The government should in its new budget lay greater emphasis on increasing private investment and closely monitor the implementation of the Annual Development Programme (ADP), economist Zaid Bakht has said.
In a pre-budget interview to bdnews24.com, the Bangladesh Institute of Development Studies (BIDS) researcher said he thought this would help the government tackle the challenge of increasing revenue collection, while countering a long stagnancy in investments.
Finance Minister Abul Maal Abdul Muhith will place the national budget for the 2016-17 financial year in Parliament on Jun 2. This will be his 10th budget.
Muhith has already indicated that the size of the next budget will be more than Tk 3.40 trillion.
Bakht, the Chairman of state-owned Agrani Bank Limited, has also talked about the current state of Bangladesh’s macro-economy, the debate over 15 percent VAT, improvements in implementing the ADP and the economy during a stable political situation.
bdnews24.com: The finance minister has already said that the new budget’s size will be nearly Tk 3.5 trillion. What do you think the main challenge of that budget will be?
Zaid Bakht: We can say that the country’s present economic situation is stable. The inflation is tolerable, the balance of payment situation is good, remittance inflow from the expatriates is a bit slow but export earning is growing exponentially. But the problem is with investments. A drought in the investment sector has been persisting for a long time and is not going away. That’s why I think the main challenge in the next budget would be that of increasing the investment rate.
An issue that should be given thought is that foreign investment will not grow if the rate of local investment does not go up. And if the investment sector does not get a boost, there will be fewer opportunities to create jobs. That’s why I am urging the finance minister to take the matter of raising investment seriously, especially private investment…
bdnews24.com: You have talked about the quality of government investment. What do you think could be the solution?
Zaid Bakht: The government spends a massive sum of money every year on the ADP. Not only me, but many top government officials, too, question the standard of the work done. Many projects do not finish in time. Costs go up while projects are revised. And the work is found to be low quality after completion. Roads, bridges and educational institutions break down within a few years… This happens when projects are completed hastily at the end of a financial year.
Amidst this, ADP worth more than Tk 1.10 trillion has already been approved in the new budget. If the allocation of development funds for autonomous organisations is taken into account, the size of the ADP will be over Tk 1.23 trillion. The government had taken up a Tk 970 billion ADP (excluding development funds for the autonomous organisations) in the ongoing 2015-16 fiscal. But it was brought down to Tk 910 billion in April, as the implementation appeared unsatisfactory.
Just like in previous years, the authorities have been hastily implementing this revised ADP in the last two or three months. Money is being spent, but one can easily imagine that the quality of the work will not be good. We need to put an end to this. Pre-preparation to implement the budget is a must, while administrative skills should also be improved. The projects must end within their deadlines. Unnecessary hikes in project cost must also be checked.
What I am trying to say is that government investment should be implemented under strict supervision. If necessary, the government top brass should oversee this.[In the first 10 months (July to April) of the 2015-16 fiscal, only 51.34 percent of the revised ADP was implemented. This is the lowest in the past five years. The implementation rate during the previous fiscal was 56 percent.]
bdnews24.com: You have spoken of increasing private sector investment. How do you think is this going to be possible?
Zaid Bakht: Hindrances to investment must be removed. Entrepreneurs’ confidence has to be reinvigorated, they have to be encouraged. There is a hint of drop in bank loan interest rates. That should be maintained.
The main obstacle to investment is land, which is badly affecting the investment sector. The government has taken the initiative to set up special economic zones at different parts of the country. But the process is being hindered due to lack of land. The same problem is also affecting the PPP (Public-Private Partnership) projects.
Problems also linger in gas and power… They need to be removed too. The coal-fired power plants have been in the pipeline for a long time and their construction has to be ensured.
bdnews24.com: The revenue collection scenario of the current fiscal is not really great. There are doubts that the target will be achieved despite it being scaled down. What do you think should be done to increase revenue?
Zaid Bakht: I would say that investments can solve this problem too. The economy will progress if the investment rate increases. And if the economy grows, revenue collection will increase too.[The size of the current financial year’s budget was fixed at Tk 2.95 trillion (later revised to Tk 2.63 trillion). The revenue target was fixed at Tk 1.76 trillion. Though revenue collection has grown in the 10 months (July-April), the NBR lags far behind the target since it has been reduced to Tk 1.50 trillion.]
bdnews24.com: A controversy is raging over Value Added Tax or VAT, though the new budget is yet to be presented. Businesses have demanded the withdrawal of new the VAT law. They have even threatened with an agitation.
Zaid Bakht: I think the new law that comes into force from July 1 with a VAT of 15 percent should not be imposed at once, but should be done step by step. The imposition of 15 percent VAT on everything can lead to some kind of chaos. Small businesses will be affected the most. There is also a fear of hike in inflation. But it is also true that without a large VAT revenue big budgets cannot be implemented. But the country’s real situation will also have to be taken into consideration.[Of the current fiscal’s budget, 36.5 percent or Tk 642.63 billion was to be met from VAT. About Tk 800 billion of the budget for the next fiscal is being aimed to be generated from VAT. But before that begins, the business community led by apex trade body FBCCI has called for an amendment to the new VAT Act.]
bdnews24.com: Prices of fuel oil and food products are low in the international market. How much do you think they are impacting Bangladesh’s economy?
Zaid Bakht: The low prices of oil and food have actually brought a relief to our economy. That’s why the finance minister is also able to present the budget in peace. If we talk about the successes of Bangladesh’s economy, we must first mention the success in keeping inflation under control.
The BPC (Bangladesh Petroleum Corporation) may have made some profits for the first time by buying oil at a low price. The government is no longer seeking bank help to pay for oil imports. Less foreign exchange is being spent in this sector. Similarly, a lower amount of foreign currency is being spent to import food products.
Less spending in these two sectors has played a major role in building a $29 billion foreign reserve.[The current fiscal’s budget had aimed to keep inflation within 6.2 percent. After April, the inflation rate stood at 6.04 percent. The target of the next fiscal is to bring it down to 5.8 percent.]
bdnews24.com: The finance minister has talked of a separate budget for megaprojects. What’s your view on this?
Zaid Bakht: That’s good. I welcome this initiative. The Padma bridge is being built with our own resources… We’ll have to implement more such megaprojects to raise the GDP growth rate.
In the new budget, the government is laying the maximum emphasis on the implementation of megaprojects such as the Padma bridge, Rampal power plant, LNG terminal, Matarbarhi power plant and metrorail. I think the finance minister’s idea of a separate budget for these big projects is a good one.
bdnews24.com: Political stability has prevailed in the country for some time now. It seems it will prevail in future as well. Against this backdrop, how helpful will the new budget be for Bangladesh’s economy?
Zaid Bakht: The fact that Bangladesh is reaping the benefits of a stable political situation hardly needs to be stressed. Over the past few years, Bangladesh had achieved an average GDP growth of 6.5 percent. Despite a global economic downturn, it managed to keep up this trend. And, now, the GDP growth has crossed 7 percent… Stability has contributed to this. Economic progress will gain pace if the current situation continues.[The GDP growth target in the current fiscal was fixed at 7 percent. According to Bangladesh Bureau of Statistics data, 7.05 percent GDP growth was achieved in nine months (July-March). The finance minister has said that the target in the next budget will be 7.5 percent.]
bdnews24.com: Thank you, sir.