In future, debt sustainability may become an issue due to additional debt servicing pressure from foreign-financed large infrastructure projects
The Centre for Policy Dialogue has compared the lofty projections with ground realities to reveal that most of those were far from reality and would send a wrong signal worldwide, making Covid-19 response funds created by global agencies less accessible for Bangladesh.
The research organization reveals the wide gap putting the new projections in the context of revised budgetary figures and trends in activities both in domestic and external fronts.
Export growth target has been set at 15 percent for FY21, when up to May FY20, total export growth was a dismal (-)18.0 percent with both RMG and non-RMG exports in hot waters, registering negative growth of 19 and 12.7 percent respectively.
Similar mismatch is seen with import figures. Growth target for import has been set at 10 percent in FY21, while it posted an 8.8 percent negative growth up to April of the current fiscal year (FY20), with capital machinery purchase, vital indicator for manufacturing activities, showing an alarming 33.5 percent decline.
Up to February FY20, total L/C opening exhibited a growth of negative 1 percent while that of capital machineries recorded a decrease by 0.6 percent.
Finance Minister AHM Mustafa Kamal on Thursday placed a Tk568,000 crore national budget for 2020-21 fiscal year in parliament amid the economic fallout caused by the coronavirus pandemic.
The revenue collection target has been set at Tk378,000 crore, which is 66 percent of the total budget. On the other hand, the overall budget deficit will be Tk190,000 crore. Some 66 percent of it will be financed from domestic sources.
Stating that achieving 8.2 percent GDP growth is "impossible", the CPD said the proposed budget has focused more on GDP growth rather than on finding ways of revitalising an economy battered by the coronavirus pandemic.
The budget for 2020-21 fiscal year is a "conventional one" and the coronavirus crisis has not been reflected in it, said Fahmida Khatun, executive director of the think tank, at an online press briefing on the CPD's budget reaction.
Fahmida Khatun said, "Many developed and underdeveloped countries in the world are under tremendous economic pressure because of the pandemic. But they are not bothered about GDP growth. According to predictions of different international organisations, even the world's largest economies are now moving towards negative or much lower growth."
In this situation, she termed the finance minister's ambitious target of achieving 8.2 percent GDP growth for the next fiscal year as an impossible one.
"It is not time for economic growth. Now, we have to think of how we can recover our economy from the coronavirus shocks," she stated.
In this pandemic situation, the targets for GDP growth, export, import and private and public investments should have been set in the light of reality, Fahmida Khatun said.
"If we don't project the data properly, it will send the wrong message. If we show we are good even during a pandemic, there is no major economic loss or no major impact on growth, investment and employment, then we may face obstacles in getting support from Covid-19 global fund," she said.
Remittance growth target for FY21 has been set at 15.0 percent.
Though remittance inflow posted a rise of 8.7 percent up to May FY20 over corresponding figure, this dynamic might soon change due to job losses in the host countries, lower outbound remittance from GCC countries due to Covid-19 and oil price slump, various restrictive measures and stringent health related conditionalities.
Overall outlook on outward migration remains somewhat bleak, showing 11.6 percent negative growth during July-May period of FY20.
Several lakhs of expatriate Bangladeshis have returned home during the pandemic and many are in fear of being sent back home.
In future, debt sustainability may become an issue due to additional debt servicing pressure from foreign-financed large infrastructure projects, the research organization warned.
Public debt as share of GDP is at a reasonable state for Bangladesh, 33.2 percent in FY19 and 35.6 percent in the revised budget for FY20. It may increase to 36.8 percent in FY21– driven by higher domestic and external borrowing in view of the COVID-19 pandemic, the CPD said.
Since 62.4 percent of the public debt is currently met by domestic sources, the government needs to utilise low-cost foreign borrowings.
It expressed concern over considerable rise in Interest payments for domestic debt.
Debt servicing may account for 18.3 percent of total revenue expenditure in FY21, 91.3 percent of which will be spent as interest of domestic debt.
CPD finds the projection of public expenditure growing faster than revenue mobilisation is "far from reality."
The underlying trends of private investment, productivity, private sector credit, export, import and remittances pose serious questions as regards the predicted "V-shaped" recovery path, it added.
"It appears that targets have been set not keeping in mind the Covid-19 impact. At a time when countries worldwide are projecting negative or nominal growth, the government is projecting pre-Covid-19 rate of 8.2 percent," Dr Fahmida Khatun said, elaborating on their analysis of the proposed budget and its projections.
Questioning how far the targets are realistic, the CPD executive director said pretending to be stronger in a tough time will give a wrong message globally and make Bangladesh's case weaker for global fund for post-Covid recovery.
Criticizing such assumptions on the government's part, the CPD executive director said no one knows when the pandemic will end. It is also not known at this time how much more damage it will cause. In such circumstances, there might be a necessity of reconsidering the budget considering the realities. And for that the government needs to be ready.
The finance minister in his budget proposal has rightly put emphasis on five sectors, including health, agriculture, social safety net and employment generation, but the CPD feels priorities have not been translated into action through innovative approaches and allocation of adequate resources.
"There should have been commitments and enough allocations for these sectors as the highest priority ones," Fahmida Khatun said.
She mentioned that the heath sector has not been given enough allocation to tackle Covid-19, the allocation increasing only to 0.92 percent of GDP from 0.84 percent in the current fiscal year.
Prof Mustafizur Rahman, distinguished fellow of the CPD, said the revenue collection target of over 50 percent more than the revised target for the current financial year is "unrealistic".
Offering an opportunity to whiten black money in the budget is "unethical" which will discourage good taxpayers. Instead, he said the government should act against those who have made black money without paying taxes following the National Board of Revenue law.
Mostafizur Rahman thinks that it will also be challenging to achieve the investment target set in the budget. Growth for the private sector investment has been set at more than 24 percent. On the other hand, the budget proposed a significant amount in bank borrowing. If the banks cannot provide liquidity supports to the private sector, the investment will be hampered, affecting employment generation.
Tax structure will benefit rich people
The CPD claims that well-off people get some advantage from the tax structure in the proposed budget.
The increased tax-free income limit for individual taxpayers will reduce tax burden of a lower-income person by Tk5,000. But, for a super-rich person, the exemption will go up to Tk2.38 crore, according to the think-tank's calculation.
Towfiqul Islam Khan, Senior Research Fellow of CPD said the new structure would provide a tax deduction of Tk62,500 a year for a person with a monthly taxable income of Tk5 lakh. Thus, the income tax exemption for an income of Tk10 lakh will be Tk362,500. And the super-rich, whose monthly taxable income is Tk4 crore, will get a deduction of around Tk2.38 crore at the end of the year.