Challenging but achievable
With the budget implementation rate falling consistently for the last seven fiscal years, Finance Minister AMA Muhith yesterday said the government would achieve the targets in the proposed budget even though its execution starts in an election year.
“The budget [for fiscal 2018-19] is achievable ... Even though this is an election year, the implementation will not be bad,” he said at a post-budget press briefing in the capital.
“We will achieve the targets we have aimed for. When we fix a target, we hope that it is achievable.”
While placing budgets in the past, Muhith had always said they were achievable. But later it turned out that those could not be executed completely due to poor capacity of the government agencies.
On Thursday, the finance minister placed Tk 464,573-crore budget in parliament for fiscal 2018-19, which is 25 percent higher than the revised budget of the outgoing fiscal year. Over the last few years, the increase in the size of budget was 17-18 percent.
Only a week ago, Muhith had lamented poor implementation capacity of the government agencies, saying, “It is indeed a very bad signal. For example, I have been trying to form a pool of project directors for the last two years. But until now, even a list of project directors has not been prepared. This is totally a bureaucratic failure.”
He also talked about the need for reforms.
But in the proposed budget, he did not come up with any significant reform measures to improve the capacity of the government agencies.
There is growing concern that implementation of the proposed budget may be hampered as the country goes to election this year.
Since 2014, the political situation has been almost quiet and calm. Political analysts fear this may change ahead of the national polls, centring on the mode of the election-time government, an issue that still remains unresolved.
At yesterday's press briefing, Muhith said that during an election year, polls-related activities usually start in April and continue till the election. But such activities have not yet gained momentum this time.
It will be better if less time is spent on electoral activities because they disrupt work, he said.
In response to criticism for placing an election-oriented budget, Muhith said all of his budgets were prepared keeping the elections in mind.
“All of my budgets are election budgets because I am an important member of a political party. So, I give a budget that everybody will like.”
“But this is not done for a single year. It is applicable for every year.”
The minister acknowledged that the shortfall in budget implementation has widened in recent times. “But this has come down in the current fiscal year and we hope it will go down further in the next fiscal year.”
Muhith said he kept his promise that he would not introduce any new taxes. “I have been able to keep my word.”
He, however, backtracked on his plan to form a banking reform commission to establish discipline in the banking sector.
“We will not form any banking commission now. We have completed all the paperwork for this. But we will leave it to the next government,” he said.
The about-face on the banking commission came only three days after he shared his plan on its formation this month.
Muhith, however, remains persistent on his proposals for empowering the local government institutions to take the economy to higher growth trajectory.
He wants devolution of power to local governments as a key step towards good governance and higher growth. He has been talking about it for the last two years.
"I don't know when it will take place, but it will happen someday,” he said, adding that the responsibilities of local governments have to be expanded.
On the proposal for slashing corporate tax for banks and financial institutions, Muhith said there are not many countries where corporate tax rate is more than 40 percent.
“So, we are trying to bring it down.
“We have done this intentionally, and this change has not been done suddenly. We have discussed it with the prime minister long ago.”
He, however, said the highest corporate tax rate of 45 percent for tobacco companies will remain in place.
Muhith also said the government deserves credit for being able to maintain a high growth rate despite less investment and a low tax-to-GDP ratio.
“This has been possible because we have been able to utilise whatever limited resources we have in innovative ways.”
Prof Shamsul Alam, a member of the General Economics Division of the planning ministry, said Bangladesh is in the safe zone when it comes to debt-to-GDP ratio.
Of the country's 32 percent debt-to-GDP ratio, 19 percent is local and 13 percent is external, he said at yesterday's briefing.
Shamsul also mentioned that Japan's debt-to-GDP ratio is 200 percent, and that of Singapore is 117 percent.
Planning Minister AHM Mustafa Kamal said the government follows a redistributive taxation system where people with high income pay more tax and those with low earnings pay less tax.
He said the income tax rate is high in Bangladesh but this can't be reduced drastically.
It would have to be cut gradually, Kamal pointed out.
Asked about the national savings certificates, Muhith said the government was yet to decide on any change in their interest rates.
He also spoke about the country's debt burden.
The minister said the debt now stands at about $30 billion, and the Rooppur Nuclear Power Plant alone will account for $12.5 billion.
“But the credit for the nuclear power plant will not be taken in a single instalment. It will come gradually for a long period until 2024.”
The remaining debt of $17.5 billion is very negligible for a country like Bangladesh, he said.
“In fact, we are one of the lowest debtors in the world. Besides, our debt repayment record is very impressive and we have never failed to repay an instalment.”
Moshiur Rahman, economic affairs adviser to the PM, said the credit taken for mega projects would not put any pressure on the economy.
“Every project we are investing in will create new economic activities, ensure smooth transport system, and boost productivity and exports.”
About the revenue generation target, Md Mosharraf Hossain Bhuiyan, chairman of the National Board of Revenue, said the number of tax identification number (TIN) holders is now 36 lakh, and the number is going up every month.
“Awareness about paying tax has increased. Obtaining TIN has been made mandatory in many cases. Even people in rural areas are obtaining TIN.”
The corporate tax has been cut for the sectors that pay the highest rate, he said.
The NBR chief mentioned that the government will introduce electronic fiscal device within a year to ensure that all small businesses pay value-added tax.
Bangladesh Bank Governor Fazle Kabir said the government and the central bank have given some benefits to the banking sector because of the liquidity mismatch in the sector.
Mohammad Muslim Chowdhury, secretary of finance, said the ministry has taken measures to reform the budget management.