Finance Minister AHM Mustafa Kamal yesterday remained defiant that he would be able to save both lives and livelihoods and steer the economy on to the path to recovery along the way by way of the budget he has prepared for fiscal 2020-21.
“We will have to give food to the people. People have lost jobs and we have to arrange employment for them,” he said in his post-budget media briefing yesterday.
But how he would manage the funds for the purpose is one question he does not have the answer for yet.
“In the past, we earned first and then went for expenditure. This time, we are doing the opposite. We have to protect the people first, so it is not the main concern where the money is and where will the money come from.”
From that perspective, this is not a normal and traditional budget, he said.
He acknowledged that he lacked complete macroeconomic data owing to the coronavirus pandemic and this forced him to rely on the government’s past achievements and experiences, aspirations of the people, and inputs and opinions from local and international think-tanks, the International Monetary Fund and the World Bank and other development partners to formulate the budget.
“As our usual path was obstructed, we had to use alternative ways to come up with the budget.”
The budget proposals may seem inconsistent to some but the government had no way but to formulate it to run the country.
“If we don’t have any budget, we can’t take money from the state coffer.”
The way it has been designed, the government would be able to implement the Tk 568,000 crore-budget, Kamal said.
Kamal recognised that the revenue-to-GDP growth of 10 percent is very low and it could be raised to 15 percent if the country tries a little harder and also hastens tax automation.
The pandemic has delayed the procurement of electronic fiscal device — a sales register used to monitor the transactions at shops — that would aid in curbing the scope of evasion of value-added tax. The purchase of the equipment is under process and it would not be delayed much, he said.
Kamal said nobody knows for sure how long the coronavirus pandemic would be. But the government has taken steps if it prolongs.
“We hope it would not prolong. If it prolongs, we are flexible. This is a flexible budget.”
The debt-to-GDP ratio is around 34 percent and this would allow the government to borrow more.
The health ministry would be given funds if it wants more.
“But the health ministry would have to ensure effective health services. Nominal health service would not work,” Kamal added.
The government would have to look at addressing the management weakness in the health sector, said Mashiur Rahman, economic affairs adviser to the prime minister.
The agriculture sector would get more attention after the health sector and the government would design the farm sector in such a way so that it can contribute more to the economic progress, the finance minister said.
The government has set sights on addressing the impairment facing various sectors to put the economy again on its higher growth trajectory.
If the situation warrants, the government would increase the tax-free income limit, Kamal said.
He hopes that private investment would accelerate and it has to be increased further.
Foreign investors are also looking to pour money into Bangladesh.
“Previously, we did not know how to attract foreign investors. Now, we know,” he said, adding that the government has set off to establish 100 economic zones and 17 of them are nearing completion to attract foreign direct investment to further his point.
The government is simplifying rules and regulations to make it easier for foreign investors to come to Bangladesh.
“We are not discriminating against foreign investors. We are incentivising them,” he said, adding that, FDI rose to $3 billion in the last couple of years.
The 9 percent cap on the interest rate on lending would encourage local people to invest in Bangladesh, according to the finance minister.
Because of the higher interest, people don’t invest locally and rather invest abroad. As a result, the defaulted loans go up and foreign investors do not come.
“Nine percent is a very competitive rate,” he said, adding that the liquidity situation in the banking sector is stronger than in the past.
The government would also raise funds from the capital market and has taken steps to strengthen the market.
The finance minister said he did not believe that the stock market fell because of the coronavirus pandemic. It should be analysed why it happens.
The Bangladesh Securities and Exchange Commission has got a new team and he believed the stock market would make a comeback.
“No governments in the world pursue to revive the stock market.”
Good companies are going public and the government would also bring public companies to the market. The stock market would rebound if the economy rebounds, he said.
The government would look at curbing the flow of money laundering by formulating and strengthening laws, through due diligence and automation, Kamal said.
“We need to revisit the laws. If there are any flaws, we can make the laws comprehensive.”
In the past, newspaper reports showed that money flew out of the country but goods had not arrived. It has gone down a lot in the last one-and-a-half years, he said.
The tax authority would face challenges in attaining the revenue generation target set for fiscal 2020-21 if the pandemic prolongs, said Abu Hena Md Rahmatul Muneem, chairman of the National Board of Revenue.
“If the pandemic does not last long, it would not be difficult.”
He pointed out that the country could not collect more revenue because of its traditional focus on raising tax rates instead of expanding the tax network and bringing in more people under the coverage.
“As a result, it put pressure on existing taxpayers and tax evasion increased. We have to widen the tax net,” he said, adding that tax evasion can’t be prevented without automation.
He was backed by the finance minister.
“There was a tendency that those who already pay taxes would pay more, while those who don’t pay taxes wouldn’t pay anything. This was a flaw in the law,” Kamal said.
Muneem also said the hike in supplementary duty on all mobile services, including voice call, internet and SMS, from 10 percent to 15 percent should not increase the cost for using mobile phones very much.
There was a strong public consensus about increasing the allocation for the health and the agriculture sectors and the government has responded accordingly, said Planning Minister MA Mannan.
Usually, the budget implementation begins in September after initial preparation in July and August, said Agriculture Minister Muhammad Abdur Razzaque.
“We hope the intensity of the coronavirus would peter out in September and we would be able to go for normal economic activities.”
The agriculture ministry has undertaken a Tk 3,200 crore-project to give a boost to farm mechanisation. Under the project, the government would give a 50 percent incentive to help farmers buy agriculture equipment.
The amount of bank borrowing is low compared with other countries and the government would borrow more if needed, said Tawfiq-e-Elahi Chowdhury, energy adviser to the government.
The government has borrowed Tk 74,000 crore from the banking sector and the revised target is Tk 82,000 crore for the ongoing fiscal year, said Bangladesh Bank Governor Fazle Kabir.
“There is no problem for the banking sector in supplying the funds to the government. The liquidity situation is very good.”
As of April 30, after meeting the statutory liquidity ratio (SLR), there was Tk 113,000 crore in additional liquidity in the banking sector. There is another Tk 62,000 crore in additional fund owing to the healthy reserves, the governor said.
As part of the stimulus packages, the central bank has injected Tk 73,000 crore in the banking system through the refinancing schemes and the cut in cash reserve ratio. So, the sector would not face problems in implementing the stimulus packages, the governor said.
The definition of social safety net in Bangladesh is very wide, said Finance Secretary Abdur Rouf Talukder.
The safety net programmes include an allowance for freedom fighters, physically and mentally challenged people and widows and stipend for students and pensions for government employees, he said, adding that public sector employees are no longer part of the government once they retire.