Budget analysis of 2016-17 of Bangladesh

1. BUDGET ANALYSIS OF
FY 2016-17 OF
BANGLADESH
Rasel Ahamed 7/31/16

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JAGANNATH UNIVERSITY
DEPARTMENT OF FINANCE
ASSIGNMENT ON
BUDGET ANALYSIS OF FY 2016-
17 OF BANGLADESH
SUBMITTED TO:
SK. ALAMGIR HOSSAIN
ASSISTANT PROFESSOR
DEPARTMENT OF FINANCE
JAGANNATH UNIVERSITY
SUBMITTED BY:
RASEL AHAMED
ID: B-120203047
7TH
BATCH
DATE OF SUBMISSION: 31 JULY, 2016

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TABLE OF CONTENTS
GOVERNMENT BUDGET ...............................................................3
DEFICIT BUDGET ............................................................................3
FOREIGN RESERVE’S ROLE IN ECONOMY ............................4
BUDGET ANALYSIS.........................................................................6
SECTORAL MEASURES OF BUDGET.......................................13
FINDINGS OF FY 2016-17 BUDGET............................................15
RECOMMENDATIONS..................................................................18
DEFICIT BUDGET AND DEVELOPING COUNTRY...............19

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GOVERNMENT BUDGET
Government budget, forecast by a government of its expenditures and revenues for a specific
period of time. In national finance, the period covered by a budget is usually a year, known as
a financial or fiscal year, which may or may not correspond with the calendar year. The budget
is also known as the Annual Financial Statement of the country. It is approved by the chief
executive or president and presented by the Finance Minister to the nation.
DEFICIT BUDGET
Government budget deficit is the difference between government revenues and expenditures.
Government has different sources of revenues. Major portion of government revenues comes
from direct and indirect taxes. Direct taxes come from income and profits of individuals and
institutions and indirect taxes come from import duty, supplementary duty and value added tax.
It can be put in different way. Direct taxes are the part of economic revenues and incomes of
individuals and institutions and indirect taxes are the part of economic transactions in the form
of buy, sale, export and import transactions. If government wants accelerate its revenues to
meet the growing public expenditures and to reduce the budget deficit without reducing the
expenditures of different influential sectors, much efforts should be made to increase economic
revenues and income as well as the economic transactions so that the government revenues can
meet the growing demand of the economy with the increase in revenues from income tax,
import duty, supplementary duty and value added tax. In this regard the concentration of the
report is on the management of deficit budget to minimize bad effects and maximize the
utilization of funds. Having budget deficit is not a problem at all. The problems lie with the
government inefficiency in the management of budget deficit. The evaluation of different
reasons behind deficit budget and the evaluation of different bad effects of deficit budget are
two crucial parts of our discussion. The impact of budget deficit on the different sectors of the
economy is addressed here with relevant information. It is further concentration point of the
report to find ways to improve the management performance of the government to achieve
different macroeconomic goals with the help of expansion of economic revenues and
transactions. The government revenues increase with the increase in economic revenues and
economic transactions. The key point of our discussion is government should not decrease the
public expenditures as the population is growing. The expenditures on different public sectors
have to be increased as the population is growing. But budget deficit should not grow to meet
the expenditures as budget deficit has some associated problems with it. For this reason
government has to concentrate on accelerating the revenue collection rapidly with the
expansion of economic revenues and economic transactions. For this reason government
should try to integrate different policies to achieve key macroeconomic goals.

