A budget is supposed to be a comprehensive economic policy statement of the government for one year. This is particularly so in the penultimate year of the present government. Keeping in view the next general election, the government is hoping to have another term in office after the election. A closer examination of the budget document reveals that a number of important issues have either been ignored or these have been discussed in a cursory manner.

The outlay of the next fiscal year has been increased by 19 per cent from the 2011-2012 revised budget to fix it at Tk 1.9 trillion (Tk 1,91,738 crores). The annual development programme (ADP) has been set at Tk 550 billion (Tk 55,000 crores). But nothing has been said about the implementation of the budget. The government will face formidable challenges in implementing the big budget. It would be extremely difficult to implement the budget if seen from the point of view of financing. If the government borrowed more from the banking system, it would have adverse impact on private sector borrowing, investment, growth and inflation.

There is uncertainty about the financing of Padma bridge project. The World Bankhich has suspended funding of the project due to corruption charges. The government is now looking for alternative sources of financing. It will take long time to firm up new funding proposals. That is why the Finance Minister made very low-key observations about this project in his budget speech.

The World Bank has finally broken the ice over the dispute regarding its financing of the Padma bridge project and proposed five new conditions for the government to ensure corruption-free implementation of the project. The conditions are:

l A high-powered investigation team has to be formed to probe the allegation of corruption.

l An independent firm has to be appointed to monitor implementation of the project.

l The persons against whom there are allegations of corruption would not be involved in the implementation of the project.

l Another condition is that the co-financiers will have to be actively involved in the procurement process.

l Besides, as a long-term step the government will have to take initiatives to increase the capacity of the Anti-Corruption Commission.

Two sides will soon discuss the conditions in detail.

The Finance Minister did not provide any statistical basis for his projection of employment creation and merely made some general remarks. We cannot measure poverty alleviation without figures on the employment situation. He spoke about overseas employment and job creation by the private sector. But the government has very little contribution in these areas. A vigorous employment policy was expected from the government.

The Finance Minister projected that within the next fiscal year, there will be a huge surplus power as a result of the implementation of dozens of power projects. Presently, the load shedding level swings between 400mw and 1200mw. We shall consider ourselves lucky if we can get rid of load shedding by the next year. It is said that the country will be able to import 250MW power from India by the next year. But this is hardly likely to happen. Discussion on this project is going on for two and half years. One year will not be enough for the implementation of this bilateral project. Similarly, the proposed import of electricity from Nepal, Bhutan and Myanmar at this stage seems to be more a pipe dream than a practical proposition.

No rationale was given in the budget document for whitening black money. In the post-budget press conference, the Finance Minister defended the provision for legalising undisclosed money saying it would bring investment and prevent cash going out of the country. In 2009, the Finance minister had admitted that whitening of black money was unethical. This time he supported it as a step that is going to inject investment.

Meanwhile, the World Bank in its appraisal report has mentioned about declining investment and shrinking savings in Bangladesh. If whitening of black money has not helped for last three years, how is it going to help now?

Spiralling prices of essentials is a big headache for the common people. Innumerable articles have been published in the daily newspapers on this subject. Debates took place on monitoring and syndicates. Even ruling party Members of Parliament are critical of price spiral of essential commodities. It is surprising that the national budget did not even touch this issue. It is very much an issue of public interest and the government did not care to address it.

The Centre for Policy Dialogue (CPD) has mentioned that the government has done injustice to tax-payers by increasing the minimum individual tax without raising the tax-free income threshold. They have also identified a shift in subsidies from agriculture and food security to power and energy, which may increase disparity between the rich and the poor. The government, CPD said, has failed to find out innovative ways to increase tax collection.

In the budget, there is no mention about attracting investment. No attention was given to falling investment. In the post-budget press conference, the Finance Minister said that Bangladesh was having growth with stagnant investment situation. But how far this will be sustainable is questionable. Growth is bound to decline without investment. The Finance Minister admitted that special reform interventions are needed to address instability in the capital market and to prevent unwarranted volatility. The capital market continues to be unstable and government action needs to be expedited.

