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Keep bank borrowing in FY '13 within projected limit : MCCI

News Published: Thursday, Jun 14, 2012

Keep bank borrowing in FY '13 within projected limit : MCCI
Economists doubt govt's ability to address challenges

Thursday June 14 2012
FE Report 

FEP1Metropolitan Chamber of Commerce and Industry (MCCI) Wednesday urged the government to keep its borrowing from the banking system limited to the amount of Tk 230 billion proposed in new budget to avoid any crowding out effect on the private sector.

The chamber body also called upon the government not to raise the rate of advance income tax to 1.20 per cent on all exports and keep it at the present level of 0.6-0.7 per cent in order to provide relief, as export earnings are falling in the backdrop of the global financial crisis.

"In the name of containing inflation, investment should not be ignored as longer version of contractionary monetary policy will affect the industrial sector adversely for a period of 5-6 years," Barrister Nihad Kabir, MCCI vice president said at a seminar on budget 2012-13 jointly organised by the MCCI and the Policy Research Institute of Bangladesh (PRI).

The seminar titled views on budget 2012-13 was held at the MCCI conference room in the city.

On the other hand, analysts and economists at the seminar said the government's projected growth of gross domestic product (GDP) at 7.2 per cent, keeping inflation at 7.5 per cent, will be difficult to achieve during the next fiscal year.

They felt there were enormous challenges in implementing the proposed budget and expressed their doubt about the government's ability to deal with such challenges.

Former caretaker government adviser Dr Mirza AB Md Azizul Islam, PRI chairman Dr Zaidi Sattar, PRI executive director Dr Ahsan H Mansur, MCCI vice president Barrister Nihad Kabir, MCCI standing committee chairman on tax and tariff Anis A Khan, professor MA Taslim and former national board of revenue chairman Muhammad Abdul Mazid spoke at the seminar.

Speaking at the seminar, Mirza AB Md Azizul Islam said 7.2 per cent GDP growth proposed in the budget is based on the hope of increased confidence of development partners and foreign investors following extended credit facility by the International Monetary Fund (IMF), improved annual development programme (ADP) implementation and high interest rates on savings tools. 

He said funds from development partners will be difficult to attract as they have their own terms on project implementation.

He said foreign investors do not care about the ECF agreement adding: "They want macro economic stability, stable political situation, availability of cheap labour force and sound infrastructure."

He said greater pace in ADP implementation is not possible.

Mr Islam said increase in interest rate on savings tools could help reduce bank borrowing and ensure private sector's better access to fund.

"I believe people's capacity to purchase savings certificates has been largely eroded following high rate of inflation," Mr Islam added.

He said the government should either cut its expenditure drastically or depend on bank borrowing.

He said: "I've reviewed 19 macro economic indicators of the outgoing fiscal and got only one which gives a glimmer of hope. That is remittance."

"The other indicator, tax mobilisation up to 19 per cent, is reasonably good. But it is weaker than last year's over 27 per cent," Mr Islam added.

He said: "The remaining 17 indicators are moving into an undesirable direction."

Speaking at the seminar, PRI chairman Zaidi Sattar said if not the desired 7.0 per cent, the country is set to achieve a respectable 6.3 per cent growth in the outgoing fiscal. Yet, one can, justifiably, raise question about setting a 7.2 per cent growth target for the next fiscal.

Mr Zaidi Sattar said gas and power shortages still remain significant impediments to rapid growth and new investment is stymied by poor investment climate emanating from recent policies of monetary and credit restraint. 

He said: "The country needs an additional investment rate of 4.0 per cent to raise the growth rate by 1.0 per cent in a sustainable basis.

If the investment rate is not rising because of domestic and foreign constraints, it is time to accept the reality and reconcile with a lower rate of GDP growth until the logjam of 24-25 per cent investment rate is broken, he said.

He said trade regime that is one of the important variables has to be open with minimum of tariff and non-tariff restrictions.

"We find average tariff and tariff escalation both are rising," he added.

Mr Zaidi Sattar said budget statement should be made much more concise so that it saves a few hours of time of the parliamentarians, reduces the energy and stress required of an aged finance minister in presenting it before parliament and cuts public time in watching the event in the electronic media and read in newspapers.

He said power point presentations are a welcome development, a medium that could be effectively used to save time and yet make a greater impact on the target audience.

While presenting keynote paper on macroeconomic setting, lessons from fiscal year 2012 budget execution and implementation challenges, Dr Ahsan H Mansur said despite strong revenue performances, fiscal management was complicated mainly by a surge in subsidy related spending.

He said pressures emerged in the money market as government borrowing form banking system exceeded the annual target by December in 2011.

He said ADP spending never reached the target in the past and outgoing fiscal would also be no exception.

"The overall fiscal deficit including grants will be much below the budget target of 5.0 per cent of GDP," he added.

He said there is widespread scepticism about government's ability to contain inflation at 7.5 per cent.

"Favourable development in global commodity prices and domestic supply will be important for inflation to come down so sharply," he added.

He said downside risks relating to the fiscal '13 revenue target primarily originate from the expected slower growth of GDP.

"There is no major changes in the VAT regime in fiscal '13, the thrust is primarily on strengthening and modernisation of tax administration to enhance efficiency of the VAT system," he added.

He said VAT productivity is relatively low adding: "There is potential scope for realising the target if the NBR modernisation efforts are continued."

He observed that para-tariffs are rising since 2008 and pushing nominal protection rate.

"Under new budget, protection through para-tariffs exceeds that through custom duty," he noted.

Anis A Khan presented another paper and said MCCI is disappointed over the facility offered to whiten undisclosed money.

He however said the chamber appreciates the penal provision in addition to the applicable tax for whitening undisclosed money.

Mr Khan said the move for imposing a new flat rate of tax of 2.0 per cent on calls will affect a sizable portion of population who use and will be using mobile phones.
Mr Khan said this is for the first time the government has imposed a 10 per cent tax on income in excess of premiums paid by a policy holder at the time of maturity of the policy.

"The move will stunt the growth of the insurance sector," Mr Khan added.

Speaking at the seminar, MA Taslim termed the new budget as an IMF-conditionalities-based budget.

He said government was forced to sign the ECF following the downward pressures of the balance of payments.

Former NBR chairman Abdul Mazid urged the government to introduce new fiscal year from April to March for better utilisation of ADP.