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FOREIGN RESERVE’S ROLE IN ECONOMY
Foreign currency reserves are vital to a nation's economic well-being. Without adequate
reserves, an economy can grind to a halt. The country may be unable to pay for critical imports
like crude oil, or service its external debt.
The International Monetary Fund (IMF) defines reserve assets as external assets that a
country’s monetary authority can use to meet balance of payments financing needs, use to
affect currency exchange rates in currency exchange markets, and other related purposes. Most
nations hold the vast majority of their foreign currency reserves in U.S. dollars and a much
smaller portion in euros.
Foreign exchange reserves are important indicators of ability to repay foreign debt. It used to
determine credit ratings of nations. It can be applied to liabilities in times of crisis include
stabilization funds, otherwise known as sovereign wealth funds.
Excessive Foreign Reserve may reduce our international competitiveness and export may be
affected. Due to the slack in industrialization process, import of machinery has gone down
leading to piling up of the reserve.
There is a growing debate about the need to hold so many reserves. Some critics point out that
holding a lot of reserves is costly. Reserves held in U.S. Treasuries, for example, earn a modest
return, far below these countries’ own cost of borrowing either in local currency or in dollars.
Why hold cash in the bank and pay high interest on outstanding liabilities? Critics also note
that the yield on reserves is much lower than the potential return they could earn by using those
reserves to make real investments in the economy, such as building roads, bridges, and schools
Those who support holding large reserve balances argue that the cost of doing so is small
compared to the economic consequences of a sharp depreciation in the value of the currency
that is often associated with financial crises in emerging markets. A devaluation of the currency
raises a country’s costs of paying back debt denominated in foreign currency as well as its costs
of imported goods, and it also raises the spectre of inflation. With a large stockpile of foreign
exchange reserves, a country’s monetary authority can buy up its currency in the foreign capital
markets, which helps to uphold its value. By having its own ammunition to defend its currency
in a crisis, a country with large holdings of reserves also avoids being shut out of international
capital markets due to concerns that the government or the private sector will default on foreign
debt payments. Therefore, these proponents argue, holding large reserve stockpiles is prudent
policy for those occasions when defending the value of the currency makes sense.
When countries’ access to capital markets is diminished because their governments and private
sectors appear to be at high risk of defaulting and when it is costly either to raise taxes or to cut
government spending, countries will find it desirable to hold large precautionary reserve
balances. When countries attach more weight to bad outcomes than to good ones, they also find
it desirable to hold sizeable precautionary balances of international reserves, even if the return
on investing domestic capital far exceeds the return on reserves. Not all developing economies,
indeed not all emerging markets, will hold large reserve stockpiles in the aftermath of crises,

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however. Countries that strongly favor current consumption, that experience political
instability, or that suffer from political corruption face a lower effective return on holding
reserves and will acquire more modest stockpiles.

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BUDGET ANALYSIS
The slogan of the national Budget 2016-17 was: 'marching towards growth, developme
nt and equitable society'. Finance Minister AMA Muhith on June 2 rolled out a Taka
340,605 crore national budget for 2016-2017 fiscal setting the GDP growth target at 7.2
per cent and delineating a set of programs to transform the country into a role model of modern
and welfare state by 2041. The Tk. 3406.06-billion budget is apparently big, and albeit
ambitious, but from expenditure side it is only 17.4 per cent of gross domestic product (GDP).
Bangladesh economy is growing fast that needs to be nurtured by larger expenditure to
boost investment and growth.
Failure in tax reform and weak performance of the annual development program (ADP)
gave rise to a major concern during the previous fiscal year (2015-16). Implementation
of the proposed budget for the next fiscal year will depend on the success in tax collection and
improving implementation capacity of the ADP.
For FY 2016-17, the revenue target has been set at $31 billion (12.4 per cent) of GDP and
proposed expenditure to the tune of $43 billion (17.4 per cent of GDP), that would result in a
budget deficit of 5.0 per cent of GDP. In the revised budget of 2015/16, revenue collection
and expenditure were 10.3 and 15.3 per cent respectively, again indicating a budget
deficit of 5.0 per cent of GDP which is generally considered as a safe limit. Private investment
as a share of GDP (23.3%) is expected to rise by 1.5 percentage points. An additional (approx.)
Tk. 80,000 crore private investment will be required in FY16-17. Inflation is expected to
decline to 5.8%.
Growth, Investment and Inflation
Indicators FY2015-16 (B) FY2015-16 (R) FY2016-17
GDP Growth (%) 7.0 7.1 7.2
Investment (as % of GDP) 30.1 29.4 31.0
Private Investment ( as % of GDP) 22.8 21.8 23.3
Public Investment (as % of GDP) 7.3 7.6 7.7
CPI Inflation 6.2 6.2 5.8
Both revenue and total expenditure (as % of GDP) to grow in FY17 by about 2.1 percentage
points. Revenue (36.8%) projected to grow faster (to collect additional Tk. 65,351 crore) than
public expenditure (28.7%) which will spend additional Tk. 76,040 crore -
Total budget expenditure is set at 17.4% of GDP (15.3% in RBFY16)
Revenue income will be 12.4% of GDP (10.3% in RBFY16)
Development expenditure (22.0%) programmed to grow slower than non- development
revenue expenditure (25.7%) – impact of full implementation of pay scale! ADP: 32.5% of
total public expenditure (34.4% in the RBFY16) Budget deficit has been projected at 5.0% of
GDP (same in RBFY16, actual may be about 4.5% of GDP) Balance in financing budget deficit
will be corrected, if implemented –
High foreign financing target (45.3% growth over the RBFY16) has been set with
anticipated gross foreign aid flow of USD 5.7 billion (highest in history – USD 3.1
billion in FY15)

