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By Ruma Paul
DHAKA, June 7 (Reuters) - Bangladesh will increase spending by nearly 19 percent in its budget for the coming year, the finance minister said on Thursday, as it aims to ramp up economic growth to 7.2 percent.
The government also aims to cap its deficit at 5 percent of gross domestic product in the fiscal year 2012/13 starting in July, down from a revised 5.1 pct of GDP in 2011/12, Abul Maal Abdul Muhith told parliament while presenting the budget.
He said government spending would rise by nearly 19 percent to 1.9 trillion taka ($24 billion) in the next fiscal year.
To help offset the spending increase, Dhaka is targeting a 22 percent rise in tax revenue to 1.4 trillion taka, largely due to improvements in tax collection and crackdowns on evasion.
The Bureau of Statistics has revised the country's economic growth target for the outgoing fiscal year to 6.3 percent, backtracking on the government's earlier projection of 7 percent.
Exports, mainly garments, will remain a key growth driver for the economy, along with remittances from expatriate Bangladeshis.
The 7.2 percent growth target for 2012/13, if attained, would be the highest for the impoverished South Asian country since 1973-74, when the economy grew 9.6 percent.
"It is assumed that in 2013, the world economy will recover from the economic recession that re-emerged, especially in Europe, in 2012. As a result, world economic growth will gather pace raising the demand for Bangladeshi exports," Muhith said.
Analysts said that the penultimate budget for Prime Minister Sheikh Hasina's government would be challenging under the shadow of a prolonged global downturn, slowing investment, high inflation and a ballooning subsidy bill.
The budget will ramp up social spending by providing subsidised grain to more of the country's poor and creating more jobs, promising some relief to those hit hardest by high inflation, but sparking worries about its huge cost.
The government expects inflation to ease to 7.5 percent in the next fiscal year, given that the declining trend in food prices in international markets and satisfactory domestic farm output.
However, latest data showed that average annualised inflation stood at 10.8 percent in May, down from 10.9 percent the previous month but still above the government's 7.5 percent target for the 2011/12 fiscal year ending this month.
The budget will increase spending on infrastructure and power and energy projects to remove a major impediment to growth and attract investment.
The government will allocate 345 billion taka ($1.8 billion) in subsidies for fuel, power, food and fertiliser in the coming fiscal year.
The finance minister hinted at cutting subsidies on oil and electricity, which would be an unpopular move in a country where more than a third of the population live on less than $2 a day.
"The budget has been proposed on the assumption that the prices of fuel will be automatically adjusted in harmony with international prices along with a planned adjustment of power tariffs," he said.
The government has already raised oil and electricity tariffs several times in the current fiscal year. (Editing by Anis Ahmed and Susan Fenton)