Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) congratulated Finance Minister A H M Mustafa Kamal for presenting his second national budget before the Jatiya Sangsad on Thursday for the financial year 2O202021 (FY21)1, said the chamber in a statement on Friday.
It is indeed a very challenging task for the Finance Minister to prepare a budget in the current domestic and global situation created by the Covid-19 pandemic. Over the last five months, the deadly novel coronavirus has completely changed the global and domestic social and business eco-system, it added.
With a vaccine and or a cure for the virus still to be found, in-person social and work-related interaction norms will remain changed and constrained. Without the full flow of interactions able to renew very shortly, the economy will take time to recover, it said.
This year, the budget cannot be like the usual budget of previous years. The FY21 budget is expected to address the normalisation of lives and livelihoods to a reasonably stable situation without being concerned much about deficits and growth targets. From a business perspective as well, the first priority of the budget must be to ensure the health and economic security of the citizens as far as possible; and secondly to infuse vitality in economic activities through the raising of aggregate domestic demand, the MCCI said.
Thereafter budget may be based on four main strategies, (1) to prioritise government spending on essential sectors while discouraging luxury expenditure, (2) creating loan facilities to help enterprises get back onto their feat, (3) expanding coverage of the social safety network, and (4) increasing money supply to the economy with the object of striking a right balance among multiple vital issues from raising aggregate domestic demand to health, education, growth, social safety and many other requirements.
The proposed budget of Tk.5,68,000 crore for FY21 is 8.56 per cent higher than the original budget (Tk.5,23,190 crore) and 13.24 per cent higher than the revised budget (Tk.5,01,577 crore) of the outgoing financial year (FY20).
The Chamber appreciated the Finance Minister for giving priority to agriculture, food security, and the health sector and expanding the coverage of the social safety net programmes.
MCCI feels that there should have been more focused indications in the budget for recovering jobs which have been lost due directly and indirectly to the Covid-19 pandemic: creating new jobs; and also to retain existing jobs in the labour market.
MCCI looked to the budget for measures to create means of livelihood opportunities for expatriate Bangladeshis who have been forced to return from abroad. Though there has been a reasonable increase in allocation of financial resources in priority sectors, a specific allocation for re-skilling and upskilling workers bearing in mind the probable changes to the working environment and new skill requirements would have been well-received.
In any event, it must be said that the benefits of enhanced allocations will not be fully derived until government enhances its capacity for implementation, as well as maintaining accountability and transparency.
Unfortunately, in a crisis situation, the weaknesses in governance and management capacity have been starkly brought forward, particularly in the health sector, it saqid.
MCCI also feels that the upcoming fiscal year (FY21) may be one of the most challenging years from the perspective of fiscal management due to the present economic slowdown caused by COVID-19, not just in Bangladesh, but also globally.
Revenue mobilisation will be a daunting task, given the various tax concessions and administrative forbearance that will have to be allowed to individuals and institutions in these very difficult times. During the current fiscal, the NBR revenue collection is likely to see a shortfall by nearly 25% or more; despite NBR acknowledging that, the current Budget has set a revenue target for the next fiscal with an increase of 8.6% which will be an extremely difficult target to achieve. As a result, ultimately tax compliant enterprises are likely to face severe pressure from the tax authority.
Besides, the budget did not present any indication in reforming and restructuring the tax administration to enhance its capacity to deliver the right kind of public services and to achieve the higher target set. MCCI as always advocates for meaningful structural changes in tax administration which will allow for an effective tax collection mechanism without burdening the few, while also bringing many others who earn high amounts of taxable revenue but do not pay the requisite tax into the net.
The budget deficit has been set at Tk.190,000 crore in FY21 (6.0% of GDP), up from the revised target of Tk.153,508 crore (5.5% of GDP) or the original target of Tk.145,380 crore (5.0% of GDP) the current fiscal year. In light of the disruptions caused to the economy already, and possible further disruptions, the budget deficit may be more than the target. MCCI believes that the first priority of the Government being to ensure the health and economic security of the citizens as far as possible, the Government should not hesitate to increase the deficit if it is required for essential expenditure, infusing funds into the economy and raising aggregate domestic demand (we have not seen any specificity in the budget in regard to the latter).
It must be appreciated that the previous several years of prudential macro-economic management including keeping the budget deficit at or close to 5% has created the headroom which may now be used to expand the deficit in this emergent situation, if needed. At the same time, tightening its financial management will also yield a significant amount of savings if unnecessary over-spending, wastage, and other leakage of funds can be stopped.
Setting an ambitious revenue target may also distract the government's attention from trying to obtain as much low-cost funds as possible from multilateral and bilateral development partners, or pursuing innovative solutions such as the issuance of bonds.
MCCI strongly urges the government to use its diplomatic strength to pursue all the different sources of funding which are being made available internationally for Covid-affected countries, in order to reduce the pressure on domestic resource mobilization as well as keep the budget deficit duly funded.
The government looks to borrow Tk.84,980 crore from the banking sector to meet the budget deficit, which is slightly higher than the revised target of Tk.82,421 crore (original target of Tk.47,364 crore) this fiscal year. Bank borrowing should be very carefully implemented so that the impact of crowding out does not further lower the already historically low private sector credit growth.
The Finance Minister may find it difficult to meet the bank borrowing target unless there is adequate money supply in the system. It must be recognized that the banks will bear a significant burden in implementing the Tk.101,117 crore stimulus packages, as well as a possible uptick in non-performing loans due to genuine financial difficulties caused by the Covid-19 situation. Bangladesh Bank will need to work closely with the banks, some NBFIs and effective NGOs as well as other stakeholders to ensure that the allocated funds reach the hands of cottage, micro and small enterprises, for which the current regulations are too cumbersome to comply with.
There is no alternative to raising the level of private investment including foreign direct investment (FDI) if Bangladesh is to confirm the status of middle-income country by 2021. An essential pre-requisite of high economic growth is a high and growing level of inward investment. MCCI believes the budget would have benefited if it included clear guidelines on actions to be taken to attract FDI, especially making an endeavour to tap the opportunities arising out of the pandemic situation.
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