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Government’s net bank borrowing will increase by only 22.9%
Implementation of the proposed fiscal framework is challenging!
Fiscal Framework (as % of GDP)
Indicators FY2015-16 (B) FY2015-16 (R) FY2016-17
Revenue 12.1 10.3 12.4
NBR Revenue 10.3 8.7 10.4
Non NBR Revenue 0.3 0.3 0.4
Non Tax Revenue 1.5 1.3 1.6
Expenditure 17.2 15.3 17.4
Of which ADP 5.7 5.3 5.6
Budget Deficit 5.0 5.0 5.0
Domestic Financing 3.3 3.6 3.1
Of which banking 2.2 1.8 2
Foreign Financing 1.8 1.4 1.9
Public debt as % of GDP is at a reasonable state for Bangladesh – may increase insignificantly
in FY17 largely due to rise in domestic debt. Currently about 57% of the public debt is
attributable to domestic source and 43% to foreign finance. The composition is expected to
change further – by FY19 about 63% of the total debt will be incurred from domestic sources.
Government needs to use low-cost borrowings – this is not the case in recent years. Interest
payment for domestic debt has already risen substantially. Debt servicing for borrowing for
large infrastructure projects may put further pressure in future.
Public Debt (as % of GDP)
Indicators FY2015-16 (B) FY2015-16 (R) FY2016-17
Total Debt 35.0 33.9 34.5
Domestic 20.2 19.2 20.4
External 14.8 14.7 14.2

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Total Public Expenditure
Sector Share in
BFY 16-17
Share in
BFY 15-16
Change in FY17B over
FY16R
% Crore TK %
Education and Technology 15.5 14.9 13588.0 34.6
Public Service 13.9 9.0 23523.0 99.0
Interest 11.7 12.0 8282.0 26.2
Transport and Communication 10.9 10.1 10467.0 39.1
LGRD 6.9 8.1 2075.0 9.7
Agriculture 6.7 7.0 4207.0 22.7
Defense Services 6.5 7.8 1436.0 6.9
Public Order and Safety 6.2 6.6 3643.0 20.9
Social Security and Welfare 5.8 6.4 3004.0 17.8
Health 5.1 5.6 18.1
Fuel and Energy 4.4 6.3 -1579.0 -9.5
Industrial and Economic Services 1.0 1.0 823.0 30.1
Housing 0.9 1.5 -817.0 -20.8
Recreation, Culture and Religious
Affairs
0.8 0.9 325.0 13.7
Others(Memorandum Item) 3.5 2.9 4388.0 57.8
Total Expenditure 100.0 100.0 76040.0 28.7
Economic Analysis of Non-Development Revenue Expenditure
Indicators
Growth
FY17/R
BFY16 (%)
Share B
FY17 (%)
Share RB
FY16 (%)
Increment al
Share
FY17B (%)
Change
FY17/R
BFY16
(Crore)
Pay and Allowances 19.5 25.5 26.5 21.6 8286
Goods and Services 7.1 10.4 12.0 3.6 1365
Interest Payments 26.2 20.1 19.7 21.6 8282
Domestic 27.3 19.2 18.7 21.4 8196
Foreign 5.3 0.9 1.0 0.2 86
Subsidies and Current
Transfers
32.9 37.9 35.3 48.7 18647
Block Allocation 719.4 1.1 0.2 5.2 2007
Acquisition of Assets
and Works
14.0 4.9 5.4 3.2 1209
Transaction with IMF -100.0 0.0 0.9 -3.9 -1500
Total Augmented Non-
Development Revenue
Expenditure
23.9 100.0 100.0 100.0 38296
Highest incremental share to Subsidies and Current Transfers, followed by Pay and
Allowances
Interest payment remains the sector with third highest allocation

