Thursday, 02 June 2016 National Budget Review FY2016-17 ... · National Budget Review FY2016-17...

National Budget Review FY2016-17 Bangladesh Macro

Thursday, 02 June 2016

Budget Overview:

In a bid to stimulate the economy, the government has decided

on a large budget size of BDT 3.41 trillion (USD 43.44 bil-

lion)

17.4% of GDP and 28.7% more than the revised budget of

FY2015-16.

The budget has been proposed with 28.7% YoY growth in total

expenditure, 35.4% YoY growth in tax revenue and budget

deficit target of 5.0% of nominal GDP.

A 21.6% larger annual development plan (ADP program worth

BDT 1.11 trillion) with a target 37.1% of the deficit to be fi-

nanced from external (foreign) sources are the major drivers of

such ambitious budget this year.

7.2% real GDP growth projected.

and 5.8% inflation (12M average) target for FY2015-16.

Allocation for Transport & Communication sector got a big

jump in FY2016-17 budget.

The government has increased the allocation for Transport &

Communication sector by 40.8% to BDT 347.5 billion, which

is 10.2% of total budget (against 9.3% of the FY2015-16 re-

vised budget).

The Bridge Division got allocation of BDT 92.9 billion in

FY2016-17 and this is 47.8% higher than that of the allocation

of FY2015-16 revised budget.

The amount available for energy and power sector is BDT

150.4 billion (a de-growth of 9.5% from the revised budget of

FY2015-16).

No cut in corporate income tax rates.

National Board of Revenue (NBR) is being handed a daunting

task of mobilizing BDT 2.03 trillion.

Capital Market Implications:

Overall GDP growth is projected to be higher with a large fiscal

stimulus through budget. We expect a positive spillover effect on

all the listed companies .

AS the healthcare , infrastructure and transportation sector got

higher allocation, they are likely to be the primary beneficiary of

the proposed budget.

Page 01

Table: Budget Insight

Chart: Real GDP Growth target and achieved

Source : Ministry of Finance , Bangladesh Bank


Chart: Inflation (12M average) target and achieved


(BDT in Billion) FY2016-17 % of % of % ∆ in FY2015-16

Size of the Nominal GDP 19,610.2 - 100.0 13.4 17,295.7

Size of the Budget 3,406.1 100.0 17.4 28.7 2,645.7

Expenditure 3,406.1 100.0 17.4 28.7 2,645.7

Development Budget 1,170.3 34.4 6.0 22.0 959.1

of which ADP Program 1,107.0 32.5 5.6 21.6 910.0

Non-development Budget 1,889.7 55.5 9.6 25.7 1,503.8

Revenue 2,427.5 71.3 12.4 48.6 1,633.7

NBR Tax 2,031.5 59.6 10.4 35.4 1,500.0

Non-NBR Tax 72.5 2.1 0.4 34.3 54.0

Non Tax Receipts 323.5 9.5 1.6 47.0 220.0

Budget Deficit 978.5 28.7 5.0 12.3 871.7

External (Foreign) Sources 363.1 10.7 1.9 45.3 249.9

Domestic Sources 615.5 18.1 3.1 -1.0 621.8

of which Bank Borrowing 389.4 11.4 2.0 22.9 316.8

of which Non-bank Borrowing 226.1 6.6 1.2 -25.9 305.0

Real GDP Growth Target

7.20 - - -

7.05

(provisional)

Inflation Target (12M average)

5.80 - - -

6.04

(April’16)



Table: Annual Development Program (ADP) Allocation, BDT in Billion

Source : Ministry of Finance

Page 02



Page 03


Chart: Proposed Budget Size, BDT in Billion Chart: Budget Financing (BDT 3.41 Trillion) Sources, FY2016-17

Chart : Sources of Revenue (BDT 2,427.5 Billion), FY2016-17


Chart: Borrowing from Banking System (Net), BDT Billion Chart: Borrowing from National Savings Schemes (Net), BDT Billion

