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Fitch: Bangladesh Budget Sets Optimistic Revenue, Growth Targets
June 8, 2015 / 6:12 AM / 3 years ago

Fitch: Bangladesh Budget Sets Optimistic Revenue, Growth Targets

(The following statement was released by the rating agency) HONG KONG/SINGAPORE, June 08 (Fitch) Bangladesh (BB-/Stable) may struggle to meet some key revenue and growth targets set out in its FY15-FY16 budget, Fitch Ratings says. The targets are highly ambitious, while continued political tensions point to significant implementation challenges. The budget, presented by Finance Minister Abul Maal Abdul Muhith last Thursday, places a strong emphasis on economic growth. It reiterates the government's stated aim to lift growth rates above the 6% area, making Bangladesh a middle-income country by 2021 and a developed nation by 2041. The government aims to increase growth to 8% by 2019-2020 under the 7th Five-Year Plan. The budget targets 7% GDP growth in 2015-2016 - an increase of nearly 1pp from the average of the last decade. This is underpinned by various assumptions, including political stability which the Finance Minister has referred to as the "sine qua non" for achieving higher growth. However, the political environment is likely to remain tense and polarised. There is no fiscal consolidation. The overall 2015-2016 deficit is projected to be 5% of GDP, unchanged from the revised figure for 2014-2015 and higher than the 'BB' category median of 3.6% (Bangladesh's general government debt of 34% of GDP is below the 'BB' median of 39% of GDP). The budget aims to boost revenues (for example through automation of tax collection and broadening the tax base) by an ambitious 28% in 2015-2016. However, as with expenditure, there is a track record of over-estimating revenues in budget targets. Moreover, the budget contains measures such as reducing corporate tax for publicly traded companies, and increasing income tax exemption thresholds, that could partly offset revenue enhancing moves (such as higher export tax for garments). Bangladesh's high and stable GDP growth in recent years shows the economy's resilience to political tensions and violence, although the World Bank recently stated this may partly be explained by statistical reasons. The ready-made garments (RMG) sector has been a key component of growth, and a Chinese investment company has agreed to establish 500 clothing factories, according to the budget. However, the steep rise in net FDI inflows seen in recent years seems to have stopped in 2014, when FDI fell back to USD1.53bn, from USD1.6bn the previous year. The political crisis following the 2014 general election may have damaged investor confidence, and the unresolved impasse between the governing Awami League and the opposition Bangladesh Nationalist Party present a risks to long-term growth. The main risk from the ongoing polarisation and repeated outbreaks of violence is the potential impact this could have on long-term foreign investment and procurement decision-making, especially in the RMG sector, as it represents about 80% of exports or 15% of GDP. Since moving factories to other countries and changing big suppliers is not done overnight, it may take some time to get a full picture of the long-term impact of this year's repeated violence. Successfully implementing policies that raises government revenues (which are the lowest among all rated countries as a proportion of GDP, apart from Nigeria) and boosts sustainable growth would be positive for Bangladesh's sovereign credit profile. However, this may be difficult as long as political risk is high and governance and the business environment are generally weak. Contact: Thomas Rookmaaker Director Sovereigns +852 2263 9891 Fitch (Hong Kong) Limited 2801 Tower Two, Lippo Centre 89 Queensway Hong Kong Mark Brown Senior Director Fitch Wire +44 203 530 1588 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. Related Research Bangladesh [771928 - 22-SEP-2014] here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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