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Domestic interest payments will increase by 21.4% in FY17– about 19.2% of total
augmented non-development revenue expenditure – effect of domestic borrowing
based deficit financing!
Subsidy (loans, subsidies and fiscal incentives)
Total subsidy allocation is expected to be about 1.2% of GDP in FY17 (1.1% in
RBFY16)
About 6.8% of total public expenditure
These are reflected in loans and advances ((-) 19.5% reduction)
Agriculture subsidy will be Tk. 9,000 crore for FY16-17– same as the previous year
with unchanged subsidy structure agriculture may not need the full amount
In RBFY15-16 subsidy budget for agriculture was reduced to Tk. 7,000 crore – it may
be similar in FY16-17
For export sector, allocation is Tk. 3,000 crore

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Annual Development Program (ADP)
ADP of Tk. 110,700 crore has been proposed for FY16-17. 45,163 crore (46.6% of original
ADP FY15-16) was implemented up to April 2016 (last year it was 51.8%). 14.1% higher than
RADP for FY15-16 and 21.6% higher than ADP for FY15-16. Project Aid component is 36.1%
of total ADP (32% in RADP of FY15-16 and 35.6%in original ADP of FY15-16). Tk. 2,977
crore has been provided to development assistance program.
Sectors
No of
Projec
ts ADP
FY16-
17
Share (%)
ADP
FY16-17
Share
(%)
RADP
FY15-16
Share (%)
ADP
FY15-16
Growt
h (%)
ADP
FY16-
17 over
RADP
FY16
Total Five Sectors 636 71.0 71.4 70.6 21.1
Transport 188 25.8 21.1 22.4 48.9
Education & Religious
Affairs
95 13.1 11.1 10.7 43.1
Physical Planning, Water
Supply
&Housing
170 12.1 12.2 11.5 20.7
Power 69 11.8 17.0 17.0 -15.6
Rural Development &
Institutions
114 8.2 9.9 8.9 0.7
Other 12 Sectors 505 29.0 28.6 29.4 23.0
Development Assistance NA 2.7 4.3 2.6 -24.0
Total 1
,
1
4
1
100.0 100.0 100.0 21.6
The top 5 sectors have received 71% of total ADP allocation concentration
ratio increased
Transport Sector once again has received the highest amount of allocation (25.8%
of total allocation) for the highest number of projects – 48.9% growth over RADP
FY15-16
Within transport sector, railway received 10.1% of total allocation
Allocation for power sector was reduced by 15.6% in FY16-17 over RADP FY15-16
The ADP for FY17 contains 1,123 projects (999 for ADP of FY16)

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Personal Income Tax
No change was seen in tax-exempted personal income threshold or slabs. Tax-free income will
be Tk. 25,000 higher for parents or legal guardians of persons with disabilities – promoting
social equity. Perquisite ceiling has been raised to Tk. 4.75 lakh from Tk. 4.50 lakh – will
benefit the salaried employees. Minimum amount of tax for individual assessees remains the
same. Tax credit on investment. An assessee can invest 20% (previously 30%) of total personal
income. Additional tax burden as a share of income will be higher for lower income groups.
Tax liability will be higher for the current tax payers – individuals within the net are being
taxed more
Total Taxable Income Tax Liability Increased by
When an assessee’s income will be Tk. 10 lakh 32%
When an assessee’s income will be Tk. 11.5 lakh 29%
When an assessee’s income will be Tk. 17.5 lakh 20%
When an assessee’s income will be Tk. 47.5 lakh 13%
Wealth Surcharge
Minimum net wealth exemption limit remains the same at Tk. 2.25 crore. 4 slabs have been
changed, now 6 in total. Tax on net wealth above Tk. 20 crore has been raised to 30% (from
20%) - progressive taxing for Tk. 5 crore and above net assets, higher revenue collection.
Corporate Tax
Most of the company tax rates exist same. All tobacco products (cigarette, bidi, zarda, chewing
tobacco, gul, and other smokeless tobacco) manufacturers will be charged tax at 45%, which
was 25% & 35% - tax revenue will be higher. Minimum corporate tax at source revised from
uniform rate of 0.3%. 1% for tobacco manufacturers welcome move considering health issues.
0.75% for mobile phone operators – revenue will increase; may get passed on to the consumers.
0.60% for others – will increase the revenue. Tax deduction rates on receipts from international
calls has been raised from 1% to 1.5%.
Tax deduction at source (TDS)
RMG and accessories, terry towel, jute goods, frozen food, vegetables, leather goods
and packed food exporters have to pay advance income tax at the rate of 1.5%
(increased from 0.6%) [53BBBB]
Interest payments on approved savings instruments, superannuation fund, pension fund,
gratuity fund, recognised provident fund or workers’ profit participation fund will be
taxed at 5% [52D]
5% will be deducted from interest income from pensioners’ savings certificates
exceeding Tk. 5 lakh of investment [52D]
Payments to contractors will be taxed at a fixed rate of 10% (15% if not eTIN-
registered) [52]

