GDP growth, revenue targets sky-high: Economists say

The government would not be able to pull off its targets on revenue mobilisation and economic growth in the next fiscal year as they are unrealistic under the present circumstances, leading economists of the country have said.

"The target for the growth and revenue collection is sky-high and unrealistic," said Ahsan H Mansur, executive director of the Police Research Institute of Bangladesh.

The projected GDP growth of 8.2 percent is highly unrealistic and there are potential dangers of taking such an approach, said Rizwanul Islam, a former special adviser for employment sector at the International Labour Office, Geneva.

 "First, it can result in practical problems in managing the economy. With unrealistic projection of output growth, estimates of resource mobilisation must also be unrealistic. So, the implementation of the budget will remain uncertain."

"Secondly, unrealistically high projection of output growth may result in false expectations about the employment and income situation which, in turn, will create a sense of complacency."

Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue, said the assumption that worked in formulating the budget for FY21 does not fully reflect the challenges brought on by the coronavirus pandemic.

The budgetary proposals ranging from resource mobilisation to expenditure paint a business-as-usual scenario and it seemed from the proposals that the country would get out of the Covid-19 very quickly and the economy would return to its past trends, he said.

"But given the health risks we are witnessing we will not get respite from the Covid-19 very quickly."   

The resources mobilisation target of Tk 378,000 crore is Tk 20,000 crore higher than the revised budget of Tk 348,000 crore in FY20. But the revenue collection would not be more than Tk 250,000 crore in FY20.

This means, about a 50 percent spike in revenue generation target is being set for FY21.

"This projection is not realistic," said Mustafizur in a virtual media briefing.

According to Mustafizur, both income and consumption inequalities are widening. But the way income tax rates have been slashed, the benefit would be almost the same for both low income and high-income groups.

The money whitening scheme has been expanded. But this is not acceptable from a moral and economics point of view.

Honest taxpayers would pay 25 percent in income tax, whereas untaxed money-holders would legalise their money just paying 10 per cent. This is not acceptable, he said. 

The CPD welcomed the priorities given to health, job creation, social safety nets and agriculture.

Prof Selim Raihan, executive director of the South Asian Network on Economic Modeling, said the budget assumed that economic activities will quickly pick up the normal pace and the economy will experience a "V-shaped recover".

"However, the question remains whether reality corroborates this assumption. As we are witnessing increasing health hazards, rising cases of infection, and deaths, when will it be possible to resume full-fledged economic activities is a huge question."

This budget has seen an increase in allocation for the health sector. But the management of the health sector must be improved. Without the improvement of management, effective usage of the increased allocation will be in question, said Prof Selim.

The professor of economics at Dhaka University welcomed the increasing allocation for social protection.

In the current crisis, a huge number of people have slid below the poverty line and in the coming days many more will follow. A huge number of people have lost their jobs. Allocation for social protection as well as the health sector should have been increased more, Prof Selim said. 

The budget deficit might increase in the upcoming days, especially if the revenue target is not met and cost pressure increases, he said.

"However, I don't regard it as a big problem. Even if the budget deficit rises to 6-7 percent, we will have to accept that for the next two financial years."

PRI's Ahsan said the health budget reflects the good intention of the government. Allocation has been increased and another Tk 10,000 crore has been set aside to meet future needs in the sector.

He welcomed the increased spending for the social safety nets but there is a lack of targeting. A temporary scheme should have been taken for those who have been laid off or lost jobs, he said.

The plan to borrow Tk 85,000 crore from the banking sector would affect the credit availability for the private sector, Ahsan said.

The export sector is calling for the depreciation of the taka but it has not been addressed in the budget, Ahsan said. The government can't support the export sector just by giving out subsidies.

"The devaluation would allow the government to save thousands of crores of taka from the budget because it would give the incentive to the export sector automatically."

The debt servicing cost has risen significantly to Tk 63,801 crore. The government has to be careful about it, he said.

"We have to make the debt management proper and increase revenue generation," said Ahsan, also a former economist of the International Monetary Fund.  

Given the situation arising out of the Covid-19 pandemic, the budget for 2020-21 has rightly focused on addressing the twin challenge of saving lives and attaining economic recovery, said Rizwanul Islam.

For aiding economic recovery, the finance minister seems to be relying on the typical neo-liberal strategy of reducing taxes, he said.

"But money saved in the form of lower taxes are not immediately spent – either on consumption or for investment, while money given to the poor is spent immediately and contributes directly to boosting demand and stimulating the economy."

In order to generate revenue, there is heavy reliance on VAT and this is not a smart strategy because consumers are unlikely to open their wallets too much in the current situation to spend on goods and services that carry the indirect tax. 

Nothing has been mentioned about the prime minister's announcement in 2019 of creating 1.5 crore jobs in five years, he said.