Source : Ministry of Finance , Bangladesh Bank Source : Ministry of Finance , Bangladesh Bank

Chart : Sources of Revenue (BDT 2,427.5 Billion), FY2016-17


% of Revenue BDT Billion

NBR Tax 83.7% 2,031.5

Non-NBR Tax 3.0% 72.5

Non Tax Receipts 13.3% 323.5

Sources of Budget Financing % of Budget BDT Billion

NBR Tax 59.6% 2,031.5

Non-NBR Tax 2.1% 72.5

Non Tax Receipts 9.5% 323.5

Deficit Financing from Foreign Sources 10.7% 363.1

Deficit Financing from Bank Borrowing 11.4% 389.4

Deficit Financing from Non-bank Borrowing 6.6% 226.1

Budget Deficit (BDT 978.5 Billion) % of total

Deficit BDT Billion

External (Foreign) Sources 37.1% 363.1

Bank Borrowing 39.8% 389.4

Non-bank Borrowing 23.1% 226.1


NBR Tax Revenue: BDT 2,031.52 Billion % of Total NBR BDT Billion

VAT 35.8% 727.3

Import Duty 11.1% 225.5

Income Tax 35.4% 719.2

Suppl. Duty 14.8% 300.7

Others 2.9% 58.9

Total NBR Tax Revenue 100.0% 2,031.5



Page 04


Chart: Transportation & Communication Allocation Chart: Energy & Power Allocation

Chart: Health Sector Allocation


Chart: Allocation for Bridge Division Chart: Allocation for Road Transport and Highways Division

Source : Ministry of Finance , Bangladesh Bank Source : Ministry of Finance , Bangladesh Bank

Chart: Agriculture Sector Allocation





Sectoral Allocation in the Budget,

BDT in Billion % YoY Growth % Total Budget

Ministry/Division Actual

2011-12

Actual

2012-13

Actual

2013-14

Actual

2014-15

Revised

2015-16

Budget

2016-17

Actual

2012-13

Actual

2013-14

Actual

2014-15

Revised

2015-16

Budget

2016-17

Actual

2012-13

Actual

2013-14

Actual

2014-15

Revised

2015-16

Budget

2016-17

(a) Social Infrastructure 386.9

429.9 527.6 558.3 762.7 963.7

11.1

22.7 5.8 36.6

26.4

24.6 26.6 27.3 28.8 28.3

Human Development

1. Ministry of Education 105.9 113.3 148.4 161.3 202.6 268.5 7.1 30.9 8.7 25.6 32.5 6.5 7.5 7.9 7.7 7.9

2. Ministry of Primary and Mass Education 81.6 94.2 114.2 118.8 168.5 221.6 15.4 21.3 4.0 41.9 31.5 5.4 5.8 5.8 6.4 6.5

3. Ministry of Health and Family Welfare 76.7 85.5 97.5 104.2 148.1 174.9 11.5 14.1 6.8 42.2 18.1 4.9 4.9 5.1 5.6 5.1

4. Others 68.7 76.3 96.4 119.2 150.8 194.2 11.1 26.3 23.6 26.5 28.8 4.4 4.9 5.8 5.7 5.7

Sub Total 332.8 369.3 456.6 503.3 670.0 859.2 11.0 23.6 10.2 33.1 28.2 21.2 23.0 24.6 25.3 25.2

Food and Social Safety

5. Ministry of Food 11.2 8.1 9.2 7.4 15.0 24.4 (27.5) 13.5 (19.6) 101.9 62.8 0.5 0.5 0.4 0.6 0.7

6. Ministry of Dis-aster Management 42.8 52.4 61.8 47.6 77.7 80.1 22.3 17.9 (23.0) 63.4 3.0 3.0 3.1 2.3 2.9 2.4

Sub Total 54.0 60.5 71.0 55.0 92.7 104.5 12.0 17.3 (22.5) 68.6 12.7 3.5 3.6 2.7 3.5 3.1