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Payments from royalties and certain services (such as professional services,
consultancy, event-management, supply of manpower etc.) will be taxed at 10% if base
amount is below Tk. 25 lakh, and at 12% for exceeding amount (50% higher if not
eTIN-registered) [52A, 52AA] –a good move
15% TDS for non-resident courier businesses – will generate more revenue
Reduced costs of registering small apartments [53FF] – low-income earners will be
benefited
Rate of registration will be 20% lower for 70 sq.m (750 sft) apartments, & 40% lower
for 60 sq.m (645 sft) apartments
Tk. 70,000 worth registration cost will now be Tk. 14,000 less & Tk. 60,000 worth will
now cost Tk. 24,000 less (in Dhaka north & south & Chittagong city corporations
(excluding rich areas))
Advance tax on motor vehicles is no longer refundable
Value Added Tax (VAT) at Local Level
The new VAT and SD Act 2012 has been deferred to 1 July 2017 – finalization
of necessary preparatory works for full implementation of the Act will remain as a
challenge
Package VAT has been significantly revised! – will create burden on small traders.
Tax-exempted turnover limit for SMEs has been proposed to increase from Tk.30 lakh
to Tk. 36 lakh – the change will support business growth and encourage
entrepreneurship
Location
Existing VAT VAT
(Tk. to be paid annually)
Dhaka and Chittagong city corporation area 14,000 28,000
Other city corporations 10,000 20,000
Municipalities in district towns 7,200 14,000
Other areas 3,600 7,000

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SECTORAL MEASURES OF BUDGET
Agriculture
The share of Agriculture is only 4.6% in ADP for FY17 (5.1% in FY16, 5.7% in FY15)
Like other ADP sectors, Agriculture also faces the classical project implementation
challenges (time and cost overrun)
Agricultural subsidy remains constant at Tk. 9,000 crore
It constitutes 39.6% of total budget allocation for agriculture in FY17
Around Tk. 2,000 crore remain unutilized in FY16 providing the government some
fiscal space
The fiscal space will also be available for FY17
ICT
Total allocation for Ministry of Science and Technology and ICT Division is Tk.3,904
crore (75.8% and 41.2% higher than RBFY16 and BFY16 respectively)
Higher allocation for development budget (39.1% more than RBFY16) is contributing
to the rise
OIL, GAS AND ELECTRICITY
Total allocation for the power and energy sector in FY17 is Tk. 15,035 crore ( 9.5 %
lower than RB16, mainly driven by lower allocation for development project).
Share in total budget has reduced (from 6.3% in FY16 to 4.4% in FY17)
About 87% of total allocation for the sector will go to the power sub-sector
Only 13.1% of total sectoral allocation is for energy sub-sector
DEFENSE
The budget allocation for Defense for FY17 is Tk. 21,144.6 crore, which is 20.4%
higher than the allocation for the previous year Of this amount, 98.2% (Tk. 21,738.8
crore) is non-development expenditure, while only 1.8 percent (Tk. 405.8 crore) is
development expenditure.
ENVIRONMENT
Total allocation for the Ministry of Environment and Forests in FY17 budget is Tk.
1033 Cr., which is 5.2% higher than that of Revised FY16 (Tk.982 Cr.)
EDUCATION
Allocation for the ‘Education and technology’ sub-sector (Tk.52914 cr.) has jumped up
by 35% during FY17 (Figure). This is a welcome development.

