CPD sees expansionary fiscal policy better for economy

Dhaka,  Wed,  20 September 2017
Published : 17 Apr 2017, 00:41:13
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CPD sees expansionary fiscal policy better for economy

Criticises govt limitations in budget implementation
FE Report


The economy deserves an expansionary fiscal policy to move forward, local think tank Centre for Policy Dialogue (CPD) said Sunday.

But it criticised the government machinery for its limitations in implementation of the budget and resource mobilisation.

CPD distinguished fellow Dr. Debapriya Bhattacharya said the next national budget would be the last full-fledged budget proposal before the next general election, and definitely it will be an expansionary budget.

"But it would be meaningless to propose a large budget without enhancement of the budget implementation capacity," he told a pre-budget meeting at a city hotel.

He was replying to a volley of questions from the local media after placing the think tank's pre-budget recommendations for the fiscal year 2017-18.

Chaired by CPD executive director Fahmida Khatun, CPD distinguished fellow Professor Mustafizur Rahman and additional research director Dr Khondaker Golam Moazzem also spoke on the occasion.   

Dr Bhattacharya argued that the revenue authority registered an average collection growth of 13 per cent in last five years, but wished to set a high target of 34 per cent in the next fiscal year.

On the other hand, the spending growth averaged less than 12 per cent in the past five years, but now the government deliberately wants to leap it up to 27 per cent.  

Terming such statistics of the government as 'fiscal illusion', Dr Bhattacharya said the magnitude of such kinds of illusion rises on the eve of the general elections.

Dr Bhattacharya lamented the implementation performance of Annual Development Programme (ADP) in last three months of a financial year and termed it as a last quarterly 'vicious cycle'.

"In nine months we achieve 45 per cent of ADP and in the last three months we attain the remaining 55 per cent," he said, expressing dissatisfaction over that the Implementation, Monitoring and Evaluation Division (IMED) never reveals any result-oriented evaluation of ADP executions.

"…to my mind, the representatives of the people in the parliament also do not want it and this is a matter of political economy," he added.

He said the rates of growth and others indicators would not provide any meaning until bringing any reform in such political economy.

Meanwhile, CPD senior research fellow Towfiqul Islam Khan presented a paper on the state of the Bangladesh economy in fiscal year 2016-17, recommending measures to cut prices of kerosene and diesel in the next budget for the benefit of lower income group of people.

He said the cost of production would increase further in the next fiscal year as the new VAT and SD Act is scheduled to be effective from July 1, possible depreciation of exchange rate, rise of rice price and possible rise in electricity and gas price.

CPD apprehended that the cost of production would increase following the new VAT and SD Act which is scheduled to become effective on July 1 while the local currency is likely to depreciate, the price of rice would rise and the prices of electricity and gas would increase further.

"If the new budget reduces the oil prices, it would offset the cost of production," said Mr Khan. He recommended providing strategic protection to promote domestic market-oriented industries.

He said the income tax rate for the first slab of individual's taxable income should be 7.5 per cent from existing 10 per cent as it would enhance the disposable income.

The CPD fellow also recommended gradually lowering the Value Added Tax (VAT) rate to 12 per cent instead of the uniform 15 per cent.

"It is reckoned that Bangladesh's proposed uniform VAT rate is on the high side when compared to her neighbouring low and middle-income countries in South and East Asia," he said.

He said there is a need for an assessment of government spending to properly diagnose public expenditures. "We're suggesting such assessment not for the current fiscal year, but also for all time …" he added.  

The think-tank said budget should come with a set of associated reform agenda, including banking commission, independent financial sector reform commission, agricultural price commission and public expenditure review commission.

The commissions should come with the mandate to provide medium term policy guidelines to the government and formulate concrete set of strategies to improve the efficiency in budget delivery, it said.

However, Dr. Bhattacharya said there is a very little hope that the government will form such commissions before elections as these commissions will create discomforts for many influential people.

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