Terming the proposed budget'modestly expansionary', the World Bank (WB) has said the ambitious spendingplan depends on the government's ability to mobilise foreign fund andstrengthen the revenue collection.
"A shortfall in externalfinancing may force the government to dependent heavily on bank borrowing tofinance deficit budget, which could fuel inflationary pressures and crowd outcredit to the private sector," said the global lender in an analysis onthe budget for the fiscal 2012-13. The proposed budget has projected increasein net foreign financing to $2.3 billion from $1.4 billion in the currentfiscal (2011-12).
"The government hasestimated a higher funding support from the development partners for the nextfiscal with a strong solid intention to meet its election pledges," SanjayKathuria, lead economist of WB, told reporters while assessing the upcomingbudget at a press briefing in the city on Wednesday.
Expressing pessimism in realisinga higher foreign aid he said, "There are concerns that the governmentcould opt for a higher bank borrowing in the next fiscal in case of failure toget adequate aid support from the donors, which could restrain credit flow tothe productive sectors."
Replying to a question WB senioreconomist Zahid Hussain said attaining the economic growth at 7.2 per cent thathas projected in the proposed budget would largely depend on improvingconditions of energy and infrastructure deficiencies.
"Attaining the 7.2 per centgrowth is not impossible but challenging," he said adding that it isreachable if the power crisis eases significantly and developing a better roadnetwork systems.
In case of inadequate supportfrom donors, Kathuria cautioned that it would create a liquidity crisis in thebanking system making private sector credit costlier.
He termed the proposed budgetexpansionary and protectionist saying the country needs to increase spending tooffset the downside risk on its growth, stemmed from the global economic crisiscoupled with infrastructure bottlenecks in the country.
"Considering a soundmacroeconomic position and the looming threat of the impact of the globaleconomic recession, the government is right to emphasize an expansion in publicspending," he added.
Zahid Hussain said the provisionof whitening black money in the proposed budget is unlikely to boost revenueearnings if the past experience is taken into account.
"Since 1975, the governmentshave given opportunity of legalising the undisclosed money time and again butcould not boost revenue earnings. If the country's past experiences were takeninto account, the latest amnesty scheme would also fail to boost tax revenuesin the upcoming 2012-13 fiscal," he noted.
Zahid said Bangladesh hasachieved a solid economic growth during corresponding fiscal but repeating itwill be very challenging.
The Washington-based lender,however, praised the government's reforms measures taken in the country's taxadministration and revenue growth. At the same time, it expressed concern overthe declining trend in private investment, national saving and farm sectorcontribution in the GDP.
It said Bangladesh has set newrecord of successive years of high revenue growth - 23.5 per cent in FY 12following 25.4 per cent in FY 11 and the target has set at 21.6 per cent for FY13.
"Good news is tax reformsmoving well and revenue mobilisation relies on buoyancy," Kathuria said,adding, "But declining private investment is a critical issue which mayfade the country's growth prospect."
According to the WB, privateinvestment rate has declined from 19.5 per cent in FY 11 to 19.1 per cent in FY12. Besides, national saving rate plunged from 26 per cent in FY 11 to 25.2 percent in FY 12. The WB has also suggested the government for adjusting localfuel price in line with the international price to come out from huge subsidyburden.
"Automatic price adjustmentmechanism will help make subsidies in the budget more predictable and a bettertargeting of subsidies will help avoid crowding out social expenditures,"it added.