The Bangladesh government should immediately prepare a Covid-19 recovery plan and a well-planned exit policy in order to give a clear signal to the global community, and the local and foreign investors.
Otherwise, continuation of economic growth and LDC Graduation target would be difficult for the country to achieve, said the Business Initiative Leading Development (BUILD) in reaction to the proposed budget for the Fiscal Year 2020-21.
Finance Minister AHM Mustafa Kamal placed the Tk568,000 crore national budget on Thursday with a targeted GDP growth of 8.2 percent. BUILD opined that this target would also be tough to reach considering global economic loss and impact on businesses in Bangladesh.
BUILD is a joint initiative of the Dhaka Chamber of Commerce and Industry, the Metropolitan Chamber of Commerce and Industry and the Chittagong Chamber of Commerce & Industry.
A press release issued by the platform read, "The four main focused areas of the government – health, education, agriculture and employment – are very rightly chosen. All the announced policies and allocated budget for these areas needs to be spent and managed very ethically and practically in order to maintain its required growth path and succeed targets."
BUILD pointed out that some policies are appreciable steps, such as increasing the tax-free income limit, reduction of advance tax on import of raw material, increasing the threshold of turnover tax and reduction of turnover tax rate, increased allocation for the social security and welfare sectors, increased supplementary duty on cigarettes and mobile call rates and measures for reducing duties on PPEs, and other related medical equipment.
The release added, "The government should extend special support to the interested manufacturers willing to export of PPEs, surgical masks and other related products and support for raw materials import.
"A new horizon has opened for export diversification, Bangladesh can exploit these benefits."
The release read, "The revenue collection target [of the National Board of Revenue] for the coming fiscal year has been set at Tk330,000 crore, 1.3 percent higher than the earlier year and 9.8 percent higher than the revised target, a bit ambitious considering the present situation.
"Hassles for doing business needs to be reduced, in that respect more automated process as targeted by the NBR needs full implementation. Online activities have been getting popularity and people are habituated now, rules of data flow, data localization requirements, online-platforms, more app-based activities needs to be initiated."
It continued, "Financial innovation, e-payment, use of credit and cards and reduced role of cash will be required. The government needs to lay out a work plan for expediting the fast track digitalization of such services."
The proposed budget deficit is 6 percent of the GDP amounting to Tk190,000 crore, of which bank borrowing target is Tk109,980 crore from the domestic sector and Tk76,004 crore from abroad.
The massive deficit financing from the banking sector is expected to crowd out private sector credit, which has already been sinking due to the pandemic. The government needs to spell out a clear vision of how private sector credit and investment can be promoted and facilitated in the wake of both the Covid-crisis and the large budget deficit to be financed through the banking channel by the government, the release read.
Allocation for the health sector is Tk29,247 crore, which is 23.44 percent higher than the revised allocation, agriculture sector received an allocation of Tk29,983 crore, which is about 11 percent higher than the revised budget of FY2019-20.
A fully planned Health Sector Management policy is needed, and funding should be proposed aligning these needs. With the agriculture, agro-processing sector would also need priority, food security has to be ensured for maintaining health and safety and life security, added the press release.
The government has already ordered for printing of money of 30,000 crore. The inflation is 5.6 percent as of March 2020, targeted inflation rate for FY2020-21 has been set as 5.4 percent.
The supply distortion may have some inflationary effects. If money printed does not boost production, the increased velocity of money may press inflation upward. The main goal is boosting aggregate demand and output.
The government should mobilise other means such as savings from lower oil prices, suspension of non-priority ADP projects, containing unnecessary expenditure and so forth, BUILD said.
The press release continued, "Regarding the creation of more employment in the CMSME (cottage, micro, small and medium enterprises) sector, it needs proper policy attention by the government.
The government has allocated Tk2,000 crore through the PKSF (Palli Karma Sahayak Foundation). Other micro credit organisations can play a big role for supporting cottage and micro entrepreneurs, as their needs for support are totally different than that of small and medium enterprises.
A significant number of such enterprises have been facing closure because of lockdown. They should be given collateral free loan at least up to at least Tk2 lakh. BUILD also recommended a Credit Guarantee Scheme for small entrepreneurs.
The country's apparel exporters are facing sustenance challenges and continuation of 1 percent incentives may not be enough for them. Tax at source should remain as it is in the last year to 0.25 percent.
There is a need for detail discussion with the concerned entrepreneurs to set a full proof strategy. Export of leather and plastic also have been facing decline, but some sectors such as furniture, agro-processing, non-leather footwear and some non-traditional sector have showing positive trends.
A number of non-traditional sectors such as toys, float glass, ships, boat and floating structures, and solar modules, which are adding to the export basket, needs proper attending.
The Green Transformation Fund, EDF, Cash Incentive, proper support from DEDO (Duty Exemption and Drawback Office) needs to be extended at this critical juncture to sustain export growth, the press release added.