With the pandemic situation turning the corner, the finance ministry is going to set a target of a little over 12% growth in revenue generation for the National Board of Revenue (NBR) in the next fiscal year's budget.
Keeping the next budget deficit at 5.5%, the ministry will target to collect Tk3,70,000 crore, equal to 8.5% of GDP in the fiscal 2022-23, through the NBR.
In a virtual meeting on Wednesday, the Finance Division estimated a budget size to the tune of Tk675,139 crore for FY23, which is 15.5% of GDP and nearly 12% higher than that of the current fiscal year.
Finance Minister AHM Mustafa Kamal presided over the meeting. The Council for the Coordination of Fiscal, Monetary and Exchange Rate Policies and Budget Monitoring and Resource Committee formulated the next year's budget outline.
In the face of devastating Covid-19 effects, the government kept its revenue collection target for the NBR unchanged for FY22 at Tk330,000 crore.
Economists say the government is again going for a typical approach in formulating the next year's budget as it had done in previous years – a budget of low income and low expenses.
They say it will be difficult to achieve the collection target of tax and non-tax revenue in the new budget. Even if this target is met, revenue generation in Bangladesh will be less than 10% of GDP, which is the lowest among developing countries.
Revenue collection target logical
Zahid Hussain, a former lead economist at the World Bank's Dhaka office, told The Business Standard, revenue collection target is logical, but efforts should be made to keep inflation at 5.5% as per the estimate and to achieve 7.5% GDP growth.
The country needs a lot of investments to maintain growth of the economy that is now on the recovery track from pandemic shocks, he said, adding that expenditure on education, health and social safety needs to be increased to offset losses of human capital.
All these targets will remain unattained unless the taxation system goes through a major reform in order to boost revenue collection, the economist noted .
Two years ago three months after the pandemic hit, the finance minister set a target of Tk330,000 crore revenue collection for the NBR for the fiscal 2020-21,, which was 8.74% of GDP, meaning that the collection target for the next fiscal year has reduced in proportion to GDP.
However, government policymakers, including economists, have at various times been pushed for reforms to increase the tax-to-GDP ratio.
Since the beginning of FY21 when the pandemic raged on, putting a brake on economic activities, Bangladesh for the first time in history recorded a negative growth in revenue generation.
During the budget announcement for the ongoing fiscal year, there was a hint that Covid-19 would normalise, yet the government kept its revenue collection target unchanged. But in July-November this year, the receipts still remained Tk13,000 crore lower than the target.
Abdul Matlub Ahmad, former president of Federation of Bangladesh Chambers of Commerce and Industries, told TBS, "If Omicron does not take a terrible turn, revenue collection will reach close to the target this year and the NBR will be able to achieve the next year's estimated target."
Call for tax system reformation still unheeded
Ahsan H Mansur, executive director at Policy Research Institute, said there have been many discussions over reforming the tax structure for years, but no initiative has been taken yet. As a result, the budget size is increasing in keeping with the economic size. In this situation, the actual allocation in priority sectors, such as education, health and social protection, cannot be increased.
The Ministry of Finance is going to set the revenue collection target at Tk4,33,000 crore for the next financial year, estimating the figure as 9.9% of the GDP. Of this, Tk18,000 crore will be projected to be generated from the non-NBR segment and another Tk45,000 crore from non-tax revenue.
Asked why the revenue target in proportion to the GDP is going to be lower in the forthcoming financial year than in the current fiscal, finance ministry officials said the size of the GDP in the next budget will be much higher than the original budget for the current financial year, thanks to a change in the base year for GDP and inclusion of a number of new sectors. As a result, revenue collection in proportion to GDP is not increasing at the rate at which the growth in revenue collection is estimated.
In the budget for the current financial year, the GDP was estimated at Tk34,56,000 crore. The figure has been increased to Tk43,63,000 crore for next year.
