Bangladesh to Tax Mobile-Phone Bills to Help Cap Budget Deficit

Bangladesh plans to tax mobile-phone bills to help fund a subsidy program spanning fuel to food as it strives to prevent the nation’s fiscal deficit from widening past a four-year high.

The government estimates the fiscal shortfall will be 5 percent of gross domestic product in the year through June 30, 2013, the same level as in 2011-2012, Finance Minister Abul Maal Abdul Muhith said in his budget speech to parliament in Dhaka yesterday. The South Asian nation, one of the poorest in the world, intends to levy a 2 percent tax on mobile phone bills, budget documents showed.

Muhith projected 7.2 percent economic expansion next year even as a backdrop of feuding between the government and opposition over the disappearances of activists underscores the threat of political instability. Such risks, and the toll on Bangladesh’s pivotal garment exports from Europe’s debt crisis, may erode investor confidence in the nation’s economic outlook.

“It would be a serious mistake if the budget doesn’t address the macroeconomic imbalances in the economy,” Ahsan H. Mansur, executive director of the Dhaka-based Policy Research Institute, said before the speech. Fiscal and monetary policies since December 2011 have sought to contain domestic demand to curb imports, damp inflation and stabilize the nation’s currency, and the budget needs to continue that process, he said.

The International Monetary Fund approved a $987 million loan for Bangladesh in April after oil purchases and the impact on exports of Europe’s turmoil depleted foreign reserves. The European Union and the U.S. are the largest markets for the country’s overseas sales.

Currency Slide

The taka has slumped 11.4 percent in the past year and was little changed at 82.175 per dollar yesterday. The Dhaka Stock Exchange’s General Index, which has tumbled almost 20 percent over the same period, fell 0.5 percent.

The projected 2012-2013 deficit and the estimated shortfall for the current year are the highest since the 5.4 percent recorded in 2007-2008, figures from Bangladesh Bank show.

“The growing central government deficit and its monetization and domestic financing are exerting pressure on macroeconomic imbalances,” the World Bank said in a report in May. Officials need to contain government borrowing to ensure businesses can access sufficient credit, it said.

The IMF has said the conditions on its loan include a restrained monetary policy, reduced trade barriers and moderate fiscal consolidation.

Bangladesh Bank has raised its benchmark repurchase rate by a total of 325 basis points to 7.75 percent since August 2010. Inflation moderated to 9.15 percent in May from 9.93 percent in April. Muhith said it may ease to 7.5 percent next fiscal year.

Mobile-Phone Tax

The tax on mobile-phone bills “will further punish the mobile industry,” said Abu Saeed Khan, secretary general of the Association of Mobile Telecom Operators of Bangladesh.

The nation had almost 91 million mobile subscribers at the end of April, according to the Bangladesh Telecommunication Regulatory Authority. Providers include Grameenphone Ltd., a unit of Telenor ASA. Grameenphone phone fell 0.1 percent to 206.9 taka yesterday.

Prime Minister Sheikh Hasina Wajed is seeking to lure foreign investors to add power plants, roads and ports. Expansion may slow to 6.3 percent in the 12 months to June 30 2012 from 6.7 percent the previous year, according to provisional data from Bangladesh Bureau of Statistics.

Aside from garment exports, the $106 billion economy is also dependent on money sent home by Bangladeshis working overseas. Remittances rose 15 percent in May from a year earlier to $1.15 billion.

A history of political instability and corruption are among obstacles to the goal of faster development.

Thirteen people, mostly activists, have disappeared in the five months through May, according to a report by Odhikar, a non-governmental organization that says it documents human rights violations. Seventy-two journalists were injured in attacks in the same period, it said.

Political volatility is detrimental to investor confidence, Moody’s Investors Service said in April. More than 75 percent of Bangladesh’s population still lives on less than $2 per day, according to World Bank data.

To contact the reporters on this story: Arun Devnath in Mumbai at adevnath@bloomberg.net;

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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