Goal higher, route unclear
Finance Minister AMA Muhith has set a good target and strategy to reach over 7 percent growth next year and 10 percent by 2021. His ambitions are bold – to hike industry's share in national growth to 40 percent from 25 percent, to move big projects in public-private partnership, and to squeeze out more revenue.
But he must also face present-day realities. There has not been any magic change in his implementation mechanism for him to have a big development plan roll successfully. He does not know if political stability -- he has in many places of his speech put emphasis on it -- will be sustained. Or whether global recovery, till now very weak and well below target, will be strong enough to generate exports and remittances.
He has not mentioned any specific institutional reforms to make his manpower work better for a realization of the plan. And the bureaucracy, as known to all, snails in this country.
However, the finance minister has tried to do his best in many areas, industry being one. He has encouraged a decentralization of industries with special benefits. He has helped a number of key sectors, including pharmaceuticals, shipbuilding, tyres, poultry, textiles and above all readymade garments.
But his growth target of 7.3 percent for next year will certainly fall flat. According to the Bangladesh Bureau of Statistics, one needs Tk 4.7 investment for every Tk 1 output. At this configuration, a 7.3 percent growth will need a 34 percent GDP-investment ratio. With the current 29 percent, it means a 5 percentage point improvement. Such sudden increase is unprecedented worldwide.
Although lofty in targets, the proposed budget is lacking in specificity. The minister has laid out a vision, but we do not know what the specific tasks and targets for the next year are.
The proposed budget for the next fiscal year (FY15) has also tried tweaking some tax provisions. For example, the truncated base value for VAT has been withdrawn, discretionary powers of VAT officials reduced and tax deduction rates at source reduced.
But one is not sure how much of the minister's bet on increased income tax to generate revenue will come true. There has not been any new approach to tax collection. The minister has rather restated the old reforms.
The proposed budget looks at growth from a long list of mega projects. But how many of those projects will come through and at what implementation rate is a huge question.
Muhith has shown, as before, a lot of compassion for the poor and the marginalized. His plans for Char and Haor people are well thought out. His targeting of extreme poverty with Tk 1,500 crore is correct. Skill development plans to develop manpower are also laudable. Again, how much and how efficiently these can be implemented remain a question.
There are areas where the finance minister has remained rather vague. For example, he has not said anything new about physical infrastructure, planned urbanization or overseas employment. A lack of specifics makes one wonder whether these vital issues will be addressed in their proper importance. For example, while stressing too much of PPP, one still wonders when the PPP act will be approved and then when the rules and guidelines will be drawn up.
In the end, it can be said that the next budget will need to see a much improved aid utilization. This is because with increase in domestic borrowing, the flexibility of the non-development budget has shrunk. So for additional investment Muhith will have to depend on foreign funding, which is not easy to pump out from a pipeline already bulging with $19 billion. And at the back of the mind, the Asian Development Bank's report that 50 percent of a project's time passes by only to release 20 percent of its finance remains vivid.