Private investment will match target if Covid-19 situation remains stable
The finance ministry has estimated that investment will account for 32.2% of the GDP in 2022-23 the fiscal year. Of this, 25.3 percentage points is expected to come from the private sector and 6.9% from the public sector.
Asked about this, former FBCCI president Matlub Ahmad said investment in the private sector is always between 22% and 23% of GDP.
Mentioning that the Covid-19 pandemic stalled private investment over the past two years, he said businesses have started investing again. If the Covid situation remains under control, investment in the private sector in the forthcoming fiscal will match the government estimates, he hoped.
ADP allocation not in line with budget size
Although the size of the budget is estimated to increase by Tk71,458 crore in the next financial year, a large part of it will be spent on management and repayment of interest on government loans. As a result, development expenditure will not increase at the rate at which the size of the budget is going to increase.
Of the Tk6,85,139 crore budget estimated for FY23, Tk2,50,000 crore will go to the annual development programme while expenditure on management and other sectors will be Tk4,25,139 crore, which is 9.8% of GDP.
In the Tk6,03,681 crore budget for the current financial year, Tk2,25,324 crore has been allocated for the ADP, which is 6.5% of GDP.
Speaking on the size of the upcoming national budget, Dr Ahsan H Mansur said the size of the economy grows 13% if 5.5% inflation is added to 7.5% growth in GDP. In contrast, the size of the budget is set to increase by 11.84% and revenue collection by 11.3%. From this count, real income and expenditure against GDP are going to decline in the new budget.
Compared to the current budget, the allocation for the ADP is going to see a 11% increase while growth in other expenditures is estimated to be 12%.
The Finance Division is forecasting a 7.5% growth in GDP for next year. Earlier this week, the IMF forecast a 6.6% growth for Bangladesh in the ongoing fiscal year, although the government has set a target of 7.2%.
In this regard, Zahid Hussain said if the current trend of export and remittance earnings continues, economic growth will increase but the 7.5% growth target may not be met.
How much the growth rate will be in the future will depend on what will be the impact of the Omicron variant of the coronavirus.
Noting that it would be difficult to limit the budget deficit to 5.5%, he said it would take extra money to accelerate health sector projects. Money will be spent on administering Covid booster doses, he added.
"The education sector has suffered huge losses as academic activities remained closed for almost one and a half years. Online and in-person classes may continue as there is a risk of new infections ahead. In this case too, huge investment will be required," he added.
He further added that how much money is allocated for priority sectors such as education, health and social security is more important than the increase in the size of the total outlay. Proper implementation of the allocations are even more important, the noted economist continued.
He suggested making maximum use of all the opportunities of foreign loans on flexible terms without paying too much attention to the budget deficit.
Subsidies make maintaining budget deficit difficult
Finance Minister AHM Mustafa Kamal expressed his dissatisfaction over the slower progress in the implementation of the ADP, said an official connected to the meeting.
The minister said ADP implementation in the last two years was lower than the target because of the adverse impact of Covid-19. The implementation pace would be accelerated to take development activities ahead, he added.
The minister told the meeting that foreign trade, container handling and revenue earnings are in a good position. Even though remittance earnings have fallen marginally over the last couple of months, the minister expressed his hope that remittance income would increase in the near future as the number of Bangladeshis migrating to foreign countries are on the rise now.
The finance minister also told the meeting that the country would easily maintain 7.2% growth in GDP in the current fiscal year, even though a few economic indicators are performing below par.
He also said that the economy would achieve 7.5% growth next fiscal, defying Omicron and other challenges.
The meeting, however, expressed concern over the pressure of subsidy to maintain the budget deficit at a certain level. Issues regarding upward price adjustments to fertiliser, gas and electricity also were discussed at the meeting, the sources said.
There is no alternative to trying to make a balanced budget. To do that the government needs to adjust immediately energy prices as international prices of energy have also gone up, said an official.
He also said that the adjustment would be implemented prior to the new year.