FE Report
The revenue collection target in the fiscal year (FY), 2012-13, will be a difficult task to accomplish by the National Board of Revenue (NBR).
The NBR's failure to achieve the target will lead to increased borrowings by the government from the banking sector to meet its bulging expenditure, creating a crowding-out effect on the private sector.
This updated assessment has been made by the Centre for Policy Dialogue (CPD).
The country's one of the leading think-tanks projected the GDP (gross domestic product) growth in fiscal '13 at a level below the 7.2 per cent targeted by the government in view of the slowed-down economic activities.
Unveiling an analytical review of Bangladesh's macroeconomic performance in fiscal year 2013 at its office in the city on Saturday, CPD Executive Director Dr Mustafizur Rahman said the NBR collected revenues during the first five months ending November 2012 at a level which was 15 per cent higher than those of corresponding period last fiscal against its revenue growth target at 18.9 per cent during the period under report.
"It (NBR) needs to collect revenues at an incremental rate of around 22 per cent in the next seven months to achieve its annual target which we believe is a difficult task for it," he said.
He stated the government has verbally asked the NBR to mobilise an additional amount of Tk 80 billion to fund its budget deficit.
"The collection of this additional amount is an impossible task for the NBR, considering its recent performance," he said.
Dr Rahman said attaining target from net sales of the instruments under the national savings scheme (NSS) will also be a difficult job, considering the performance during the first four months of the current fiscal, up to October last.
"Our projections about the NSS is that the government's net sales of savings instruments will, at best, be Tk 20 billion against its target of Tk 74 billion in fiscal 2013," he said.
The government's expenditure, the CPD executive director noted, is on the rise mainly due to the payments of interest on its earlier borrowings from domestic sources.
Dr Mustafizur Rahman said: "We observe that the government's failure to meet its budget deficit from NBR, NSS and other domestic sources will automatically lead to borrowing of, at least, Tk 100 billion from the banking sector which will adversely affect the private sector investment."
He said the high cost of borrowing has remained an impediment to private sector investment and the present trend of investment is much lower than the sixth five-year plan target of 29.6 per cent growth of GDP (gross domestic product).
He said the import of capital machinery grew negatively by 13.6 per cent during July-September or quarter one (Q1) period of the current fiscal.
He said private commercial banks faced considerable decline in their profits in Q1 of this fiscal in the face of falling imports.
He said import of other capital goods also grew negatively by 8.3 per cent during the period under report, of the current fiscal year.
Dr Rahman, however, said there was a robust growth in the remittances during July-November period at US$ 5.0 billion which was about 25 per cent higher than the corresponding period of the last fiscal.
But, the country's export earnings remained much lower than the earlier estimated level, he added.
Exports grew at just over 4.0 per cent during the July-November period of the current fiscal as compared to the 17.6 per cent during the corresponding period of the previous one, according to the CPD.
"Exports need to grow at the rate of 21 per cent during the remaining months which is also an impossible task for the exporters to score, in the context of the prevailing global scenario," Dr Rahman said.
He said in such a state of economic performance during the first five months of the current fiscal, the country's real GDP target of 7.2 per cent for the year will not achieved.
"Our projection is that it (GDP) will be either 6. 3 or 6.4 per cent," he added.
The CDP executive director said the latest fuel price hike will put a pressure on the common people.
It will affect boro production and stoke further inflation, he said.
He said the government's position on diesel subsidy is not clear -- it needs to be increased to help prevent the rise in cost of paddy production.
He said in his presentation, if the fuel price is increased by 7.8 per cent, it improves savings by 0.4 per cent of GDP but leads to the decline of the growth rate of the GDP in the range between 0.2 per cent and 0.3 per cent.
Export declines from 0.4 per cent to 1.8 per cent following the impact of fuel-price increase, he further pointed out.
Echoing Dr Rahman on the GDP growth, CPD's distinguished fellow Dr Debapriya Bhattacharya said, "As per the analysis of the macroeconomic performance in the current fiscal based on early data, the growth target of 7.2 per cent for FY13 is unlikely to be achieved."
Terming the looming political uncertainty as a serious challenge for the economy, Dr Bhattacharya said: "No doubt, the performance of the economy in FY13 and beyond, will critically hinge on how the political challenges facing Bangladesh at the moment are addressed in the coming months." He said: "Any prolonged uncertainty in this context will have serious implications for the performance of the economy."
