The economic and social context in which the budget for FY 2019-2020 has been proposed is important to note. We hail the budget for adopting some strategies -- innovative and out of the box -- to steer ahead the momentum of current growth of macroeconomic indicators. Gross domestic product (GDP) growth touched 8.13 per cent surpassing the target of 7.6 per cent to be achieved by FY2019, according to the seventh five-year plan (7FYP) of the country. Per capita income has increased to US$ 1,905 from US$ 928 in FY2011. At 5.50 per cent, the inflation rate is at a tolerable level. All other macroeconomic indicators are reasonably favourable to perpetuate the expected growth of the country's economy.
However, the external sector is facing challenges due to low export and remittance income. Since export is mainly dependent on readymade garment (RMG) sector, there lies the vulnerability of sustainable progression of export warranting diversification. Fortunately, country's export of other products viz. pharmaceuticals, IT software, footwear, paper yarn, woven fabrics, fishes, leathers and leather goods, raw hides, tobacco, jute and jute products, is getting momentum to add to the existing export volume. Regarding expatriate remittance, the country can best utilise existing workforce by adopting plans for transforming them into skilled workforce.
The size of the budget is the highest so far at Tk 5.23 trillion. But that is still 18.1 per cent of GDP and not large enough for an emerging economy. In FY2019, originally the size was 18.30 per cent of GDP which became 17.4 per cent in the revised budget of FY2019. At the end of each financial year, budget deficit remains well within the target of 5.0 per cent. This is because the capacity to spend is limited in tandem with the low capacity to generate adequate revenue.
The crucial part of the proposed budget is how to finance this deficit. This year there is an attempt to maintain a balance between foreign and domestic sources of deficit financing. Within domestic sources, bank borrowing will be the major source. However, in recent years savings certificate has become the dominant source of borrowing which is a costly source for the government. In FY2020, sale of national savings certificates is planned to be reduced by as much as 40 per cent compared to last year. But the banking sector is passing through a liquidity crunch. So how the government borrows from banking sector is a matter of concern. Competent authority needs to understand that banking platform is the avenue to mobilise deposits and to go for disbursements of loan. This can catalyse development of the economy assisting existing entrepreneurs, creating new entrepreneurs and ensuring equitable distribution of resources so that employment is generated and GDP is boosted up for a sustainable economic development. In this process, private banks and private entrepreneurs are the key contributors to the national economy where government's role should be a facilitator in terms of ensuring policy support and setting proper infrastructure to ease business transactions by concerned agencies.
So, borrowing from the banking source will retard the growth of private businesses which will severely impact employment generation and GDP growth. This will again impact the revenue collection by giving rise to further deficit in the revenue budget. One option the planners could explore is currency revaluation. If we look around our neighbours, India and Pakistan, we will observe that both countries have reappraised their home currency at par with real-time value. Such a measure undoubtedly boosted up export for both goods and services. In the context of our country, the identified three per cent reappraisal could bring about good results on one hand and the incentive declaration made for exporter and expatriate remittance could be avoided, on the other. Present inflation will not have much impact on economy as the inflation rates on food, fuel and oil are under control.
Deficit financing can be met by widening the tax net and creating a big number of entrepreneurs. Every year, Bangladesh gets around 2.2 million fresh graduates to be absorbed into the job market. But lack of adequate employment facilities mostly keep them at bay. So, creating new entrepreneurs and widening the network of small and medium enterprises (SME) can create a lot of employment facilities for the teeming millions who can later come under the tax net.
More and more vocational training institutes should be set up to harness the skills of our teeming human resources. It is time to get out of the conventional processes by setting strategies to think and get job done out-of-the-box.
There are 400 million people who are included in the middle-income group. But the number of taxpayers is only around 2.2 million. The total number of taxpayers would be increased to 10 million soon, according to the government announcement. Side by side, the capacity of the National Board of Revenue (NBR) must be raised to expand the tax net. Digitisation of the whole process is a need of the time. The government should focus more on this area. Programmes must be undertaken to make taxpayers aware of digitisation. Steps regarding online return filing and reducing the hassles of taxpayers are still missing. Without institutional strengthening of the NBR through mitigating human resource requirements and full automation, higher revenue collection is not possible.
Moreover, a huge amount of money worth Tk 1.5 trillion remains out of our banking channel which is almost equivalent to our annual development programme (ADP) size. Such a large amount of money should be injected into the banking channel by widening the financial inclusion programme. Without establishing a good governance culture, such funds will never enter into the banking channel.
In line with higher budget, revenue targets have also been set quite high. In FY2020, revenue target has been set at 13.1 per cent of GDP compared to 12.5 per cent in the revised budget of FY2019. High targets set during the last couple of years have been beyond the capacity of the NBR.
The budget announced creation of thirty million jobs by 2030. With a private investment hovering around only 23 per cent of GDP for the last few years, creation of this additional employment will be highly challenging.
Burdened with a huge amount of non-performing loans (NPLs) and faced with liquidity crisis, the banking sector needs a total overhaul to overcome the existing challenges. The amount of NPLs in the banking sector exceeded Tk 1 trillion for the first time in March 2019. The share of NPLs also rose to 11.87 per cent of the total outstanding loans in the first quarter of FY2019 from 10.30 per cent in the previous quarter. Without a full stop in the wilful default culture, curbing of political influence and corruption, and enhancement of efficiency, the banking sector will not get a new life. Sadly, the budget does not have much to offer towards solving such a precarious situation. It talks of exit route for loan defaulters through insolvency and bankruptcy laws, but does not provide any details. The honourable Prime Minister recently told the Parliament that the government is serious about ending the growing default loan culture. We welcome the move and urge the government to be strict against loan defaulters. The government should frame a draconian law against the loan defaulters to end the menacing culture.
As a banker, this scribe feels, every banker should understand that bankers mobilise money of the general public and those money should be utilised for economic development of the country; all loans should be purposefully deployed so that the economy moves ahead creating employment avenues impacting all macroeconomic indicators with uptrend growth facilitated by appropriate monetary and fiscal policies. So, the role of the banker is very crucial to decide how to utilise the fund of the general public. To my understanding, selection of quality borrower will be the first and foremost task. Side by side, the focus sector of funding should be preset considering the objectives to be realised. No loan should be sanctioned without knowing its end use, and disbursements should be allowed identifying its tracing path with specific timeline so that bank can get back its invested fund in time. A total control on disbursements and repayment process should be chalked out forging special monitoring and supervision. Full compliance with governance issues is thus a must.
To conclude, financial discipline in the banking sector should be restored in order to overcome the challenges of budget implementation as the rising non-performing loans are fuelling the cost of doing business and affecting the overall economy.
Muhammed Ali is a senior banker, now serving as Advisor of Premier Bank Ltd.