
The Chittagong Chamber of Commerce & Industry (CCCI) has welcomed the budget for various measures but they are unhappy for retaining the pre-shipment inspection system. The Bangladesh Chamber of Industry (BCI) has appreciated the proposal to reduce import duty on machinery and spare parts, basic raw materials and intermediate goods.
The Bangladesh Garment Manufacturers & Exporters Associated (BGMEA) has said that the proposed budget lacks direction on long-term plans for power sector, development of infrastructure and human resources. According to if, the proposed budget is not export friendly. Private sector should be engaged on built, own and operate (BOT) basis. Soft loan should be given for setting up effluent treatment plant.
The Centre for Policy Dialogue (CPD), a non-governmental think-tank, has highlighted a number of issues in the budget. Decision to off load government shares should be promptly implemented. National coal policy needs to be implemented immediately. According to the CPD ,decrease in duty slabs, zero duty on food stuff, fertiliser and medicines and raw cotton will help stabilise prices.
Defending the budget, the Finance Adviser said that the budget was investment friendly. The various measures will, according to him, spur growth in the economy. The main target is to raise the income of the poor. Both the Finance Adviser and the National Board of Revenue (NBR) Chairman have categorically said that there is no provision in the budget for whitening the black money. Only the legally earned undisclosed income will be allowed to be legalised after paying fines.
About allocation for agriculture, all concerned have stressed the need for implementation and monitoring. The farmers have to be made aware of budget provisions and they have to feel that the allocations are helping them and they should be able to extract the benefits intended for them. Bringing relief to the common man is the ultimate goal. Inspite of the good number of measures taken for reducing prices, some people doubt that prices may not come down. This is because prices of many other items will be increased. Fertiliser price has already gone up. Petroleum price-increase is in the offing. Some critics have questioned the increase of allocation for defence. But the armed forces have done excellent work in many areas and aided the civil administration in a befitting manner. They can not do their job without sufficient allocation of resources.
Most political parties have rejected the budget. They say that implementation of this budget will be difficult for the next government. This does not reflect the aspirations of the people.
Under the proposed budget, there will be large scale transfer payment to low income groups who have been hard hit by severe increase in prices over the last year. Because of exogenous inflationary pressure, the government can do little to reverse the price trend. The easier option is to resort to transfer payment. This is a pro-poor approach. This time no body can say that this is an anti-poor budget. Using a budget deficit to transfer purchasing power to the poor could have a growth-inducing effect on the rural and the macro-economy.
There are many good proposals in the budget. It remains to be seen how the budgetary measures will be implemented. The administration has to respond to achieve the targets, as have been laid out in the budget document. Coordinated efforts are needed for successful execution of the budget.
(The writer is an economist and columnist)