He said policy-makers should take steps to deal with illicit financial outflow which the UNDP (United Nations Development Programme) and other leading global organisations had pointed out.
He said this outflow, arising from transfer mispricing, trade mispricing and money laundering, has tended to be more visible in the recent years.
He, however, lauded the government's step to set up a transfer pricing cell under the NBR. "We have urged the government to make the cell fully functional at the earliest," he added.
Dr Bhattacharya said the decline in inflation in recent times may primarily be attributed to price stabilisation in the rice market.
He said non-food inflation will continue to squeeze the purchasing power of the people as the administered prices of fuel have received yet another upward revision, with a likely similar trend about electricity pricing to be followed.
The CPD analysis estimated that the country's total import payments declined by nearly 7.0 per cent during the first five months of the current fiscal, up to November last.
"But import of petroleum products recorded a robust growth (50.1 per cent) in July-September," the analysis added.
Dr Bhattacharya said implementation of annual development programme (ADP) improved in the recent months, which was 24.3 per cent in the first five months of the current fiscal against 20.2 per cent during the corresponding period of the previous fiscal.
He said, so far budget financing remained safe.
Foreign grants and net foreign borrowing did not put any serious pressure on the budget-deficit financing, he pointed out.
"Bangladesh Taka (BDT) appreciated against all the major currencies including the US dollar
. It will have impact on the exports," he said.
He said the banking sector will have to gain the ability to absorb the shocks arising from the financial and economic stress.
Dr Bhattacharya said: "The Hall-Mark incident is not only a case of financial loss but also a deep dent into the confidence and trust of the customers of banks."
Head of research of CPD Dr Fahmida Khatun, its senior research fellow Dr Khandker Moazzem, senior research fellow Dr Towfiquil Islam Khan and its other functionaries were present at the press briefing.
UNB adds: Assessing the government's legal actions and probe into the Padma project graft allegations, the CPD on Saturday said the World Bank's financing for the country's biggest-ever infrastructure project "has apparently got slimmer".
"It's seems to be true considering different reactions that have so far come from the government side," CPD distinguished fellow Dr Debapriya Bhattacharya told reporters at the CPD office.
He said the Anti-Corruption Commission (ACC) has stepped into the legal actions but those seem to be part of its 'pre-set compromise' with the government. "But, to be sure of it, we'll have to wait until the probe report is in place."
Dr Bhattacharya, however, said even then chances will be there to go forward with the project if the investigation commission reconsiders the facts, coming out, following the arrests and other legal actions taken so far.
Responding to a question, Debapriya said they made it clear that the revival of the WB funding for the mega project would be the best option among other alternatives like constructing the bridge solely with domestic funding and joint collaboration. "We had been happy that the government walked on that direction, despite making some confusing statements," he added.
For the second time, Dr Debapriya said, they supported both the investigation and fund revival processes to go together. "The World Bank, however, didn't take any decision in that direction."
Asked for his reaction to the dropping of the name of former communication minister Syed Abul Hossain from the alleged graft case, he said the government brought about changes in the Rules of Business, and ministers have become the supreme authority (chief executive), instead of the secretaries. "The activity that goes on in any ministry isn't beyond the knowledge of the concerned minister."
It seems that not only the secretary but also other people at the higher-level have connection with it (Padma graft), he said. "However, it's certainly a matter of investigation."
Dr Debapriya said macroeconomic situation, at the halfway mark of FY13, is more stabilized compared to that of the previous fiscal but apparently this stability is underpinned by a number of risks. "If the current trend about revenue collections by the NBR continues, it is feared that there will be some shortfall, about 1.8 per cent of the total budget for FY13," he said, adding that a significant part of this is likely to be on account of shortfall in import duty collection.
He said foreign aid inflow in July-November period of fiscal year 2013 stood at US$906.6 million, posting an impressive growth of 107.4 per cent compared to the corresponding period of the previous fiscal.
About the appreciation of BDT against all major currencies including dollar, Euro, Pound and Yen, except the India Rupee, during July-October period of the current fiscal, the distinguished fellow of the CPD said the underlining causes for this are higher inward remittances, the lower import demand and the resultant replenishment of the foreign exchange reserves.
