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9 June, 2018 00:00 00 AM
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Budget ‘lacks measures’ to address macroeconomic challenges

UNB
Budget ‘lacks measures’ to address 
macroeconomic challenges

Unnayan Onneshan (UO), an independent multidisciplinary think-tank, has said the proposed budget for 2018-19 fiscal year lacks measures necessary to address the macroeconomic, medium term and institutional challenges the economy is facing, reports UNB.

“The budget speech seems to lack providing prudent and farsighted solutions to the current challenges except it earmarks ambitious targets of expenditure amidst inefficient distribution of resources and cost overrun,” it said its rapid assessment of the new proposed national budget.

Inequality has widened on the back of the gap between return on capital and return on labour on the one hand and the persistent primitive accumulation in the form of looting in different sectors of the economy on the other, the think-tank said.

Institutional fragility has been evident in the economy, leading different economic sectors to fail to maintain discipline, it said, adding that institutional fragility and political uncertainty are contributing to lack of confidence among investors and entrepreneurs.

The UO said in the wake of parliamentary elections, investors may adopt wait-and-see policy about making investment since they are fearful about the process of the transition of power and the subsequent business environment recalling the situation after the national election back in 2014.

It said incapacity to implement the budget has been a major challenge in recent years. The rate of implementation has assumed a decreasing trend since FY 2011-12. In FY 2011-12, budget implementation rate was 93 per cent which decreased to 91 per cent in FY 2012-13, 85 per cent in FY 2013-14, 82 per cent in FY 2014-15, 81 per cent in FY 2015-16 and 79 per cent in FY 2016-17.Despite the increasing trend in tax revenue over the years, the tax-GDP ratio is very low compared to global average. In FY 2015-16, Tax-GDP ratio in Bangladesh stood at 8.98 percent, while it increased slightly to 9 per cent and 10.39 per cent in FY 2016-17 and FY 2017-18 respectively.

Bangladesh has a regressive tax structure where people with low income have to share relatively larger share of the tax burden due to different forms of indirect taxes.

In 2018-19 budget, revenue from income tax and VAT has been estimated to be Tk 100,719 crore and Tk 110,555 crore respectively. In FY 2018-19, 34 per cent of total NBR revenue would come from taxes on income and profit whereas 53.79 per cent would come from indirect sources, including Value Added Tax and Supplementary Duty, together. The budget has set a target of collecting Tk 339,280 crore as revenue receipts.

The target seems to fall short since a gap between revenue target and actual collection has been regular, the think-tank said.

In the first nine months of the current fiscal year, the revenue collection stood at Tk 144,000 crore against a target of Tk 167,000 crore leaving a shortfall by Tk 23,000 crore.

About the rising operating expenditure, the UO evinces that in the budget for FY 2018-19, a total of Tk 112,266 crore has been proposed for salary and allowances and interest repayment which constitutes 24.17 per cent of the total budgetary outlay. In addition, in the proposed budget for FY 2018-19, operating expenditure grows by 21 per cent while development expenditure registers a 13 per cent growth.

It mentioned that it has been regular phenomenon in Bangladesh that the mass people fear national budget. This is because budget has been the occasion of increase in price of many necessities either directly or indirectly. The measures taken in the budget 2018-19 is likely to increase price of some 19 commodities while reducing price of some 14 commodities.

While national budget is directly linked to the living standard of the mass, they have little stake in the formulation of budget. Lack of fiscal accountability in Bangladesh due to limited role of the parliament in budget-making process together with constitutional and systematic rigidities results in inefficiency, poor implementation of budget and misuse of public resources, the think-tank said.

It said due to persistent depreciation, the local currency has been exposed to serious pressure. In 2017, local currency has experienced a depreciation of 5 per cent against US Dollar. In May 2018, the exchange rate has stood at Tk 83.70 per USD which was Tk 80.69 in August 2017. Depreciation of local currency has added to the inflationary pressure on the mass.

Sluggish export growth and cut in the inflow of wage earners’ remittance along with high import payment is exerting pressure on the current account balance. Referring to the deficit in current account balance, the think tank finds that the current account balance recorded a deficit of USD 7.08 billion during July-March, 2017-18 due mainly to a significant trade deficit and lower income from services and primary income accounts compared to that of July-March, 2016-17.

High inflationary pressure is increasing the cost of living, thus gradually degrading the living standard of the mass by lowering the consumption capacity of the people with limited income. Statistics suggest that twelve-month average inflation increased to 5.83 per cent in April 2018 from 5.82 per cent in March 2018. Observing institutional fragility in the banking sector due to massive irregularities followed by rise in default loans and resulting capital shortfall, the UO shows that at the end of 2017, total default loans in the banking sector stood at Tk 74,303 crore, representing 9.31 per cent of the gross loan, compared to Tk 62,172 crore in the previous year.

Amid chaotic situation in the country’s financial sector and political uncertainty ahead of the national election, foreign investors are increasingly making exit from capital market, the UO said.

 

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Editor : M. Shamsur Rahman

Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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