Dhaka unveils new spending in budget

Agencies/Dhaka

A packed train about to leave the airport railway station in Dhaka, Bangladesh, yesterday. The Finance Minister Muhith has presented the new proposed budget where the economic growth has been set at 7.2% in the 2012-13 fiscal year

Bangladesh unveiled its annual budget yesterday, drawing immediate criticism from some economists who said it was unrealistic just months after the country was bailed out by the IMF. The 1.92tn-taka ($23.5bn) plan for the year beginning on July 1 forecasts a 20% hike in spending, with new investment earmarked for the struggling transport and power infrastructure.  The budget sees an already large deficit of 5% of Gross Domestic Product (GDP) to be mainly financed by borrowing from local banks and loans from development lenders such as the World Bank.  Finance minister A M A Muhith said the budget targets a 7.2% growth on the world economy rebounding in 2013, with reforms backed by the IMF boosting investor confidence in Bangladesh.  “A 7.2% growth is not unrealistic or ambitious,” he told parliament in his budget speech, adding inflation would ease to 5% in the medium term from the current double-digit rate due to monetary tightening.  But the budgetary goals drew flak from economists who see the key drivers of growth such as exports and manufacturing facing headwinds from cooling demand in Europe and America.  “I will be happy if we have 6.5% growth in the coming fiscal year,” said economist Ahsan Mansur.  “We face huge challenges due to the gloomy global outlook and declining investment affected by political instability and low demand.”  Economic expansion in the outgoing fiscal year slowed to a forecast 6.3% down from 6.7% in the previous 12 months.  Bangladesh, which is dependent on garment shipment to Western markets, struck a deal with the International Monetary Fund (IMF) in April for a $1bn loan package.  Under the IMF agreement, the government has to hike prices of oil, power and fertiliser to bolster the country’s shaky balance of payments. But the changes could enrage poor farmers, who have relied on deep subsidies for decades.  The government sought the IMF help after rising global oil prices delivered a double whammy, spurring inflation while siphoning scarce foreign currency out of the country.  The 2012-13 budget is the last full year for the government of Prime Minister Sheikh Hasina, which must hold polls by January 2014 amid receding popularity.  An emboldened opposition has enforced a series of strikes in recent months to demand elections under a neutral technocrat-led government and to protest against the disappearances of its senior officials and activists.  Former central bank governor Salehuddin Ahmed said a deepening political crisis could upset the budget outlook.  “With the country facing political instability, it will be tough to achieve the twin goals of high growth and low inflation,” he said.     The price of hybrid cars in Bangladesh is set to fall as the duty imposed on 2,000cc cars will now be imposed on cars of 2,500cc capacity.   Finance Minister Abul Maal Abdul Muhith was speaking about his proposed budget for 2012-13 fiscal year (FY) in the Bangladesh Parliament yesterday.   In addition to supplementary duty, 25% of import duty, 5% of regulatory duty, 15% of VAT, 5% of AIT and 3% of ATV will be imposed on cars of 2,500 cc, the budget proposal said.   The finance minister said 25% flat rate of depreciation was introduced in FY2010-11 in order to prevent declaring of used/reconditioned vehicles relatively older than actual by tampering import documents and taking advantage of previous depreciation facility.   “I propose to retain the current depreciation facility in the coming fiscal along with 10% dealers’ commission,” Muhith said.   However, according to the existing Import Policy Order, import of used/reconditioned vehicles up to five years old is allowed. This depreciation facility will be applicable for vehicles of five years old instead of existing three years.   In addition, to prevent the practice of false declaration of the price of imported new cars, finance minister proposed that the value of a new car can in no way be lower than that of a used or reconditioned vehicle of the same model, brand and cylinder capacity (cc) manufactured in the same country.   Besides, he proposed further rationaliaation of existing supplementary duties on vehicles import.