The upcoming fiscal year’s budget has laudable intentions but limited initiatives in structural reforms, said the World Bank.
According to it, the budget missed delivering on structural reforms in business regulation, infrastructure management, and quality and coverage of service delivery.
About the budget size, the global lender said the budget is relatively more realistic than the previous one in line with the development needs of the country.
“But the big question is if it is implementable or not in the present context with risk of revisit of disruptive politics,” said Zahid Hussain, World Bank’s lead economist, at a post-budget press conference in Dhaka yesterday.
In the way of budget implementation, the top lending agency identified four risks –resurgence of disruptive politics, vulnerability of the financial sector, weak euro and weaker labour force demand from Gulf countries, and faltering transition and labour unrest in garments.
On 7% GDP growth projected in the budget, Zahid Hussain said, “Achieving the growth target will be challenging. It requires stability to increase investment rate from the current 29% to 33.5% of GDP.”
“Private investment still remains weak, though public investment is increasing but the traditional problem in spending still exists,” he said.
Public expenditure is targeted to be raised to 17.2% of GDP in FY16 from the estimated 14.2% in FY15.
“This target is by no means high by international standard but the question is doability of development expenditures,” Zahid Hossain said.
He said history does not provide much comfort as there are traditional risks of erosion of spending quality.
The economist said public spending to GDP ratio has increased for years but this does not reflect in the GDP growth, as the country is still in the trap of 6% growth cycle.
“The country fails to build assets, despite increased expenditure. For example, it spends on the Dhaka-Chittagong four-lane highway, but this expenditure fails to add asset to the economy as there is still no physical improvement.”
A study shows the businesses require 302 hours per year to pay taxes, compared with 243 hours in India and 167 hours in Sri Lanka, said the World Bank.
It said Bangladesh’s tax effort is estimated at 64%, which means actual revenue collections constitute 64% of potential collections given the country’s characteristics.
However, the lender lauded the revenue reform measures in the budget.
On budget deficit projected to be 5% of GDP, it said unusually expenditure shortfalls exceed revenue shortfall, thus leading to undershooting of the deficit target.
It said the budget documents need to provide clearer information on what the expenditures are buying in the soft sectors like education, health, power and energy, physical infrastructure, food security and IT.
“Information on the projects taken in the previous budget should be presented in the new budget as it will help evaluate the budgetary measures and people can understand where is the money going,” said Zahid Hussain.
Public debt to GDP ratio, projected at 44% of GDP by end of June 2016, is sustainable even in the event of large shocks, including significant borrowing to finance new power plants and partially recapitalise state-owned banks as falling oil prices in the international market will bring cushion to the budget, he said.
“It is time to adjust energy pricing and make regulatory reforms, as many countries like our next-door country India have already taken advantage of falling oil prices by adjusting prices of petroleum products.”
The World Bank expressed concern over rising interest payment to the GDP ratio.
“Interest costs are beginning to dwarf spending on many sectors like health, primary education, fuel and energy, which are critical for development,” Zahid Hussain said.
He said inflation target is realistic against the backdrop of falling oil prices in the global market and restoration of supply chain.
The lender appreciated small number of projects taken in the new budget.
“This is an improvement but the problem is that there is too many unapproved projects and this practice of symbolic allocation remains pervasive.”
