Rates of growth of custom duty and VAT

Rates of growth of custom duty and VAT are 4.52 and 16.63 in first quarter of FY 2013-14 which was 7.69 and 19.13 in the first quarter of the previous fiscal year. Newspapers report that between July and November in FY 2013-14, the National Board of Revenue (NBR) has collected revenue of Tk. 40,956 crore against the target of Tk 46,924.68 crore, a short of the target by Tk. 5,970 crore and 88.59 per cent of its target.1 This comes in the background of FY 2012-13 when both NBR and non-NBR authorities have failed to satisfy the target of revenue collection with total shortage of Tk. 40777.5
million. The slower rate of revenue collection is likely to reduce public expenditure, especially in infrastructure and social sector as the proposed public investment earmarked in budget for education and health sector has witnessed downward revision during most of the period between fiscal year 2006-07 and fiscal year 2013-14. It is also to be noted here that expenditure in social sectors like education and health has been increasing in nominal terms, but the rate of increase has slowed down in the last several years.

The fall in revenue collection also means that the government has to increase its borrowing from both domestic and foreign sources and the former may crowd out private investment. As most of this expenditure goes to support the consumption of the revenue budget, a decrease in tax collection thus would lead to lower public spending in infrastructure and development. Again, to finance this increase in revenue expenditure, the government has to go for further borrowing and thus trapping the country in a vicious circle of spiraling debt and deficit. Public expenditure in the real sector has already been constrained as the broad agriculture sector has seen Tk. 17,471 crore as allocation in the budget for FY 2013-14, representing a decrease by Tk. 2,371 crore from the revised budget for FY 2012-13. In terms of budgetary allocation, the infrastructure sector has seen one of the highest increases in recent times because of special allocation for the Padma multipurpose Bridge of Tk. 6,852 crore.

The effectiveness of the amount, however, would depend on how the money is capitalised. If the money is used to build new roads, railways, etc, the possibility of a greater fiscal multiplier would be created. Moreover, the implementation of annual development programme (ADP) has shown mark deterioration in the first half of the current fiscal year. During the first four months of FY 2013-14, total implementation of the ADP has stood at Tk. 227.25 billion, which in actual amount is Tk. 0.68 billion less than the previous fiscal year. Meanwhile, the savings-investment gap has been on an upward trend because of the contractionary monetary policy and low investment demand arising from poor infrastructure. If the existing policies prevail in future, this gap might be 5.47 and 5.81 percent of the nominal GDP in FY 2013-14 and FY 2014-15 respectively.

The rate of growth of actual disbursement of credit to the private sector in July to September of 2013-14 over July to September of 2012-13 is 10.18 percent, representing a gap of 5.32 percentage points. If the current trend continues, the gap may further widen in September to December, 2013-14. The rate of growth of credit in private sector might decline, if the business as usual situation prevails. High inflation continues to persist in the current year despite adoption of contractionary monetary policy.

The economy has witnessed high inflation which has stood at 7.15 percent (point to point basis considering 2005-2006 base year) in November 2013 against 6.55 percent in November 2012. Additionally, the financial sector is mired with high rate of interest rate and high interest rate spread – the difference between the lending and the deposit rates. The goal of financial inclusion remains rhetorical as the inequality between the rich and the poor as well as between the rural and the urban areas widens.

Finally, the import prices have been rising more rapidly than the export prices of Bangladeshi goods, leading to a deteriorating terms of trade. Capital machinery imports increased in the first quarter of the current fiscal year despite the negative investment climate raised due to political instability. This requires further investigation.