If the government borrows heavily from the banking sector, it will affect credit flow and investment in the private sector, according to AB Mirza Azizul Islam, an economist and former adviser to the caretaker government.
The government plans to borrow Tk 85,000 crore from banks in order to meet the deficit in the proposed budget for fiscal 2020-21.
However, over-borrowing will hamper funding for private investors, who are going through a tough time due to the coronavirus pandemic, said Islam while addressing a digital meeting on the budget and economic development.
During the discussion, arranged by the American Chamber of Commerce in Bangladesh (AmCham), Islam said that achieving 8.2 per cent GDP growth is near impossible in the current situation.
"Both GDP growth and revenue collection will be lower this year because business has been slow amid the ongoing pandemic," he added.
AmCham President Syed Ershad Ahmed moderated the meeting.
Considering the situation, the government should reduce unnecessary spending on sectors like foreign travel and focus more on farm mechanisation, implementing social safety net programmes and rural development.
Besides, a drastic fall in corruption is needed while improvements to the country's ease of doing business ranking, bureaucratic efficiency, and rule of law are also crucial for attracting both domestic and foreign direct investment, Islam said.
"The Anti-Corruption Commission should carry out their duties without fear or favour while the organisation itself should be assessed to improve its efficiency," he added.
Ever since the two-month lockdown that began on March 26, both domestic and foreign investment has slowed down.
To remedy the situation, the government needs to propose a realistic and pragmatic budget, said Ahsan H Mansur, executive director of the Policy Research Institute (PRI).
Echoing Islam's sentiment that 8.2 per cent GDP growth in the upcoming fiscal year is an unrealistic dream, Mansur also said that the government's target to achieve a 55 per cent increase in revenue collection might not be met amid the coronavirus fallout.
The government must bring drastic reforms to the tax administration to improve tax collection and remove corruption and bureaucracy, he added.
There are not many provisions for poor people in the proposed budget but the government will have to take some measures soon in order to feed the nearly 50 lakh people who either lost their jobs or had their income slashed due to the pandemic, the PRI executive director said.
Most borrowers, especially micro, cottage, small and medium enterprises, are not receiving funds from the government's Tk 20,000 crore stimulus package since the banks' profit margin is around 1 per cent.
With such a low profit margin and high operation costs, banks have lost interest in disbursing funds from the stimulus package, which was meant to help small-scale firms survive the COVID-19 outbreak.
"The profit margin should be around 3 per cent at least," Mansur said.
Unfortunately, the construction and maintenance of roads and highways are always prioritised even though waterways and railways have high potential. If corruption in the railway sector was curbed, it would benefit passengers the most.
"Similarly, if the government sells the sand collected from riverbeds to traders, the cost to dredge the river would be practically covered," said the PRI executive director.
In most cases, contractors leave the dredged sand on banks of the river from which it came. As a result, the material just seeps back into the waterbody, he added.
Md Mosharraf Hossain Bhuiyan, a former chairman of the National Board of Revenue, urged the government to reconsider its decision to increase taxes on mobile phone services.
The small and medium enterprises (SME) sector, which accounts for 25 per cent of the country's GDP, were affected the most by the COVID-19 pandemic, according to former AmCham president Aftab ul Islam.
"We need to boost SMEs in order to increase the sector's contribution to the national GDP to 40 per cent," he said.
The fact that banks consider SMEs to be a risky investment should be changed as the loan recovery rate from this sector is higher than that of others, added Islam.
Planning Minister MA Mannan said that the government has been working hard to protect the job market through numerous initiatives.
Apart from the stimulus packages, the government has already transferred Tk 2,500 to 50 lakh ultra-poor families and now plans to feed a further 40 lakh families across the country.
"The target is to bring the poverty rate, which currently stands at 35 per cent due to the COVID-19 outbreak, back down to 20 per cent," Mannan said.
In regards to bank borrowing, Mannan said that the government plans to borrow from the World Bank and International Monetary Fund to meet the budget deficit.
Besides, the inflow of remittance is still good, the agriculture sector is doing well and a decent amount of foreign direct investment can be expected to arrive as the government has taken steps to encourage investors, Mannan added.
Fazlul Hoque, former president of the Bangladesh Knitwear Manufacturers and Exporters Association, and Shams Mahmud, president of the Dhaka Chamber of Commerce and Industry, also spoke during the event.