Author Topic: The 'AAA' rating for FY'15 budget  (Read 598 times)

Offline Rozina Akter

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The 'AAA' rating for FY'15 budget
« on: June 10, 2014, 11:29:58 AM »
Karim Mollah, a rickshaw-puller or Ehsanuddin, who owns a small grocery on Kalshi Road in Mirpur, finds no reason for all the hullabaloos the media create centring around the budget presentation by the finance minister in the month of June every year. For them the budget does not anymore influence their modest cost of living the way it used to do some years back.

The finance ministers while juggling with budget numbers these days are found to be extra-cautious in avoiding any hike in duty or taxes on daily essentials. Despite the favour done by the finance ministers to the general consumers, there has not been any respite from the unabated hike in the cost of living. Normal factors of the market, greed on the part of the traders and decisions taken at different other levels do usually contribute to such hikes.

But the budget does influence the overall economic activities of a country and citizens are supposed to get the benefits, if there is any, and also the ill-effects because of poor resource management and pilferage.

For a country like Bangladesh, the budget is primarily formulated to achieve a decent growth of the economy, in terms of the gross domestic product (GDP) with a view to creating more employment opportunities and cutting poverty.

Since 1991, the country's achievement, notwithstanding the fluctuations in a number of years, has been laudable. With growth rates ranging between 5.5 per cent and 6.5 per cent, the poverty rate has fallen from 49 per cent to 31 per cent over the last two and a half decades.

The achievement would have been more had there been proper and effective use of resources with reduced level of corruption at different levels.

Now that Finance Minister AMA Muhith has unveiled the national budget for the upcoming financial year in the Jatiya Sangsad, a raging debate is on about its quality and goals.

The other day soon after the presentation of the budget, an economist while taking part in a talk-show of a private satellite television channel rated the budget 'AAA', akin to the rating done by the credit rating agencies.

However, the expert concerned de-abbreviated the 'AAA' rating in an interesting manner. He used the first 'A' to rate the budget as 'appropriate' and the second 'A' to rate the same as 'ambitious'.  The third 'A' was for describing the budget as 'ambiguous'. 

The budget for the next fiscal is 'appropriate' in the sense that the country needs bigger budget to help achieve higher growth, cut poverty at a faster pace and acquire the much-hyped status of a middle-income one.

In fact, no budget for any fiscal was smaller than the previous one. The first budget of the country being very small and was worth only several billion taka. The revised budget for the outgoing fiscal is worth Tk 2.16 trillion and the proposed one for the next fiscal has been proposed at Tk 2.5 trillion.

The size is still not that big compared to the need of the economy.  The resource constraint is a big issue in the preparation of the budget. 

The budget is 'ambitious' on several counts. Economists are more or less unanimous that the target set for mobilising resources, particularly for the National Board of Revenue (NBR), is ambitious and will be very difficult to achieve.

Their assessment is not without a basis. In the outgoing fiscal, the revenue shortfall has been estimated at about Tk 100 billion. The political troubles in the first of the current fiscal is largely responsible for that.

The revenue target set for the next fiscal is nearly Tk 263  billion more than the revised estimate for the outgoing fiscal. The mobilisation of such a large volume of revenue would require all the economic activities to be in full gear in a very stable political environment.

It seems that the incumbent government which has been facing lots of questions about the January 05 elections has ruled out the possibility of any major political trouble during the next fiscal.

The NBR has set a sizeable tax revenue target for the next fiscal. The Board appears to have laid more emphasis on its own capability and strength in mobilising substantial volume of direct tax and value added tax (VAT). The increase in targets for different types of duty and taxes levied by the NBR is far greater than the same for non-NBR taxes.

The NBR has tried to be judicious while fixing tax rates and targets for the next fiscal. However, for reasons best known to it, the Board has not applied its judgement appropriately in the case of low segment cigarettes which constitutes nearly 60 per cent of the cigarette market of the country.

It has proposed a 9.57 per cent increase in the value of low segment cigarette compared to those between 12.50 per cent and 19.05 per cent increase in the case of medium and higher segments. Similarly, the proposed incidence of tax for the low segment is 58 per cent and the same for other segments ranges between 75 per cent and 76 per cent.

An increase in the minimum price of lower segment of cigarettes to taka 18 per packet of 10 sticks  and tax rates to 60 per cent, according to an estimate, would have fetched the NBR an additional revenue of Tk. 15 billion a year. The cheap price of the low segment cigarettes has been encouraging the people to get into tobacco consumption.

So, hike in both price and tax rate of low segment cigarettes would meet the twin objectives of revenue mobilisation and WHO standards on tobacco consumption. In fact, nobody would have raised objection to further increase in both price of, and tax on, cigarettes.

Finally, there exists some ambiguity in the budget for the next fiscal as far as the meeting the resource targets is concerned. The NBR has set large tax targets, but it has not adequately explained as to how it would achieve the same, particularly when the performance during the outgoing fiscal was well below  expectations.

The finance minister hopes that the economy in the next fiscal would grow at a rate of 7.2 per cent compared to the officially estimated growth of 6.12 per cent for the outgoing fiscal (some economists have strong doubts about the growth estimate).

However, to achieve a 7.3 per cent GDP growth, there has to be substantial investment by the private sector during the next fiscal.

As of now, the situation does not appear to be that encouraging. But there could be an improvement in the investment clime or the opposite might also happen. One has no other way but to keep one's fingers crossed under the given circumstances.

Source: The Financial Express
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Offline munna99185

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Re: The 'AAA' rating for FY'15 budget
« Reply #1 on: June 13, 2014, 12:47:40 PM »
Thanks for sharing.


Sayed Farrukh Ahmed
Assistant Professor
Faculty of Business & Economics
Daffodil International University

Offline Rozina Akter

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Re: The 'AAA' rating for FY'15 budget
« Reply #2 on: June 16, 2014, 12:12:44 PM »
 :)
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Offline Shahnoor Rahman

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Re: The 'AAA' rating for FY'15 budget
« Reply #3 on: June 16, 2014, 04:52:31 PM »
Thanks.Good post

Offline Rozina Akter

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Re: The 'AAA' rating for FY'15 budget
« Reply #4 on: June 22, 2014, 03:35:42 PM »
Welcome madam :)
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Offline sayma

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Re: The 'AAA' rating for FY'15 budget
« Reply #5 on: June 30, 2014, 02:41:36 PM »
good one...

Offline Rozina Akter

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Re: The 'AAA' rating for FY'15 budget
« Reply #6 on: July 02, 2014, 02:23:51 PM »
 :)
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Offline fatema nusrat chowdhury

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Re: The 'AAA' rating for FY'15 budget
« Reply #7 on: July 22, 2014, 11:05:19 AM »
Informative sharing. Thank you :)

Offline fatema nusrat chowdhury

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Re: The 'AAA' rating for FY'15 budget
« Reply #8 on: July 22, 2014, 11:07:50 AM »
Informative sharing. Thank you :)

Offline fatema nusrat chowdhury

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Re: The 'AAA' rating for FY'15 budget
« Reply #9 on: July 22, 2014, 11:16:16 AM »
Informative sharing. Thank you :)

Offline Rozina Akter

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Re: The 'AAA' rating for FY'15 budget
« Reply #10 on: August 06, 2014, 06:21:27 PM »
 :)
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Offline shahanasumi35

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Re: The 'AAA' rating for FY'15 budget
« Reply #11 on: August 15, 2014, 01:24:05 AM »
Nice one.Thanks for sharing.