(b) Physical infrastructure 445.4

594.0 608.6 608.0 867.7 1,012.9

33.3

2.5

(0.1) 42.7

16.7

34.0 30.6

29.7 32.8 29.7

Agriculture and Rural Development

7. Ministry of Agriculture 97.6 148.2 122.3 103.5 111.4 136.8 51.8 (17.5) (15.4) 7.7 22.8 8.5 6.2 5.1 4.2 4.0

8. Ministry of Water Resources 21.3 25.1 27.4 28.4 37.9 47.1 17.5 9.4 3.6 33.3 24.3 1.4 1.4 1.4 1.4 1.4

9. Local Government Division 94.6 126.7 129.0 155.6 192.2 213.2 34.0 1.8 20.6 23.5 11.0 7.3 6.5 7.6 7.3 6.3

10. Others 43.9 42.4 46.7 50.1 58.2 65.4 (3.3) 10.1 7.2 16.2 12.3 2.4 2.4 2.5 2.2 1.9

Sub Total 257.5 342.5 325.4 337.6 399.7 462.5 33.0 (5.0) 3.7 18.4 15.7 19.6 16.4 16.5 15.1 13.6

Power and Energy 79.7 102.8 102.7 58.9 166.1 150.4 29.0 (0.1) (42.6) 181.9 (9.5) 5.9 5.2 2.9 6.3 4.4

Transport and Communication

11. Road Transport and Highways Division 72.8 53.7 56.3 62.2 88.2 109.1 (26.2) 4.9 10.5 41.7 23.8 3.1 2.8 3.0 3.3 3.2

12. Ministry of Railways 0.0 45.6 45.9 49.7 72.6 119.5 - 0.8 8.2 46.1 64.6 2.6 2.3 2.4 2.7 3.5

13. Bridges Division 4.2 7.9 33.0 53.0 62.9 92.9 87.8 320.0 60.7 18.6 47.8 0.4 1.7 2.6 2.4 2.7

14. Other 5.6 8.0 11.2 10.4 23.2 26.0 42.6 40.2 (7.3) 123.6 12.4 0.5 0.6 0.5 0.9 0.8

Sub Total 82.6 115.1 146.4 175.3 246.8 347.5 39.4 27.2 19.7 40.8 40.8 6.6 7.4 8.6 9.3 10.2

15. Other sector 25.7 33.6 34.2 36.2 60.1 52.6 30.9 1.6 6.0 65.9 (12.5) 1.9 1.7 1.8 2.3 1.5

C) General Services 271.2 273.9 399.3 391.2 581.1 835.1 1.0 45.8 (2.0) 48.5 43.7 15.7 20.1 19.1 22.0 24.5

Public Order and Safety 87.4 96.6 123.5 131.6 174.2 210.6 10.5 27.9 6.6 32.4 20.9 5.5 6.2 6.4 6.6 6.2

16. Others 183.8 177.4 275.8 259.6 406.9 624.5 (3.5) 55.5 (5.9) 56.7 53.5 10.2 13.9 12.7 15.4 18.3

Total 1,103.4 1,297.8 1,535.5 1,557.5 2,211.4 2,811.7 17.6 18.3 1.4 42.0 27.1 74.4 77.3 76.2 83.6 82.5

(d) Interest Payments 203.5 239.2 309.9 309.7 316.7 399.5 17.5 29.6 (0.0) 2.2 26.2 13.7 15.6 15.2 12.0 11.7

(e) PPP Subsidy and Liability 52.1 24.3 40.0 41.3 41.6 75.1 (53.4) 64.9 3.3 0.7 80.5 1.4 2.0 2.0 1.6 2.2

(f) Net Lending and Other Expenditure 167.6 183.3 100.9 135.3 75.9 119.8 9.4 (45.0) 34.1 (43.9) 57.8 10.5 5.1 6.6 2.9 3.5

Total Budget 1,526.6 1,744.5 1,986.2 2,043.8 2,645.7 3,406.1 14.3 13.9 2.9 29.4 28.7 100.0 100.0 100.0 100.0 100.0

Table: Sectoral Allocation in the Budget


Page 05



Table: Change in Corporate Tax, CD & SD in Budget for FY2016-17


Impact on listed Equities:

Financial Institutions

No change in tax structure for the sector is proposed.