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Allocation for the education sector is 2.7% of GDP and 15.5% of the total FY17 budget:
remains short of UNESCO’s suggested share of 3.8% of GDP and 20% of total budget.
HEALTH
Allocation for the health sector (Tk. 17,487 cr) has increased by 18.1% over RBFY16
(37.7 % higher than BFY16)
Proposed allocation is far behind the strategic financing target: 5.1% of total budget
against 10% target set for FY16 (12% for FY21) in “Health Care Financing Strategy
2012-2032”
GENDER
Allocation for ‘Gender Budget’ in FY17 (Tk. 92765 Crore) has increased by 29.1%
against RBFY16.
Out of the 40 ministries under the gender budget in FY17, allocation has increased for
34 ministries and decreased for 6 ministries
Highest allocation for women is in “Ministry of Primary and Mass Education” (Tk.
10938 Crore or 11.79 % of Gender Budget) and lowest in “Ministry of Commerce” (Tk.
38 Crore or 0.04% of Gender Budget).
As percentage of total allocation Ministry of Women and Children Affairs has the
highest share (76.99% of total ministry budget).
Budget FY17 proposes increase in allowance and number of female beneficiary for 4
social safety net program (Program for the Widow, Deserted and Destitute Women,
VGD, Maternity allowances, Working Lactating Mother Assistance program).
CHILD AND SENIOR CITIZEN
Child budget has been announced for the second time; coverage has increased Tk.
49612 cr. worth of child budget will be implemented by 7 ministries and department.
Number of ministry & department increased to 7 in BFY17 (5 in BFY16). Allocation
has marginally increased (14.6% of total budget in BFY17 from 14.5% in RBFY16).
Per capita child budget is Tk. 7,736.2 (FY17) and Tk. 5,938.0 (FY16). Highest
allocation under Ministry of Primary and Mass Education (Tk. 220.29 bn) lowest under
Ministry of Social Welfare Tk. 795 crore (18.61% of the ministry)
FY17 budget — additional resources for aged Freedom Fighters by doubling monthly
allowance to Tk.10,000, speedy construction of rehabilitation facilities and increased
access to micro-credit.

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FINDINGS OF FY 2016-17 BUDGET
EXCESSIVE TAX BURDEN FOR LOWER INCOME GROUP: The budget has no
strategy to enhance revenue collection efficiently, but the contents of finance bill exposes some
brutality in collecting tax from lower income group. These are:
(A) Taxable limit has not been increased as per finance bill 2016 and the limit of
investment allowance has been decreased to 20 from of 30 per cent in 2015-2016. The rate of
tax rebate has been re-fixed from 15 to 10 per cent depending on the level of income instead of
flat 15 per cent. As a result of these provisions, tax increase of individual assesses, particularly
those in the lower income group will be affected significantly. Salaried employees are paying
taxes fully as their company pays salary after deducting tax at source, as required. They have
no way of paying taxes, or evading payment, like other professional groups and businessmen.
In the latter's case, we see very little effective efforts or strategic planning to bring them under
tax net.
(B) In case of persons with salary up to BDT 16,000 from the government under Monthly
Payment Order (MPO), which is not taxable, there is the need to have Tax Identification
Number (TIN). This is really ridiculous and contradictory to the slogan to create an
equitable society.
(C) Paying tax on car based on the capacity of motor would be considered as tax on
income of the assessees and allowed to adjust with tax payable in 2015-16. By inserting a new
section 68B in the proposed finance bill 2016-2017, this facility has been diluted as having
a car will be treated as deemed income and tax shall be paid on this in line with the
capacity of motor stated in that section. As such, asseesees will have to pay additional tax
on this deemed income.
(D) A new section 82c has been incorporated stating that minimum tax will not be less than the
tax deducted at source. In other words, no tax will be refunded or allowed to adjust in
the next year.
(E) In Value Added Tax (VAT), tax collection at equal rate irrespective of the economic
standings of the people is a regressive method.
IRRATIONAL REVENUE TARGET FOR 2016-17: Total revenue target for 2016-17
is BDT 2427.52 billion which is 37 per cent higher compared to the revised target of
2015-16. to try to achieve the big target, there should be well planned strategies. It is
simply incremental by imposing taxes, increasing taxes and bringing more products and
services under VAT. Rather, as stated earlier, appropriate step should be to widen the
tax net by brining all taxable persons under it with prudent assessment of taxes.

