About the budget

The budget for the next fiscal year, which has just been placed before the Jatiya Sangshad, has already hogged headlines in newspapers, followed by detailed publication of the text. There has been a post-budget press conference by the Finance Minister, which has become part of the presentation ceremony. Almost on cue, comments have been made by the subject matter specialists, various interest groups including chambers of commerce and industries and the opposition parties. Curiously, all these centre around Dhaka. Be that as it may, the print media deserves credit for giving wide publicity to the event without which the general public would have remained benighted about the budget. Responsible comments and editorials in newspapers further help the public in forming their opinion as well as to give feedback to the government. Heightened state of public interest, created and sustained by these reactions, not only facilitates pragmatic fiscal policy making but also fulfils an important requirement of democratic decision making: participation. Unfortunately, the contribution of public representatives to the public discussion of the budget remains insignificant both because of indifference and rejection. Indifference is manifested through the pliant attitude of and acquiescence by the treasury bench members who remain silent or are very mildly critical as if in a well-rehearsed reaction to the budget proposals. The opposition members, on the other hand, ignore and reject the budget by their absence from the Sangshad. Whatever comments are made by them outside the Sangshad are mostly negative in nature and sporadic in coverage. This limited and inconsequential participation by members of parliament belonging to the treasury bench and the opposition is the most serious weakness in the fiscal policy making of the country to-day.

As in the past, the present budget has been welcomed on the basis of some aspects and criticised in respect of others. This is only natural and expected. A budget cannot be totally satisfactory to each and every group in the society. The moot point is whether it hurts less and benefits more, over all. The overriding criteria of budget are classically utilitarian: The greatest good of the greatest number. The welfare to be promoted for people has also a temporal dimension. If a budget imposes fiscal burden at present for assured welfare in the not too distant future, a strong case can be made out for such temporary suffering. So the question that should predominate is, what a budget will deliver to people tomorrow as against what it proposes to them by way of sacrifice to-day. Seen from this temporal perspective budget is a continuous exercise to achieve goals that range from medium to long-term. It is the 'vision' in a budget that matters, not its nitty-gritty details. A budget cannot lose sight of the forest because of its pre-occupation with trees.

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The present budget is the ninth prepared and presented by Mr. Saifur Rahman, who is in his third term as Finance Minister. The long experience that he has in this area gives him an uniquely intimate insight into the working of Bangladesh economy, including its strengths and weaknesses. Abrasive and blunt at times, he knows very well what measures need to be taken to set the economy on a growth path. Working under democratic compulsions he also is aware about the limits to the fiscal power of an elected government. He highlighted the task in his budget speech when he said: The challenge in the current fiscal year has been to consolidate the success achieved in the past year and to further accelerate the pace of economic growth, develop a sustainable medium term strategy for economic prosperity and poverty reduction and to initiate appropriate programmes for implementation of that strategy."

The vision for future is clearly spelt out in the above exerpts from the speech. The present budget has thus passed the test of being an instrument for economic growth and social development. Of course, it is an entirely different matter whether the vision embodied in the budget will be translated into reality. That task has direct bearing with the political will of the government and day to day governance administered by it. A budget can be a road map to future and can also be a guide, but the will to travel has to be there. It is the collective responsibility of the government, which is 'leading' the nation and of the people, who are being led by the government elected by them. Even those who did not vote for the party(ies) in power, and who are in opposition, have an obligation to try to reach consensus on fiscal policy as the most important instrument for growth and social change. A particular party may be in power but a budget cannot be partisan, particularly when there is so little difference in the economic policies of the major parties.

The medium term strategy for the economy envisages a 5.5 per cent rate of growth for GDP in the next fiscal year, rising from the current rate of 5 percent. In fiscal 2006 it is expected to post a growth rate of 6.5 percent. The key to this growth rise in public expenditure is expected be Tk. 20,300 crore under development and Tk. 36,000 crore under revenue expenditure. There is nothing wrong with these levels of expenditures but what is a matter of concern is their mode of financing. About 51 percent of ADP is slated to come through foreign aid which will include a 33 percent jump in foreign borrowing amounting to Tk. 9,805 crore. As against the total of 36,000 crore of revenue expenditure bank borrowing will be resorted to for deficit financing to the tune of about Tk. 9,805 crore, registering a jump of 33 percent from previous year.

The silver lining in an apparently dark cloud of financing is the fact that dependence on foreign aid is gradually declining, while revenue income is showing an upward trend in real terms. In the budget proposal the income tax base has been widened and VAT coverage increased. These two sources will compensate for the dwindling revenue income from import duty. It is a moot point whether supplementary duty runs foul of WTO Rules. If it is thought to do so when calculated on the basis of import duty, there is always the scope of slapping it under the changed label of 'expenditure tax'. It is not only for the sake of raising revenue that we need supplementary duty or expenditure tax, but also as a way of taxing the well to do more than the poor. The items coming under this category of taxation are mostly used by the economically well-off. Supplementary duty renamed as 'expenditure tax' will be a very progressive way of taxation with greater incidence on the rich.

As regards social development the emphasis on poverty alleviation, education and health are steps in the right direction from the point of view of the Interim Poverty Reduction Strategy Programme(I-PRSP). But much will depend on how allocations to the concerned sectors are spent and utilised. It is not enough to say that Tk. 18,000 crore under I-PRSP will be available for the next three years, as there is no guarantee that funds allocated to sectors with potentials to contribute to poverty alleviation will actually do so. Only programmes targetted on poor and disadvantaged can ensure that. Thus, important as it is to raise growth rate to 7 per cent per annum through adequate investment to achieve the millennium development goal of reducing poverty by half by 2015, the selection of poverty programmes and their implementation will be more crucial. If this strategy is followed the danger of widening economic disparity can also be addressed reasonably well.

To conclude: the present budget has the requisite vision for the future and also the strategy to make it real. Much depends on political will and on governance and the two are in fact, enmeshed. As the most potent policy instrument of the government budget can give concrete shape to governance if it is realistically formulated and effectively implemented with broad-based participation based on consensus. The present budget is reasonably realistic. The question is: will it be implemented effectively?

Hasnat Abdul Hye is a former secretary, novelist and economist.