Government of Bangladesh (GOB) targets to borrow BDT 389.4 billion from banking system during 2016-17

Export Industry

Tax rate for the RMG sector companies will be reduced from 35% to 20%. Currently listed RMGs pay 25% tax.

Tax at source (AIT) on all kinds of exports has been raised to 1.50% from the current 0.6% in the proposed budget.

Telecom

Minimum tax on gross receipt is increased to 0.75% from existing 0.30%.

Scratch off level SD reduced from 10% to 0%.

SD on SIM card and SIM card related service is increased to 5% from 3%.

Page 06



Impact analysis:

Insignificant impact on listed telecom operator Grameen Phone. Sales tax will have slight adverse impact on its competitors which will

benefit GP indirectly.

SD increase on SIM card related service will negatively impact all mobile operators significantly

Tobacco

Price of lowest slab of cigarette proposed to be increased to BDT 23 from existing BDT 18. SD on this slab also got increased to

50% from 48%. SD on medium and high segment cigarettes got increased to 62% & 64% from existing 61% and 63% respectively.

CD on machineries for preparing or making up tobacco is increased from existing 1% to 10%. It will increase CAPEX.

1% tax is imposed on gross receipts of the tobacco companies which was 0.3%.

Corporate income tax for Cigarette, bidi, zarda, chewing tobacco, gul or any other tobacco products manufacturers has been increased

from 25.0-35.0% to 45.0%. Higher tax on low-end substitute products will create level playing field for BATBC.

Impact Analysis:

Price slab increase of low segment will reduce down-trading.

CD on machineries will increase CAPEX slightly.

Textile (Spinning, Textile and RMG)

Withdrawal of VAT of 4% at import stage of PET Chips. PET Chips is used as raw materials of polyester yarn. Textile Company

will be benefitted for this decision.

Exemption of all duties on flax fiber, an important raw materials of textile which will reduce the cost of production.

Tax rate for the RMG sector companies will be reduced from 35% to 20%. Currently listed RMGs pay 25% tax.

Tax at source (AIT) on all kinds of exports has been raised to 1.50% from the current 0.6% in the proposed budget.

Impact analysis:

Reducing raw material importing cost may improve profit margins. At the same time reducing tax rate will also boost the profit.

But increase in AIT to 1.5% will hit hard the sectors, especially the weak one.

Engineering

Duty on billet price is increased to approximately BDT 11200 per ton from BDT 7000.

Angels, shapes and sections of iron or non-alloy steel SD is increased from 0% to 20%.

CD on Electrodes of a kind used for furnaces is reduced from 10% to 5%.

CD on ingots is reduced to 0% from existing 10%

Import SD on LED lamp parts is reduced from 45% to 0%.

Page 07



CD on compressor oil is reduced 10% to 5%.

CD on evaporative air-coolers is increased from 10% to 25%.

CD on household washing machine is increased from 1% to 25%.

CD on HR steel sheet used for compressor manufacturing is reduced from 10% to 5%.

CD on honey comb fire resistant doors is reduced from 25% to 15%.CD on door coordinators is reduced from 25% to 15%.

CD on Flus type tower bolt fire resistant door import is reduced 25% to 15%.

Exporters will get tax rebate on import of fire resistant doors.

CD on liver lock, mortise lock is reduced from 25% to 15%.

CD on magnetic door holder is reduced from 25% to 15%.

CD on automatic door closer is reduced from 25% to 15%.

CD on compressor motor protector is reduced from 10% to 5%.

CD on PTC relay is reduced from 10% to 5%.

Impact analysis:

Listed BSRM group companies and GPH Ispat will be positively impacted as they have billet manufacturing facility of 1.1 million

metric ton.