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BOOSTING PRIVATE INVESTMENT STILL A BIG CHALLENGE:
In order to achieve 7.2 per cent GDP growth target in the next fiscal, private investment has to
b 23.3 per cent of the GDP or Tk 800 billion, which is 1.5 percentage points higher than the
current level. But there is nothing in the budget about the source of this additional money.
As per the finance minister's budget statement, during 2010-2015, 4.7 million people entered
the labour market, 98 per cent of them in the local market. But the fact remains that the pace
of additional job creation in 2014 and 2015 came down to only 0.3 million a year from average
1.3 million a year during 2010-13.
What is surprising is that banks' lending rates have already come down, yet private investments
is not picking up. Added to this, banks and capital markets, the two major sources of borrowing,
have weakened in recent years. On the one hand, the government wants to boost private
investment and on the other, it has reduced the investment limit of total personal income
to 20 per cent from previous 30 per cent. This might put an extra pressure on lower income
groups.
The current macroeconomic stability of the country is very much in favour of investment
and employment led GDP growth. But the government is unable to take the full advantage of
the situation. Besides, a large amount of capital is being siphoned off, mainly through over
invoicing. The latest amount of capital flight is higher than the net foreign aid.
Stagnation in private investment is obviously a major concern. Uncertainty relating to
investment has yet to be over for dearth of confidence. In fact, continued problems of
electricity and gas supply to industries, land availability and transport infrastructure, slow
progress of reform in financial, institutional and administrative sectors, and political
uncertainty had caused the failure to pick up investment confidence.
The corporate tax remains unchanged in the proposed budget, which might discourage
potential and existing investors from taking up new ventures or expanding their plant
sizes. The country hires skilled manpower from abroad but there is no initiative spelt out
in the budget to make local people skilled in order to meet growing demand in the
different sectors.
According to the International Monetary Fund (IMF), the weakness in financial sector and
infrastructure deficit are the major factors affecting the country's private sector investment and
its economic growth. In a recent report, it said the constraints in the case with Bangladesh
stem in part from low-quality public investment and inadequate infrastructure maintenance.
Perception about uncertainties of the Bangladesh polity and governance related problems,
according to analysts, are failing to tap in private investments. Private investment in terms
of the country's gross domestic product (GDP), according to them, dropped in the current
fiscal for an unsure business ambience, coupled with its troubled polity.
The latest provisional data of Bangladesh Bureau of Statistics (BBS) -- an agency of the
government -- show that the private investment-GDP ratio at current prices has fallen by 0.39
percentage points to 21.78 so far during this fiscal year (FY), 2015-16.

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Although public investment has been on the rise over the recent years, the people are
yet to get the expected positive results from it. Lack of quality public investment, as the
analysts believe, is one of the major reasons for an inadequate level of private investment.
Government investments have recorded a rise but their desired benefits have continued
to delude the people primarily for reasons of questionable quality of the development
works on many counts as well as poor capacity of the public agencies, they noted.
Due to the long lingering constraints to ensuring access to power and gas connections,
private investment is failing to pick up. There are examples that many industries that were set
up in the country some years back, are still waiting in the wings to go for commercial
operations due to lack of power and gas connections. Many applications for new ventures
are still pending, whereas the banks are sitting on tones of money.

