Dr. Mirza Azizul Islam :
The budget season is about to reach its peak. The Finance Minister has already concluded discussions with several groups of stakeholders. Various organizations including those engaged in research on economic issues have been organizing discussion meetings on the budget. At any rate, the Finance Ministry must be at the stage of nearly finalizing the draft budget for FY 16.
A budget is by far the most important macroeconomic policy instrument to achieve a country’s development objectives. In a poor country like Bangladesh which aspires to reach middle income status in the near future acceleration of economic growth features most prominently among these objectives. Others include poverty alleviation, reasonable price stability and creation of productive employment opportunities for the burgeoning young population. While recognizing the seminal importance of the budget one should recognize its inherent limitations. First budget is but one among several macroeconomic policy instruments. The others are monetary, trade, exchange rate and investment policies. Unless these policies complement and reinforce what is sought to be accomplished through the budget, the end result may be unsatisfactory. A second limitation arises from the fact that the expenditure side of the budget which holds the key to the realization of development objectives is largely implemented by various line Ministries and associated state-owned corporations. The maladies of incompetence and corruption which pervade these entities frequently frustrate the fulfillment of desired objectives.
Size of the budget: The budget itself, while aspiring to contribute to the multiple development objectives, should be pragmatic. Otherwise, the budget becomes a paper exercise and loses credibility. In this context it is worth pointing out that during the past few years (FY 12-FY 14) the implementation of the budget has failed to meet the key financial targets (Table 1). The available indications are that the story will be repeated in FY 15 as well. It is understood that NBR tax revenue target has been revised downward from the budget provision of Tk 1,49,720 crores to TK 1,35,000 crores. The estimates for non-tax revenue and Annual Development Programme (ADP) have also been significantly lowered. The estimate of revised total expenditure is likely to be of the order of Tk. 2,40,000 crores as against the budget provision of Tk. 2,50,506 crores. However, it is unlikely that revised ADP of Tk 75,000 crores will be implemented in full.
Hence, the actual expenditure is not likely to exceed Tk 2,35,000 crores. Incidentally, in an article published in May 2014 (Lanka Bangla, Market Pluse, Issue no. 88, pp 35-37) I noted that the size of the FY 15 budget should not exceed Tk 2,35,000 crores. The coincidence is not accidental; it should be attributed to my pragmatic assessment.
Similarly, based on realistic estimates of domestic revenues from various sources (ie. NBR taxes, non-NBR taxes and non-tax revenues), external loans and grants and reasonable levels of domestic borrowing (Table 2) as well as administrative competence of line Ministries, I suggest that the size of FY 16 budget should not exceed Tk 2,75,000 crores of which Tk 85,000 crores may be allocated for ADP.
A few other suggestions for FY 16 budget: Subsidy requirements for petroleum will be considerably less because of rather dramatic fall in internal price. The resultant fiscal space, however, will be somewhat constrained by the additional expenditure on salaries for government officials in consequence of implementation of the Pay and Services Commission report and maintenance of law and order. The Government should, nevertheless, consider if prices of petroleum products can be reduced for domestic users.
· Various business groups have been clamoring for subsidies and/or tax breaks citing political instability-related losses. There should be objective assessment of these claims to ensure that there is no fake claim of losses. In this context two points need to be emphasized. First, the claimant enterprises must be able to prove that they actually suffered losses.
A reduction in the level of profit is not a valid ground for fiscal largesse. Second, there should be convincing evidence that the loss is attributable specifically to the activities connected with political discontent.
· One of the strengths of Bangladesh economy is the high proportion of the young people in total population dubbed as “demographic dividend” in discourses on development. In order to be able to realize the potential benefits from this dividend, the young people have to be transformed into productive work force. This calls for greater allocation for human resources development, specifically health and education. The allocation for these two sectors combined fell from 18.2 percent of total budget in FY 09 to 17.8 percent in FY 15. There is, therefore, a strong case for enhanced allocation to these sectors. While increasing allocation attention should be paid to the quality of these services. In the case of education relevance to market needs should be seriously addressed. Moreover, expenditure should be restructured so as to benefit the poor more. A recently published World Bank study has noted that benefits of government expenditure in these two sectors in Bangladesh accrue mostly to the relatively well-off sections of the society.
· Despite notable progress in poverty reduction since 1990s Bangladesh remains home to a very large number of poor people, about 40 million. In this situation there is a pressing need for expansion of social safety net. Unfortunately, allocation for this purpose fell sharply from 17.3 percent of total budget in FY 09 to 12.3 percent in FY 15. While increasing allocation, serious efforts are needed to prevent leakages. There are studies which show that a significant portion of funds allocated for social safety net are appropriated by those who are not entitled and consequently many of those who are legitimately entitled are deprived.
· The subsidy picture in Bangladesh remains terribly opaque. For example, FY 15 budget shows an allocation of Tk 16,653 crores for this purpose distributed among agriculture (9,000 crores), public administration (5,847 crores) and the rest among defense, public order and security and social safety and welfare. There is no mention of subsidies given in several forms for fuel, electricity and various loss making state-owned enterprises many of which are engaged in the production of purely commercial goods and therefore do not deserve any subsidy. I made a small beginning in the area by taking over the liability of Petroleum Corporation in FY 08 budget. Similar initiatives are needed to bring about greater transparency in the subsidy regime.
· Bangladesh offers a host of incentives to encourage private sector investment. These are administered through tax holidays, accelerated depreciation, tax rebates and exemptions and a high degree of differentiation in the rate of import duties, regulatory and supplementary duties. The budget should announce that the Government would initiate a comprehensive study to assess the impact of these incentives with a view to restructuring or even eliminating some of the incentives.
· Finally, the emphasis on various elements of infrastructure- transport, energy, electricity, rural roads etc- should continue. However, it should be ensured that the relevant projects are completed on time. The delayed implementation and consequential cost overrun have become the hall marks of the implementation of our development programmes. FY 16 budget should reflect on how this undesirable practice can be got rid of.
(The author is a former Adviser to the Caretaker Government, Ministries of Finance and Planning and presently a Visiting Professor in BRAC University.)
