An oversized, unrealistic and politically expedient budget

The finance minister claims that the budget aims “at increasing public welfare by poverty reduction through human development, development of agriculture and industrial growth, expansion of trade and commerce.” Let us see how far his claims are tenable. With regard to increasing public welfare it may be stated that reduction of tariff on certain food items may have marginal effect on the market at best (In fact, without any attempt at controlling the well-organised trade syndicates, reducing some duties may not have any positive effect at all.) In fact, inflation may further rise due to fuel price hike. According to some economists, poverty reduction strategy got scuttled in the very first year of its implementation, and the finance minister has made no attempt to assess the outcome of fiscal year 2006 based on policy matrix in the PRS document. There is no explanation as to how the incremental growth has benefitted the poor. The budget does not recognise the poor state of policy implementation/management except some initiatives in the tax administration.

We fail to see any mention of ACC or any other initiative to check wastage, leakage and outright theft of public resources.

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The fiscal measures in general indicated a desire to liberalise the trade regime further and to make available inputs at globally acceptable price. As per Centre for Policy Dialogue analysis, “The macro-economic framework has not been applied to explain the future fiscal and monetary stance of the government in achieving the growth target, fiscal and external balance and assumed inflation rate.” With regard to new target of revenue earnings it appears to be almost unachievable. The government will have to collect 17.1 per cent more revenue in F/Y '07 and the National Board of Revenue will have to record a 19.15 per cent growth.

A few words about the growth of Bangladesh economy in F/Y '06. The preliminary estimate of 6.71 per cent growth has been estimated on the basis of six to seven months' data when the economy was going through a momentum of high credit expansion, export, import, industrial production and high inflation. It may be pointed out in this regard that the government took a number of measures such as increasing the lending rate controlling import. This resulted in slowing down of the economy during the last quarter of F/Y '06. Thus, the initial growth estimate will have to be revised downward when data for the full F/Y become available.

Though the proposed budget indicates a high allocation for the education sector it has miserably failed to design a proper institutional mechanism to ensure quality education. With regard to allocation for the agriculture sector the budget will not fulfil farmers' aspirations due to lack of proper guidelines, specific plans and provision for monitoring the subsidy. Though fisheries, poultry and livestock have contributed significantly to the growth the poultry owners have received only 20 per cent subsidy in rural electricity and the fish farmers were disappointed due to price hike of fish feed.

Though the businessmen in general are rather happy about the budget the Metropolitan Chamber of Commerce and Industry is deeply disappointed because of the provision for investment of black money in the purchase of land, apartments and cars. This means whitening of black money will be allowed for non-productive investment. It pointed out (a) lack of indication of widening of the tax net which is considered essential for higher tax-GDP ratio, (b) lack of support to industrial sector by fiscal monetary and infrastructural policies, (c) overlooking the need for lower interest rate structure, (d) non-withdrawal of restriction on overseas visits of company directors, (e) inadequate attention to generation of electricity and (f) lack of proper attention to the need for reducing current revenue expenditure.

The budget is generally considered unrealistic and overambitious because of the government's failure to consider its repeated lack of success in reaching projected targets in revenue earning and the gradual reduction in mobilisation of foreign assistance. We had anticipated that the finance minister would present a people-oriented budget because of the election year. In reality he has been able to please (a) the rich, through encouraging investment of black money in unproductive sector like housing and purchase of land, (b) the party and its associates. In fact he knows very well that the present government is responsible only for one third period of the budget. So why to worry about the possibility of failure or success of the budget. Thus, his party may like to thank him for showing realistic attitude i.e. serving mainly the interest of his party BNP.

ABMS Zahur is a retired Joint Secretary.