Though the Finance Minister is hopeful about reducing inflation rate to 7.5 per cent, the mechanism for attaining this has not been spelled out. Contractionary monetary policy alone may not be sufficient in tackling inflation.

Bangladesh is a divided house. Political instability is responsible for this. The Finance minister has not addressed this issue. The government appears not to be in a hurry to deal with unstable political scenario.

The writer is an economist and columnist.

The Financial Express/Bangladesh/ 17th June 2012

All services provided by banks to their clients are set to come under the purview of Value Added Tax (VAT) from the next fiscal as the proposed budget has slapped the same on bank clients.

bank clients will have to pay 15 per cent VAT from 2012-13 fiscal to get any services from banks.

A NBR official said the proposed budget for the next fiscal has brought all the banking services under VAT net.

Currently, only service related to opening of Letters of Credit (L/Cs) is subject to pay 15 per cent VAT.

It has not been explained in the VAT law whether clients will be required to pay VAT on other services of banks.

"In the budget 2012-13, the government clearly defined that all the services of banks will come under the purview of VAT. The VAT law has incorporated the provision to resolve confusion on this matter," said a top VAT official.

Now VAT officials have to explain or make clear to bankers what are the services to be covered under VAT, he added.

A senior banker said only L/C related services is now subject to VAT payment while others are not.

"From the upcoming fiscal, bank clients will have to pay 15 per cent additional amount for availing all types of banking services," he said.

There are nearly 50 standard services that all banks are providing to the clients including services on L/C, amendment to bank guarantees conditions, standing order for deduction of deposit etc.

The bank official said banks are likely to face agitation from clients if banks start charging VAT.

"It seems difficult for us to convince customers on payment of newly imposed VAT which is not income of the respective banks," he said, preferring anonymity.

Shahjahan Bhuiyan, Managing Director of UCB, said already people are over burdened with increased cost of doing business.

"Power, gas and inflationary pressure are mounting. Consumers will have to bear the additional cost on account of proposed VAT," he said.

He expressed the fear that a large amount of loans would be classified by next December due to those negative factors.

The country's commercial banks are providing different services including SME banking, dual currency VISA credit card, virtual card, remittance business, locker services, ATM services, internet baking, e-statement.

The Financial Express/Bangladesh/ 17th June 2012

China’s banking authorities on Thursday denied media reports that it has relaxed restrictions on home lending and reiterated their prudent stance on property sector regulation. The People’s Bank of China (PBOC), or the central bank, said recent reports stating that it has allowed commercial banks to offer a discount of up to 30 per cent on lending rates to first-time home buyers contain “deliberate misinterpretations.”

The PBOC said it issued a circular that allows banks to give a 20-per cent discount for corporate lending, reiterating that the bottom line for individual home lending rate remains at 70 per cent of the benchmark, a regular practice after benchmark rate adjustment.

The central bank announced its first cut in benchmark interest rates in more than three years last week, lowering the benchmark interest rate for deposits and loans by 25 basis points, after slower-than-expected growth raised concerns of a hard landing.

Some media reports have deliberately misinterpreted the central bank’s policy and seem to be sensationalizing the message, an unnamed spokesperson with the PBOC said.

The spokesperson stressed that the central bank, as well as other government regulators, have maintained effective policy guidance and prudent regulation over individual home lending. In a separate statement, the China Banking Regulatory Commission, China’s top banking regulator, on Thursday also refuted media reports that the CBRC has reduced risk-weighting for individual mortgage loans.

These reports represent a “complete misunderstanding,” said the CBRC in a statement on its website, adding that the risk-weighting for personal mortgage loans remains at 50 per cent, which is in line with current regulations.

