7pc growth difficult, not impossible: WB

Achieving 7 percent economic growth will not be impossible for Bangladesh if there is political stability and increased investment, the World Bank said yesterday.

The multilateral lender said the country would have to raise investment to 33.5 percent of gross domestic product from the present 29 percent to attain the next fiscal year's growth target.

The government is aiming for 7 percent growth in fiscal 2015-16, a figure which was attained only once in the last two decades, in fiscal 2006-07.

“It is not an impossible target but a challenging one,” said Zahid Hussain, lead economist at WB's Dhaka office, at a press briefing to share its analysis on the proposed budget for fiscal 2015-16.

Bangladesh has been striving to come out of the 6 percent growth trap for the last several years, but infrastructural bottlenecks and other factors have held the country back.

Hussain said investment as a percentage of GDP has to increase at least 2-2.5 percentage points from the present 29 percent.

Without such a spike, given the current trend of economy, 6.2 percent growth would be possible.

About the inflation target, the WB economist said it is realistic and consistent with the monetary policy.

The size of the budget is by no means high by international standards, he said, adding that funding could become a constraint to implementing the budget properly.

There is a possibility of revenue collection being less than the target and foreign aid lower than desired amount.

The government has set a target to raise revenue collection by about 30 percent in the upcoming fiscal year over the current year.

The last time revenue collection grew by such large percentage was in fiscal 2007-08, when 26 percent growth was logged in.

In recent years, turning economic growth into revenue growth has been challenging, Hussain said.

“Revenue collection grew in that year due to tapping of low-hanging fruits. Such scope appears to be low now,” he said, adding that revenue collection might rise by 17-18 percent at most.

In fiscal 2007-08, revenue collection grew by leaps for identification of large taxpayers, intensive monitoring of Chittagong port by joint forces, a special drive for income tax collection and a time bound opportunity to declare undisclosed income with high penalties.

Hussain said a boost in revenue collection growth depends on fiscal policy and tax effort.

The multilateral lender is doubtful that the development expenditure targets can be met. “History does not provide much comfort. Obsession with achieving size risks erosion of quality,” said Hussain.

Attaining the desired flow of overseas funds may also be challenging given the current implementation pace of foreign-aided projects in the Annual Development Programme. The task-force for monitoring the ADP implementation has to do a lot better in accelerating the pace of the projects, he said.

The domestic financing target is feasible but the challenge will be in handling the impact of revenue and aid disbursement shortfall as expenditure utilisation improves, Hussain added.

REFORMS

The multilateral lender said there are some laudable intentions of reforms but limited actions. “There is a disconnect between intentions and initiatives,” said Hussain.

The WB said a number of reforms intentions --brining efficiency in public expenditure management, financial sector reforms, digital land zoning map -- were shared in the budget but the initiatives were limited.

It said there were opportunities for reforms in energy pricing and regulatory reforms, but these were missed.

The 'doing business' reform got limited attention, while the financial sector reforms lack direction. Infrastructure management reforms are also missing, he said.

The WB economist was also critical about the government move to give the go-ahead to new banks in an already crowded industry. “There is no point in establishing new banks in the public sector.” Hussain recommended consolidation and merger of banks.

The WB also called for not overtaxing the honest taxpayers to attain the high revenue collection target, improving the quality of the development projects portfolio, allocating sufficient resources to existing and new infrastructure.

It also suggested structural reforms in business regulation, infrastructure management and ensuring improvement in the quality and coverage of service delivery.