Private investment target not possible: CPD

Aug 20, 2023

To achieve the private investment target in the next fiscal year as per the finance minister's wish, Bangladesh needs an additional Tk4,04,097 crore of private investment, an increase of 41.8% compared to the outgoing fiscal year, according to the Centre for Policy Dialogue (CPD).

The CPD made the disclosure at its post-budget briefing where the think-tank presented its detailed analysis of the budget for FY2023-24 at a hotel in Gulshan on Friday.

"It is not possible to achieve the private investment target as the investment-enabling environment will not improve overnight," Dr Fahmida Khatun, executive director of the CPD, later told The Business Standard over the phone.

For the outgoing fiscal year, Finance Minister AHM Mustafa Kamal had set a private investment target of 24.8% of GDP, then he revised the figure by 3 percentage points. Yet, he proposed a very ambitious private investment target of 27.4% of GDP for the upcoming year and his projections surprised economists.

Dr Fahmida said private investment in terms of GDP is stuck at 23-24% for the last five to six years and it has gone down to 21.8% in the outgoing fiscal year.

She questioned what would happen in the economy that can scale up the investment significantly, which the think-tank termed in its presentation – a hope for remarkable recovery!

Dr Fahmida said in addition to the existing red tape and bureaucratic strangle, the economy is facing a dollar and liquidity crisis, rising bank borrowing, currency devaluation and import restrictions.

"If we consider the trends, we can say this private investment target is not achievable," she said.

On the other issues Dr Fahmida said the budget has been placed at a time when the macroeconomic stability has weakened, stress is visible through lower revenue growth, shrinking fiscal space and higher bank borrowing.

She termed the target of achieving a 7.5% growth of the Gross Domestic Product (GDP) and inflation target of 6% highly ambitious considering the continued devaluation of the taka against the dollar and the pressure on the foreign currency reserves.

Dr Fahmida said the budget set an inflationary target based on the assumption that the exchange rate of the US dollar will remain within Tk104, which has already crossed Tk108. So, there is a chance that inflation may be accelerated further.

Moreover, the government is setting a target to borrow over Tk1.32 lakh crore from the banking sector to finance the deficit. The borrowing from the central bank would increase pressure on inflation through creating high-powered money, she said, adding that public borrowing from the commercial banks may create a crowding out for the private credit.

Prof Mustafizur Rahman, the distinguished fellow of CPD, said the government set a Tk430,000 crore revenue target for the NBR, an increase of 15.5% from the outgoing year.

But in reality, he said the required growth would be nearly 40% as the 10 monthly figure showed the NBR collected around Tk250,000 crore. The final figure at the end of 30 June may be around Tk310,000 crore, according to CPD analysis.

Prof Mustafiz said when the present government took over power in 2009, nonperforming loans in the banking sector were only Tk21,000 crore, which surged to Tk131,000 crore at the end of March this year.

"It seems nobody is concerned about the NPL. Who is doing it and where the money is going," he questioned. "We had been saying to form a banking commission that will work with zero-tolerance to find out real reasons for the NPL and willful defaulters," he said.

Dr Golam Moazzem, research director of CPD, said the biggest weak point in the proposed budget is that there is no effective measure that can contain inflation. He also urged the government to increase the tax net and boost income from the direct tax as it helps address inequality.

Budget made on unrealistic assumptions; targets are illusory

According to the CPD analysis, most of the expenditure and revenue targets in the proposed budget were based on unrealistic assumptions.

"The fiscal framework appeared surreal, as the targets for the current fiscal year were not grounded in reality," said Dr Fahmida.

She said Finance Minister AHM Mustafa Kamal set a revenue generation target that exceeded the spending rate.

She expressed doubt about achieving the goals of reducing inflation to 6% and increasing GDP growth to 7.5% given the current situation.

The CPD executive director pointed out that the inflation target was based on the assumption of the USD equivalent to Tk104, while it had already surpassed Tk108.

The CPD said the economy was not currently in a position to stimulate investment for achieving a 7.5% GDP growth as the economy is under more pressure than at any time before.

Also, the private sector credit growth up to April in the current fiscal year was only about 11%, falling short of the target of 15%.

The CPD has urged the government to withdraw its proposal of implementing a minimum tax of Tk2,000, citing concerns over its potential implications.

It also argued that the simultaneous increase in the tax-free minimum income limit to Tk350,000 and the introduction of a minimum tax is contradictory and could result in discriminatory outcomes.

"We suggest the withdrawal of the proposed minimum tax," said Fahmida.

BUDGET FY2024 / Bangladesh National Budget 2023-24 / CPD