National Budget 2010-2011 Announced in Bangladesh | Muhith announced Annual Budget

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Benjamin Franklin said that, “Two things are obvious in human life. One is Death and another is tax.” Finance minister of Bangladesh Abul Maal Abdul Muhit announced the annual budget of 2010-2011 economic years yesterday. This budget has been taken as different perspective from different sphere of people of Bangladesh. This budget has given priority for the indirect tax from general people. If anybody expected even a few innovations in budgeting this year, they must have been rather disappointed. For Finance Minister AMA Muhith yesterday presented a budget that dwells mostly on past initiatives, and wants to carry on the unfinished agenda. However, the agenda his party ruling Awami League served to voters is so huge that any budget would have little room for new things. Muhith wanted a much higher growth of 6.7 percent for the next fiscal year, and for that he had to plan a bigger investment, mostly in power and infrastructure.

Much of his optimism came from recently emerged good figures that he quoted in the budget speech — higher capital machinery and raw material imports, higher remittance flow, strong current account surplus, and more private credit supply. Naturally, his major challenge emerged in revenue collection. Whether he can collect so many funds, is a question hanging in the balance. This year’s impressive revenue collection may make one optimistic. But aiming at a big increase over a big benchmark may prove difficult.

In his effort to rake in higher revenue, the finance minister withdrew truncated value added tax (VAT) and tariff value on a plethora of consumer products and services, which will ultimately affect middle and upper income group people.

The proposed budget envisages a big total expenditure of about 20 percent. The Annual Development Programme (ADP) is projected to increase by a huge 35 percent from this fiscal year’s revised budget. This would need a much improved implementation capacity of the government. However, Muhith did not mention much about that capacity enhancement.

Any mismatch in these arenas would certainly take a toll on his growth figure.

This big budget would also pose the challenge of balancing budgetary policy with monetary policy, in order to tackle inflation that is already on a rising curve. The high expenditure is likely to fuel inflation further.

The government’s thrust for infrastructure and power would bring in more money than one can imagine on the market, and private sector credit would increase too. All that may pose a tricky situation for the finance minister.

In the proposed budget, Muhith wisely kept Tk 2,000 crore stimulus package for industry, to overcome the aftermath of the recession. This looks like a sound policy stance in the face of the global trend of phasing out stimulus now, as big competitors like China and Vietnam, which received even higher stimulus, are now much strongly posed in the global market. China is even entering Bangladesh’s low-end product market.

One place from where a part of Muhith’s growth will come is the private-public partnership (PPP) initiative which could not take off this fiscal year. But he mentioned in the budget speech that the guideline for PPP has been readied, and he proposed Tk 3,000 crore for the initiative. This along with the Bangladesh Infrastructure Finance Fund of Tk 1,600 crore would “hopefully” meet the infrastructure needs.

The finance minister earmarked power as the top priority sector with a 60 percent higher allocation, and outlined the path to scale up generation.

He then prioritised some other sectors too, such as shipbuilding, light engineering, and pharmaceuticals. However, it was not clear how these sectors are going to be benefited from being identified as thrust sectors. This has happened because the industrial policy could not be finalised, and a guideline could not be formulated before the budget.

Agriculture has always been the saving grace for the country when other sectors failed. This year also proved to be the same. The proposed budget recognised this contribution of agriculture, but perhaps one would feel that the sector deserved better attention.

The proposed subsidy for the next fiscal year is lower than what has been distributed this year, irrigation received poor attention, and farm credit for the next fiscal year is just minimally higher. If surface water utilisation is high in priority, dredging of rivers received little attention.

The budget also could have given a better employment plan. Merely saying new roads and hat-bazars would be built to generate jobs, leaves much to be desired. Also the employment generation estimate for this year (526 lakh man months), and the next year (621 lakh man months) could be more elaborate.

One area that the finance minister explicitly mentioned, was his plan for privatisation. His commitment that industries which have been sick for 15 years, without any likelihood of being “effective”, must exit — would rightly serve the purpose of saving crucial public fund.

But two crucial areas remain badly neglected in the budget speech — financial reforms and corruption. One gets no idea of what reforms are on cards for banks. The anti-corruption chapter was probably inserted just for the sake of recognising its existence.

In the tax chapter, the finance minister proposed a lot of reforms and changes in revenue administration and processes. All of those are needed to net in more funds to fuel his big budget.

He proposed to retain regulatory duty on highest slab products, to save the local industry. He also tried to help small and medium enterprises by increasing the ceiling for 4 percent turnover tax — from Tk 40 lakh to Tk 60 lakh.

However, the logic of taking away the opportunity given to small businesses to pay VAT at a low fixed rate, is hard to understand. And so is not factoring in the effect of inflation on income tax slabs.

Photos and Information taken from: TDS

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