The CBRC set the 50-per cent requirement in its newly published rules on commercial bank asset management, which are different from the previously drafted rules that set the risk-weighting of mortgage loans for first-time home buyers at 45 per cent and that for second-home buyers at 60 per cent.

China started to tighten regulations concerning the property sector in 2010 to cool down the runaway market.
The government implemented differentiated credit and tax policies, restricted purchases of second or third homes in some cities and launched massive subsidized housing projects for low-income residents.

New home price indices in 10 major Chinese cities fell at an average rate of 3.22 per cent in May, a faster drop than in April, figures from the China Index Academy show.

The Daily Independent/Bangladesh/ 17th June 2012

European Central Bank (ECB) President Mario Draghi (L) shakes hands with Portugal's Finance Minister Vitor Gaspar as they arrive for a finance conference in Frankfurt on Friday.

FRANKFURT: Central banks from Tokyo to London checked their ammunition on Friday in preparation for any turmoil from Greece’s election, with the European Central Bank hinting at an interest rate cut and Britain set to open its coffers.

Tensions were high about how to manage the euro zone’s debt crisis - epitomized by Greece’s bankruptcy and need for international aid - and a rare fight broke out between Germany and France, normally the glue that keeps the bloc together.

German Chancellor Angela Merkel criticized France’s economic performance, effectively taking a swipe at Socialist President Francois Hollande who has called for more emphasis on economic growth and less on budget austerity.

The feeling of crisis was real. “We must do everything possible to prevent the euro zone from falling apart,” Dutch Prime Minister Mark Rutte said on television.

ECB President Mario Draghi, one of many policymakers gearing up for trouble after Sunday’s vote in Greece, said his bank was ready to step in and fund any viable euro zone bank that gets in trouble.

He painted a picture of a deteriorating euro zone economy with no inflation danger - conditions for monetary easing.

“There are serious downside risks here,” Draghi told the annual ECB Watchers conference in Frankfurt, two days before the vote that could set Athens on a path out of the euro zone and stoke turmoil in financial markets.

“This risk has to do mostly with the heightened uncertainty.”

Japan’s top financial diplomat Takehiko Nakao warned that authorities in Tokyo would respond to unwelcome currency moves as appropriate, a clear threat of intervention if investors seeking safety push the yen too high.

It was an echo of strong pledges from the Swiss National Bank on Thursday that it would do what it takes to protect the franc from soaring.

The Bank of England followed up on Thursday’s joint announcement with the government of a 100 billion pound ($155 billion) offer of loans to banks by saying it will start next week with a charge of just 0.75 percent.

In the United States, Treasury Under Secretary for International Affairs Lael Brainard offered assurance that Washington has a “tool kit” and stood ready to preserve market confidence.

“Everyone is well prepared, too, in the wake of the elections on Greece, to work together to make sure there is a path forward that is sustainable for Greece and bolsters confidence more broadly,” she said.

The Daily Sun/Bangladesh/ 17th June 2012

Sanjeeb Chaudhuri, Regional Head, South Asia and CMO, Consumer Banking of Standard Chartered Bank, Sandeep Bose, Head of Consumer Banking, Bangladesh, Nepal and Sri Lanka, seen at inauguration of Kiosk at Bashundhara residential area Wednesday.

Standard Chartered Bank Bangladesh has strengthened its footprint in Dhaka with the opening of a Financial Kiosk at Bashundhara residential area.

With this new Financial Kiosk with the brand promise ‘Here For Good’, the number of Financial Kiosks has increased to 17.

The customers dwelling in the area can now withdraw and deposit cash, pay bills, request for chequebooks, transfer fund and many more 24 hours a day, 7 days a week.

It will also provide Customer Service from 9am to 8pm from Sunday to Thursday and from 10am to 6pm on Friday and Saturday with a prayer break on Friday from 1pm to 3pm, said a press release.

The Daily Sun/Bangladesh/ 14th June 2012