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RECOMMENDATIONS
Considering past performance of failure in reaching the target of revenue generation,
the proposed budget is indeed ambitious. But the target is not unattainable if
(a) Reforms are implemented,
(b) VAT law is passed,
(c) NBR (National Board of Revenue) activities are automated and modernized,
(d) A dedicated team of trained manpower overlooks the generation process, and
(e) Tax base is expanded. It appears that the Tk.450.00 billion of additional taxes is to come
by raising the rate of taxes rather than expanding the base.
However, two steps need urgent attention if the finance minister desires to go near the
goalpost. First, roughly 2.0 million people have TIN but returns are submitted by 1.2 million.
The task is to bring those defaulters into the net. Second, it is being argued that in Bangladesh,
about 15 million people have a per capita income of $5000. The taxmen should chase
them and see whether they pay taxes.
Our Tax/GDP ratio (NBR tax) at only 8.7 per cent of GDP in FY2016 is one of the
lowest in the world and. Undoubtedly, this points to a fundamental flaw in tax
administration and in tax collection. Tax/GDP ratio in neighboring countries is much
higher (India 16.6 per cent, Nepal 10.9 per cent, Sri Lanka 11.6 per cent and Pakistan
10.2 per cent).
The government should not recapitalise state-owned banks which are involved in scam
and should not subsidise loss-making state-owned enterprises. The tax at source for
RMG may be fixed at 1.0 per cent, tax of interest earned by pensioners should be
withdrawn, VAT law should be strictly implemented, VAT should be 10 per cent across
the board and access to credit for small and medium-sized enterprises should be made easier in
the interest of boosting private investment.
Bring more transparency in budget formulation, implementation and assessment procedures:
Establish a Public Expenditure Review Commission
Formulate appropriate follow up mechanisms for monitoring government tax incentives
Disclose financial accounts of state-owned enterprises including BPC and contingent
liabilities in detail
Establish transparency in government’s asset acquisition
Formulate an appropriate foreign aid policy in view of the changed global aid
architecture and Bangladesh becoming the (lower) middle income country
More sunshine in defense economy
Introduce separate but integrated budget for local government
Integrate NGO financing in the public expenditure structure

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DEFICIT BUDGET AND DEVELOPING COUNTRY
There is no simple answer to whether a budget deficit is helpful or harmful because it depends
on quite a few factors.
1. It depends when the deficit occurs. Basic Keynesian analysis suggests that a rise in the budget
deficit during a recession is a good thing. In a recession, private sector spending falls, and
saving rises – leading to unused resources. The deficit spending can help promote higher
growth, which will enable higher tax revenues and the deficit will fall over time. If government
try to balance the budget in a recession, it can make the recession deeper.
If the deficit occurs during a period of strong economic growth, then the government deficit
will be crowding out the private sector. Government borrowing will reduce private sector
investment and spending, and you could argue the government spending is more inefficient
than the private sector. One example, is India. In 2012, the Indian economy was growing
quickly, but the budget deficit was 5.5% of GDP. In this economic circumstance, India would
be advised to be reducing the budget deficit
2. It depends why government is borrowing. If the government borrowed to invest in
improving infrastructure, it may be able to overcome market failure and improve the productive
capacity of the economy. The return from public sector investment may be greater than the cost
of borrowing and so in the long-term the economy benefits from government borrowing and
investment (like a firm borrowing to invest in a new factory). However, if the government
borrows and miss-spends the money or spends it on transfer payment, there may be very limited
increase in productive capacity.
3. It depends on the future prospects for economic growth
A big issue for the importance of a budget deficit, is what are the economic prospects for the
economy? If one economy is predicted to have a stagnating economy, debt to GDP is likely to
continue to rise. If another economy is forecast to have strong growth – 2 or 3%, this will
automatically cause rising tax revenues and falling government spending on unemployment
benefits. Markets will worry about a budget deficit much more, if they feel that the economy
is likely to stagnate and unable to grow. Low growth prospects are one of the major concerns
over several Eurozone economies.
Yes, the budget deficit matters. But, there is no simple answer. It is reasonable to suggest that
over the course of the economic cycle, governments should seek to get close to balancing the
structural deficit. However, there can be good reasons to run a deficit – at least in the short
term. – For example, if the government wishes to fund public investment which offers a decent
rate of return. Also in a recession, a budget deficit can play an important role in managing
aggregate demand. In a recession, the traditional fears of a budget deficit – inflation, interest
rates, crowding out – often just don’t occur. But, government spending financed by borrowing
from the private sector can return the economy to full employment quicker.