Budget of Bangladesh: politicians are reluctant to comment

With the view of expanding social safety net ability, the interim government of Bangladesh has proposed a budget for next fiscal year. In reference to the 3.5 billion Taka budget in 1972, today’s Trillion Taka volume is a significant development in fiscal planning. But economists, analysts and experts says that this budget would be in a difficult situation in its implementation as it is bearing almost 30 percent deficit and it is not clear in the proposal how the money will be generated. Anyway, the politicians of the country are reluctant to comment on the budget.

Finance Adviser of Bangladesh has placed a nearly Taka One trillion national budget for the fiscal 2008-09 to the nation through a broadcast speech on June 9. The finance adviser forecast 6.5 per cent growth of gross domestic product (GDP) in the proposed budget, a bit higher from 6.2 per cent of the outgoing fiscal year.

The proposed budget includes an Annual Development Program (ADP) worth Taka 256 billion, 57 per cent of which would be funded through foreign assistance. The ADP allocation for the next fiscal year is 14 per cent higher than the outgoing fiscal year's revised ADP of taka 225 billion and 3.4 per cent less than the original allocation of Taka 265 billion. Inflation in the coming fiscal is expected to decrease at around 9.0 per cent which was 10 percent in the 2007-08 year.

The overall budget deficit for the forthcoming fiscal year has been estimated at Taka 305.80 billion or 4.99 per cent of GDP under the proposed budget and out of this, 2.2 per cent of the GDP will be financed from foreign resources while the other 2.8 percent will be met from domestic borrowing.

The total revenue earnings for the FY 2008-09 have been estimated at Taka. 693.82 billion, which is 11.3 per cent of GDP. Out of this, the NBR (National Revenue Board) revenue has been targeted at Taka 545 Billion which is 8.9 percent of GDP and non-tax and non-NBR receipts have been estimated at Taka. 125.93 billion, which is 2.1 percent of GDP and Taka 22.89 billion that is 0.4 per cent of GDP respectively.

The net domestic borrowing of the government, from both banking and non-banking sources, has been estimated at Taka 169.98 billion while the net external borrowing is projected at Taka 72.36 billion under the proposed budget.

Interest payments on account of both external and domestic borrowings have been estimated at Taka 125.65 billion, Taka 12.92 billion on external loans and Taka 112.74 billion on domestic debt.

One commentator said that, to spend more on social safety-net coverage and larger expenditure on subsidies for fuel, food and fertilizers, the finance adviser was bound to prepare a bigger size budget of Taka 999.62 billion, combining both non-development and development expenditures, for 2008-09 fiscal which is beginning from July 1.

Senior economist Professor Wahiduddin Mahmud has said the proposed budget seeks to explore short-term solutions for deeper economic problems, leaving many issues of budgetary policy unaddressed.

In his comments on the proposed budget, he pointed out that the government plans to borrow heavily from the banking system to meet the increasing budgetary deficit which has largely been caused by higher rates of subsidies and expansion of the social safety net program.

‘It represents the expected response of an interim government to a situation of widespread food insecurity and an environment of political and economic uncertainty,’ he said.

A budget Analyst stated, the budget is more than a document and it addresses three key areas which are essential for any economy- inflation, growth and employment. Finance adviser unveiled a plan in his speech that hits of social charity.

It is a short-term full-hearted program to cast the social safety net wide, which was necessary for the present day crisis. The Analyst added and said, in non-development expenditure, the adviser plans Taka 169.32 billion for social safety net, Taka 136.48 billion for subsidies and Taka 102.53 billion for salaries of teachers and doctors. But in doing so he misses many other exigency and leaves unexplained areas like how to feed the furnace of such a high spending budget. Even why and how this social safety net amount will be spent is not clear although he has mentioned many new programs. The largest outlay, as it seems, is Taka 20.00 billion for a new program called 100 Days' Employment Generation.

In the end, the crucial issue that would determine the success of this 'social charter', i.e. the proposed budget, is the capability of the revenue departments to generate money. What has been lacking in the budget is any clear direction that the efficiency of the public administration would be enhanced for both making the social goals achievable and the revenue target achieved. It is indeed a big question in terms of implementing the piffling development expenditure, he commented.

Economists also said that, in the proposed budget, the tax holiday proposal, that was intensely seeking by the entrepreneurs, may not live up to their expectations as a new slab has been proposed 100 percent tax holiday for the first two years, 50 percent for the next two years and 25 percent for the last one year. This would take the edge off the current tax holiday mode. But the main challenge would remain whether industry will react to the evolving political situation and whether industry will get enough credit to keep its wheels turning. When the government envisions an 86 percent increase in its borrowing from banks and mind it, this contrasts with a 22 percent decrease in borrowing from savings instruments one gets naturally worried about the probable monetary policy. It is actually difficult to imagine a monetary framework with such a large borrowing plan.

However, the politicians are reluctant to comment on the proposed budget, which is contradictory to their practice at the time of elected government. The reformist BNP (Bangladesh Nationalist Party) keep the mouth shut on the issue, but the general secretary of Khaleda loyalist BNP said that the government has no right to propose any budget as they do not have mandate for doing so. On behalf of AL (Bangladesh Awami League) termed the budget as ambitious one. Any way the party is yet engaged in the legal process of freeing their pivotal leader Sheikh Hasina, who is expecting to be released on 12th June and abroad for medical treatment. The leftist political parties rejected the budget terming a prescription of World Bank and IMF.

As of the comments of experts, politicians and business leaders, it could be said that the proposed budget is a budget like a political party which stands on the last year of its tenure. The character of this budget is a populist, which is intending to attract people support by any means. Anyway, if the roadmap of EC is being flowed by all, this budget would be implemented first half by the interim government and last half by an elected political government. If the performance of first half will not in a satisfactory level, the elected government will be in a big difficulty.