Mostafa Al Hossaini, Md. Parvez Alam
The economy of Bangladesh is considered to be one of the promising and fastest growing economies in the world. Almost all the economic indicators are in good shape consistently showing an improving trend and leading the economy to a healthier state, at least the numbers say so. But what we need to understand is that these numbers, numerical figures can be exaggerated and hence, often deceiving.
A few days ago, the budget for the 2019-20 fiscal year was unveiled in parliament. This government came into power with a number of promises and the most effective way to act on the promises they made is budget and that makes this budget as important for them as it is for the state.
In terms of size, this budget may look lofty and aspiring one, but to support the steady economic growth the country is making, one may justify a budget of this size. However, questions remain about the quality of budget implementation as historically this has been poor for us.
This budget has proposed a 2% incentive for money remitted by expatriate Bangladeshi which would definitely encourage bringing foreign remittance through legal channels. Besides, fund allocation for startups is an appreciable move by the government.
Though notable economists are arguing that this budget comes with a lot of blessings for businessmen, private sector investment is stagnant for the last few years; nonetheless, this sector is the most effective source of employment generation. The poor status in Ease of doing business index, lack of efficient labor force, insufficient energy supply and rising financing cost are some of the factors hindering the private sector investment. If above-mentioned issues are not solved promptly, there’s less possibility that private sector investment would increase and projected GDP growth would be met.
Besides, private sector credit growth is significantly low hovering around 12%. Government promises to create crores of job opportunities for unemployed but how that is not clearly specified.
The new VAT law might come with some usefulness and benefits for both government and business community but the government must ensure that underlying complexities don’t harass the taxpayers.
Budgetary allocation for education in FY 2019-20 is 2.1% of GDP which is the lowest among the south Asian countries. We are about to face the 4th industrial revolution and for that, we need to get prepared with a knowledge-based economy and a technologically sound generation. In such a ground, BDT 500 million allocations for research and training is quite negligible.
The tax to GDP ratio is 11% which is the lowest among the South East Asian counties. Finance minister stipulated that around 1.5 to 1.8 million people are paying income tax whereas the number could be 1 core or more. The contribution of direct tax in our revenue collection is historically low somewhere between 30-40%; experts opine that this could be increased by bringing more taxpayers under the tax net. Introduction of automation, appointing more skilled officials and of course making tax return process simpler can play a role in this regard. However, the contribution of indirect tax is high which not only fuels the inequality in the country but is also creating challenges in building an inclusive society.
The income inequality has been increasing in an unprecedented way due to the further increment of wealth concentration and the increment of ultra-rich people in the country. According to the report of Wealth X, Bangladesh positioned the top of the list that saw the quickest growth in the number of ultra-wealthy people and the rate of increment is 17% from 2012 to 2017.
Economists stipulated that subsidies, tax exemptions, imprudent macroeconomic policies, frequent loan scheduling of habitual loan defaulters and the government's bad policymaking are the major barriers to the development of a sustainable economy. The weak fiscal framework where the burden of taxation falls more on the shoulders of poor people deepens the economic and social disparity.
Total $18 billion deficit which is 5% of GDP, would have to be managed by the government to support the development activities. The government looks forward to financing the deficit at 50:50 ratio from national and international sources but the worst part of this financing is that almost $7 billion of $9 billion will be raised form saving certificates which are known as one of the most expensive modes of financing around the world. And the rest $2 billion is supposed to be collected from the banking sector which may further accelerate the liquidity crunch in the banking sector.
Soaring interest rate expenses and inefficient management of financing are not only eating tax money but also creating obstacles in setting a market-based interest rate. It’s high time to abolish the nonmarket interest rate on savings certificates and hand over the deposit mobilization to the banking sector.
Instead of taking punitive measures against willful defaulters, the capital injection in a repeated manner is not going to bring any good for the banking sector. A bank commission was supposed to be formed as per government's promise made last year, but so far no progress in that regard is seen.
Though the prime job of the ministry of finance is to discover the most economical way of deficit financing, it has not been the case at least in the last eight years. The scholars claim that the development of the bond market which could be the easiest way to raise the fund for long term infrastructural development is now an urgency. The development of the bond market does not only facilitate the efficient allocation of the fund but also attracts and invites the local investors to do investment in their very own economy.
The scholars suggest that higher budgetary allocation to health, nutrition, vocational and polytechnic education, social safety net benefits and bringing the higher net worth people under tax net might reduce the economic and the social disparity in society. Last but not least, if corruption is checked, good governance and cooperation of all stakeholders are ensured, we hope that this budget appears to be a successful one leading the state to achieve the vision 2021.
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