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Achieving 7pc GDP growth in Bangladesh not impossible: WB

9The World Bank on Sunday said achieving the targeted 7 per cent GDP growth in the next fiscal (FY 2015–16), would not be impossible, but might be a challenging task.
“It would not be impossible, but might be a challenging task. Political stability is highly required, as is significantly increasing the investment rate from the current 29 per cent to 33.5 per cent of GDP for achieving the target of 7 per cent GDP growth in the next budget,” Lead Economist of the WB, Dr Zahid Hussain, said.
He said the proposed budget for FY 2015–16, which was unveiled on June 4, at Tk 2,95,100 crore, is a big budget.
“Revenue mobilisation will be the key challenge. There is a need to tread carefully to make sure honest taxpayers are not overtaxed,” Hussain, said.
Finance Minister AMA Muhith set a target of Tk 2,08,770 crore revenue collection for the upcoming budget, in which the share of the National Board of Revenue (NBR) is Tk 1,76,370 crore.
The World Bank’s acting Country Head, Salman Zaidi, made the introductory remarks on the occasion.
Regarding the 6.5 per cent inflation target, Hussain opined: “A realistic inflation target with a consistent monetary programme. I hope it is likely to be achieved in the next budget.”
Regarding the balance of payments (BOP), he said the surplus may shrink due to the increased current account deficit, but reserves are expected to remain comfortable. He expressed his hope that the stability of the exchange rate is likely to be sustained.
When asked about the way out of the weak investment climate, the WB official noted that the government is going towards the establishment of economic zones across the country, and the pace of its implementation would have to be speeded up further.
Regarding the size of the budget, Hussain termed the proposed budget for the next fiscal year as being of “usual size”.
He lauded the government’s initiative to reform some policies with regard to the financing sector that would help Bangladesh achieve the target of revenue collection and achieve the GDP growth target. Commenting on the GDP growth of over 6 per cent over the years, the WB’s lead economist noted that it was a healthy and good sign for country, and should be sustained.
The WB also said the new medium-term macroeconomic framework is relatively more realistic.
Hussain also hoped that the exchange rate stability would be sustained.
Regarding the six challenges identified by the WB for the next budget, the WB’s lead economist said revenue mobilisation will be the key challenge, for which there is a need to enhance the skills of the officials of the tax administration, as well as make sure that honest taxpayers are not overtaxed.
The other challenges relate to improving the quality of the development projects portfolio, ensuring the availability of enough resources for maintaining existing and new infrastructure, containing the growth of interest costs by choosing financing options that minimise the interest on domestic debt, improving the efficiency and equity of subsidies, delivering on structural reforms in business regulation, infrastructure management, and quality and coverage of service delivery.
To address the challenges, Hussain said, the government needs to target the subsidies by correcting the pricing mechanism, which is an ad hoc mechanism at present.
He also cited four risks for the proposed budget for FY16, namely: the weak Euro area and Euro, weaker GCC demand for labour, vulnerability of the financial sector, faltering transition and labour unrest in the garments sector, and resurgence of disruptive politics.
About the revenue mobilisation for the next budget, Hussain said the revenue mobilisation target, with a growth of 29.5 per cent, is ambitious by any measure, since the country came closest to such a high target in FY08, with a revenue growth of 26.4 per cent.
He, however, said the necessary revenue reforms are in the right direction, which include enhancement of the income tax exemption limit, increase in net wealth exemption limit, reduction in wealth surcharge from 30 per cent to 25 per cent, reduction in corporate tax rates, increase in the tobacco income tax rate, and a uniform value added tax (VAT) rate of 15 per cent from FY17.
Regarding the tax collection scenario, he said Bangladesh’s tax efforts are estimated at 64 per cent—actual revenue collections constitute 64
per cent of potential collections, given the country’s characteristics.
Regarding the deficit financing, the WB’s lead economist said public expenditure is low in terms of GDP and in comparison to other countries.
However, he said expenditure growth, which is high, is likely to be undershot to a lesser extent, because a significant part of it is driven by increases in nondiscretionary current expenditures.
The public debt-to-GDP ratio, projected at 44 per cent of the GDP by the end of June 2016, is sustainable even in the event of large shocks, including significant borrowing to finance new power plants and to partially recapitalise state-owned banks, he said.
He also said the effective interest rate on total debt is still low, at 5.7 per cent in FY15, and projected at 5.8 per cent in FY16.
Noting that deficit financing could be challenging, Hussain said the domestic financing target is feasible, but the challenge will lie in handling the impact of revenue and aid disbursement shortfall as expenditure utilisation improves.
However, he observed that the projected 1.8 per cent target of GDP external financing is optimistic.
When asked whether the implementation of the new pay scales would generate inflationary pressure, Hussain replied in the negative, saying that the domestic situation was at its record best in terms of prices, as the prices of almost all items are now stable. “I don’t see better timing than this.”