Budget: High on targets, deficit

Finance Minister AMA Muhith's eighth budget -- the sixth as an Awami League minister and the first after the ruling party's return to power -- was high on both deficit and targets, one causing much doubt about the other.

The Tk 2.5 trillion budget for 2014-15 FY projected a Tk 675.52 billion deficit that is one-fourth of the total budgetary outlay and five percent of the current GDP -- something that caused experts to doubt Muhith's annual GDP growth rate projection of 7.3 percent.

"This is an unrealistic projection, I can bet one hundred percent that such a high annual GDP growth will not be possible under existing circumstances," said AB Mirza Azizul Islam, an adviser to former caretaker regime.

Islam saw some justification in the size of the 2014-15 Budget, that at Tk 2.5 trillion, is 12 percent higher than the Tk 2.22 trillion for 2013-14 FY.

But he was worried that it would fall short on both sources of revenue inflow -- taxes and foreign aid. (Read the finance minister's exclusive pre-budget interview)

"Even the Annual Development Programme (ADP) targets were unrealistic and impossible to achieve," Islam told bdnews24.com.

Zaid Bakht, BIDS research director, lauded the Budget as 'capable of generating much economic activity through increased government spending’.

"But to achieve a 7.3 percent annual GDP growth, boosting government spending will not be enough. We need a great leap in private investments both at home and from abroad," Bakht said.

He welcomed proposals aimed at encouraging investments and hoped those would work.

Some economists welcomed the budget as 'people-friendly'.

"I am happy this budget lays great stress on education and skill development which help in employability. It is a people-friendly budget that hints at strengthening local self government and food security," said economist Qazi Kholiquzzaman Ahmad.

But even he stressed on the need to boost investments.

The Opposition expectedly rubbished the budget, with Khaleda Zia's advisor Amir Khasru Mahmud Chowdhury describing it as an 'attempt to cover the loot that is going on.'

He focussed on the delay in starting the Padma bridge project and blamed it on the 'government's unbridled corruption that will now cost the taxpayer so much more'.

Muhith has allocated Tk 810 billion for the Padma bridge project in the 2014-15 budget, the single biggest allocation for an infrastructure project so far.

With a revenue target of Tk 1.82 trillion, bridging the difference between it and expenditure seems to be the major challenge for the government.

“The main objective of the proposed budget will be to maintain continuity of existing monetary and fiscal policy strategies being pursued and to ensure macroeconomic stability,” the finance minister told the House on Thursday.

Initial reactions from big business, specially Bangladesh's top export earning ready-made garment industry was favourable but guarded.

FBCCI chief Kazi Akram Uddin Ahmed said bridging the revenue-expenditure gap will be the 'biggest challenge' in the days ahead.

"I am really concerned about higher level of bank borrowings the government may resort to for making up the budget deficit. That will make it difficult for the industry and business to access bank credit," Ahmed said.

But he felt foreign donors may provide more aid because Bangladesh had never reneged on repayment. "That may reduce the pressure on local banks," he said.

The BGMEA that represents owners welcomed the budget as one that will 'encourage exports'.

They lauded measures such as cutback on rates of income tax at source and tax on cash advances and welcomed policy to facilitate industrial decentralisation.

At a popular level, the aspiring middle class would have cause for mixed reactions with pensioners income exempted from tax, current income tax slabs remaining intact, bigger cars to cost less but mobile phones to cost more due to the 15 percent across-the-board VAT.

The budget aims to bring back investors to the stock market by raising the tax-free dividend income ceiling for individuals by Tk 5,000.

High-earners with annual income above Tk 4.42 million to be taxed at 30 percent instead of the current 15 percent and those sending children to English-medium schools will have to pay more.

Gold will be dearer, stationary cheaper and cancer drugs will cost less.

Public servants will be less than happy with Muhith, he is going to tax their allowances.

GDP growth

The GDP growth target in the new budget is 7.3 percent. In the last budget this target was 7.2 percent, but later it was revised down to 6.5 percent.

The World Bank, ADB, IMF and local economists forecast that the growth rate would come down below six percent. But according to Bangladesh Bureau of Statistics current estimate, there will be a 6.12 percent growth in the economy in this fiscal.

Inflation

The new budget plans to keep the average inflation within 6 percent. In the last budget this target was 7 percent.

At the end of April, the average inflation was 7.47 percent.

“Factoring the declining trend in food and energy prices in the international markets along with satisfactory domestic agricultural production and supportive monetary policy, I believe that the general inflation in Bangladesh will be hovering around 7.0 percent by June 2014,” said the finance minister in his budget speech.

Revenue target

The proposed budget’s revenue target has been set at Tk 1.82 trillion, almost 73 percent of the budgetary outlay.

The government expects Tk 1.49 billion to be raised from direct taxes collected by the NBR and Tk 55.72 billion from indirect taxes outside the NBR's purview.

Non-tax revenue has been projected at Tk 276 billion.

Budget deficit

The deficit stands at Tk 675.52 billion, which is 5 percent of the GDP.

Muhith said on Thursday that Tk 242.75 billion of this will be sourced externally while the rest of Tk 432.77 billion internally.

The finance minister plans to borrow Tk 312.21 billion from the banks (2.3 percent of the GDP), down from Tk 550.32 billion in the last budget.

Tk 12. 56 billion will be sourced from saving certificates and non-banking sources.

Bank borrowing to manage the deficit is always resented by business as it squeezes the private sector credit inflow and pushes up the interest.

Meanwhile, the budget has proposed removing taxes on interest on pensioners’ savings certificates and bonds up to a ceiling of Tk 500,000 annually -- a move clearly aimed at boosting sale of government-devised saving schemes.

Annual Development Programme

The size of the Annual Development Programme (ADP) for the coming fiscal is Tk 803.15 billion.

In his budget speech Muhith said that the human resource sector, which includes education and health, will get 24.3 percent allocation of the ADP.

The overall agriculture sector’s share will be 25.8 percent while power and energy sector’s allocation will be 14.3 percent.

Communication sector’s allocation will stand at 23.3 percent of the ADP.

District budgets

The latest in Bangladesh’s budget exercise is district-wise budget. The finance minister has been long saying that he had plans to do so and this year he started with seven districts.

Muhith has presented budgets for his home-district Sylhet, Khulna, Chittagong, Tangail, Barisal, Rajshahi and Rangpur.

Along with other budget documents a booklet titled ‘District-wise budget allocation 2014-15 (Sylhet, Khulna, Chittagong, Tangail, Barisal, Rajshahi and Rangpur)’ has been made available this year.