Hard to attain growth target

The government faces an uphill task of achieving 7.3 percent economic growth in the next fiscal year given the dismal investment scenario, ambitious revenue generation target and lack of reforms to generate higher GDP expansion, economists said yesterday.
“The GDP growth might be a very desirable target, but the budget structure and the associated measures don't generate confidence that this number is achievable,” Debapriya Bhattacharya, a noted macroeconomist and public policy analyst, told The Daily Star.

In order to achieve the GDP growth target, the country would need to have around 30 to 33 percent investment-GDP ratio, up from around 28 percent now.  
Only 7-8 percent of the required investment-GDP ratio would come from the public sector, meaning the private sector would have to chip in with 25 percent, he said.
Private investment now stands at 21 percent of GDP as per the latest data from the Bangladesh Bureau of Statistics.
“This implies that we will need an extra four percentage points of incremental investment from the private sector. That is a highly ambitious number and has hardly ever been achieved in the nation's history,” said Bhattacharya, the distinguished fellow of the Centre for Policy Dialogue (CPD), a leading think-tank.
While the budget is providing a wide range of tax concessions, tax rebates, harmonisation of tariff structures and cuts in supplementary duties, it would still not be enough to generate the desired levels of private investment.
A much more rigorous implementation of a large number of reform measures are needed to attain the 7.3 percent growth, he said.

The reforms will not only be in the National Board of Revenue and in implementation of the Annual Development Programme (ADP), but also in areas such as management of state-run enterprises and banks, local government financing and development administration.
“I am disappointed to see no such rigorous measures propagated in the budget.”
The noted economist said the investment in infrastructure would not immediately help the private sector, provide necessary incentives to new investors and reduce the transaction costs for current investors.
He said many of the fiscal measures taken by the budget are quite logical and practical in nature, and one would feel comfortable with the tax measures.
“But what is not immediately evident is that how much revenue will be lost because of these concessions and how much will be gained.”
Bhattacharya went on to express reservations about the deficit financing, as it will rely on higher domestic resources, mainly banks.
“What is spectacular is that the budget expects a gross inflow of $4 billion in foreign aid in the next fiscal year. Bangladesh has possibly never received that amount of foreign aid in its history.”  
On 6 percent inflation target, the CPD expert said the economy will heat up if the announced high-profile infrastructure projects get the jump-start this year.
“It will be difficult to energise investment and contain inflation at the same time. Maintaining both would be quite a challenge.”
He also touched upon the issue of amnesty to black money. “The budget does not specifically mention anything about it, but it seems the old provision continues. We are on principle against it.”
“I think that it will not be possible to implement the budget,” AB Mirza Azizul Islam, a former finance adviser, told reporters, while touting the budget deficit to become acute in the next fiscal year.
“It will not be possible to meet up the deficit financing in reality. Besides, there is lack of transparency and administrative skill, integrity and honesty in implementing the development budget.”
Mustafa K Mujeri, director general of Bangladesh Institute of Development Studies, said while the budget is getting bigger every year in line with the demand, the problem of implementation continues.
“I don't see any improvement in the capacities of the ministries and agencies relating to the implementation of budget. The problem will get acute unless we resolve the capacity constraint.”
On the barren investment scenario in the country, the economist said determined effort needs to be taken to regain the confidence of investors.
Akbar Ali Khan, a former caretaker government adviser, said the revenue generation target is highly ambitious from one point because it is large in terms of number. “But it is not that large in terms of GDP.”
“It is not clear to us whether the revenue generation target will be achieved. If it is not achieved the budget deficit will grow further, which will not bring any good to the economy.”
He said a number of big projects have been taken up for implementation with domestic financing.
“Those projects will not bring any immediate yields. If we don't get immediate benefits, it may affect inflation.”
Prof Mohammed Farashuddin, a former governor of the central bank, too thinks achieving the 7.3 percent GDP growth would be no easy task. “But, it is possible.”
To achieve the targeted economic growth, the government would have to accelerate private investment, raise total investment and make investment more productive, he said.  
The reduction in allocation for health care and education system from the ADP could have a negative effect though, according to Farashuddin.
“If we can manage alternative financing for the Padma bridge project, some of the money earmarked for the project could go to the health and education sectors.”