Saturday | 11 January 2025 | Reg No- 06
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Saturday | 11 January 2025 | Epaper

Budget must salvage the economy, pave way for FDI

Published : Friday, 19 June, 2020 at 12:00 AM  Count : 482
Nazmul Karim
Nazmul Karim

Nazmul Karim

The Tk5.68 trillion national budget for the financial year 2020-2021 (FY21) was proposed at a time when Bangladesh and rest of the world is fighting against SARS-CoV19 pandemic that has already slow downed economic activities along with peoples sufferings.
Finance Minister AHM Mustafa Kamal in this challenging situation placed the budget in the parliament which emphasised on containing the virus and salvage the economy with providing incentives to local industries, supporting social safety net, increase tax from ailing economy and buildup funds for development and non development expenditure from domestic and foreign sources.

In vast budget arena here I would like to focus on few sectors which require more supports than others at this moment.
Firstly, the health sector. Currently it is clear that we are not in a position to fight the pandemic if the situation becomes worse. So it is imperative for the government to find out the way to get rid of this pandemic, while expenditure will be transparent.
Secondly, encouraging investments in necessary industrial products that will reduce import dependency and save foreign currency as both remittance and export is declining which inject dollars to the central reserve. When it is bank deposits, small clients of banks and financial institutions are the major source of their deposits. But if the budget does not support private sector credit growth there will no money among small investors, entrepreneurs, and bank clients which will lead to severe liquidity crisis. In this context the budget along with its borrowing target from banking sector should keep in mind about private sector credit growth.

Currently, the government provides cash incentives to several export based sectors aiming to increase foreign currency inflow that supports paying import bills, payback loans and pay mega project costs. But due to declining remittance and export it is under threat.  To resolve the rising uncertainly along with giving emphasis on export and remittance earning there should be focus on foreign direct investments and seek sources of offshore cheaper borrowing sources. Also, this is the high time to focus on multiple industrial sector instead of focusing only textile or RMG sector.

Balance industrial development is required for total growth. However, infrastructure and transportation are the key components in attracting foreign investments and industrial growth. Besides, it is necessary to keep in mind that industry and industrialisation is the major components to recover increasing unemployment problem. This sector requires support from the government.

The budget FY21 has allocated a large amount of money this roads and transportation infrastructure which is a good initiative; but the expenditure must take place at the right way with transparency.

Agricultural production is in good position. But to ensure more food safety, production should be speed up due to corona pandemic situation which is likely to cause food crisis globally and increase prices. The government in its budget has also given emphasis on agriculture which is a good step for the agriculture based economy at this moment. As the pandemic will be longer, for foreign currency, incentives should be given to real exporters. I personally believe duty and tax facilities are better than cash incentives as it will help to reduce the production cost, earning more remittance thru exports under the world competitive market situation and comfort in domestic market.

Bangladesh was set to achieve around 8.5 per cent economic growth in the outgoing fiscal year. But it is not possible due to declination of investment from 31.57 of 2018-19 to 20.8 in 2019-20. Industry and services, the two most important drivers of economic growth, have also registered dismal record.

The government had to continue allocating on mega infrastructure and energy projects, otherwise costs would be heavily escalated. These projects would also be required to achieve double-digit growth when the Covid-19 would be over.
The revenue target set in the proposed budget seems to be quite optimistic, and the National Board of Revenue (NBR) will remain under tremendous pressure if the current menace does not end at the earliest.

We can take a look in the budget:
The budget size: The minister announced a budget of more than Tk 5.68 trillion for the fiscal year 2020-2021. The title of the budget speech is ''Economic Transition and Future Pathway''. The proposed budget for the fiscal year 2020-2021 is 13.24 percent i.e. Tk 664.23 billion higher than the revised budget of the current financial year.
Proposed expenditure: Among the operating expenses, the government has incurred a cost of Tk 3.48 trillion in this budget. Along with expenditure in domestic and foreign loan costs it has arranged Tk 2.15 trillion for development expenditure. Of this, Tk 2.05 trillion for the Annual Development Program (ADP), Tk 47.22 billion for special projects outside ADP. Tk 25.22 billion is allocated for development programs and schemes funded from own sources. Besides, Tk 26.54 billion is allocated for Food for Work program projects out of ADP.

Budget Income: The main source of income in the budget is revenue collection. The budget has set a target of Tk 3.78 trillion. Besides, the government will get a foreign grant of Tk 40 billion in this financial year and the rest from banks.
Budget deficit: This time the finance minister has had to get the most pressure in coordinating income and expenditure. The total budget deficit has been set at 5.8 per cent of GDP i.e. Tk 1.86 trillion which was 5 per cent earlier.

In overall I like to say the budget must cover the economic activities along social safety net and pave the way for more foreign direct investments. However considering world  volatile economically situation due to  pandemic uncertainty ,I would say the budget  is a kind of " hope against hope" since the finance minister correctly encouraged for spending of money in order circulation of money which definitely help the general people  but not able to figure out specifically with confidence about  the source of fund generation , means chance is 50:50 for successful execution of the budget as he needs to depend on many " if, and, but, so on".

The writer is managing director of Bridge Chemie Limited





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