For home appliance products, local manufacturing is encouraged. Singer will benefit as it intends to manufacture compressor locally,

but will lose competitiveness on some other items as duty is imposed on imported appliances.

Bangladesh building System will positively benefit from reduced duty on fire resistant door manufacturing. On the other hand their

competitiveness will be reduced as the exporters will get tax credit on buying fire resistant doors.

Concessions of duty and taxes on pre-fabricated building material extended for all export oriented sectors. Benefits for BBS.

SD on motor cycle parts assembling reduced to 20% from existing 45%. May benefit ATLASBANG and SINGERBD.

Cement

CD on fly ash is reduced from 10% to 5%.

Impact analysis:

Raw materials importing cost will decrease slightly (to some extent).

Plastic/PVC producers

PVC softeners SD is reduced from 20% to 10%.

Impact analysis:

Raw materials importing cost will decrease for National Polymer.

Fuel & Power

CD on LPG cylinders is reduced from 25% to 10%.

CD on lubricating oil is reduced from 25% to 15%.

CD on LPG road tanker is reduced from 25% to 1%.

Page 08



CD on other spring imported by LPG filling plant is reduced from 25% to 10%.

CD on equipment imported by LPG filling plant is reduced from 25% to 10%.

CD on check valve imported by LPG filling plant is reduced from 25% to 10%.

CD on Electrodes of a kind used for furnaces is reduced from 10% to 5%.

CD on LPG road tanker is reduced from 25% to 1%.

Impact analysis:

To patronize the LPG sector government take various initiatives. However, importing cylinders at low cost may affect local

manufactures. Listed LPG manufacturer MJLBD will be benefitted as the company imports most of its cylinders.

CD on LPG cylinder of plastic and glass fiber import is reduced from 25.0% to 10.0% which will increase competition for MJLBD.

Linde BD may lose some competitiveness due to lower CD on imported electrodes.

FMCG

SD on sweet biscuit is increased from 30% to 45%.

Impact analysis:

Listed biscuit manufacturer Olympic Industries will have increased competitiveness.

Pharmaceuticals

SD of 30% is withdrawn on Stability chamber imported by pharmaceutical industries.

CD on Laboratory refrigerator is reduced from 25% to 1%.

Customs duty on wheat starch and potato starch is increased from 10% to 15%.

Impact analysis:

Listed pharma companies will be benefitted, though these aren’t significant compared to their total CAPEX.

Plastic

Reduction of SD to 10% from existing 20% on plastic sheets. It will reduce the cost of local plastic goods producers.

Page 09



City Bank Capital Research Team

Mehedee Hasan

Head of Research

Email: [email protected]

Moinul Amin

Research Analyst


Nahid Hasan

Research Associates


City Bank Capital Resources Limited

10, Dilkusha, Jibon Bima Tower (1st Floor)

Motijheel, Dhaka -1000, Bangladesh

Land Line: + (880)-2-9565925

Find us on the Web:

www.cbcrl.com

Disclaimer

This report/review is based on information available to the public. This report/review is not an offer to buy or sell or a solicitation of an offer

to buy or sell the securities mentioned. The information and/or opinions in this review were prepared by City Bank Capital Resources Lim-

ited (CBC) from sources we believe to be reliable and from information available to the public. City Bank Capital makes no guarantee or

warranty to the accuracy and thoroughness of the information mentioned in this review and accept no responsibility or liability for losses or

damages incurred as a result of opinions formed and decisions made based on information presented in this review. CBC does not undertake

to advise you of changes in its opinion or information. CBC and our affiliates and/or our directors and employees may own or have positions

in, and effect transactions of companies mentioned in this review. CBC and our affiliates may also seek to perform or have performed invest-

ment-banking services for companies mentioned in this review.

Thursday, 02 June 2016 National Budget Review FY2016-17 ... · National Budget Review FY2016-17...

Documents

Transcript of Thursday, 02 June 2016 National Budget Review FY2016-17 ... · National Budget Review FY2016-17...