No more feather dust approach, please
THE first budget of the incumbent Finance Minister, AMA Muhith, was delivered on 11 June and it certainly stirred an intense debate at least in two areas: the projected growth estimate for 2009-10 (5.5-6.0 percent) fiscal year and about the approach budget paper proposed to whitening black money. Sensing the discord by the leading economists and former finance advisers, the FM was at the back foot on both the issues the next day (12th), when other economic minsters also addressed the media.
Almost all commentators have been suggesting that the growth forecast is at the lower end of the scale compared to the actual growth achieved during the caretaker government even when the economy was in turmoil due to the sidr, high world food and fuel prices and domestic political uncertainty before holding the general election in 2008. The honourable minister made it clear to the media that the growth rate figure of 5.5 was a printing error in the budget paper, it was meant to be 5.5 to 6.0 per cent. Unfortunately, such an error caused a major confusion and was very costly indeed for the ministry.
Most of the economists are in the view that, even if the upper limit of the rate was a 6 percent, it is certainly a low estimate given the resilient performance (relatively) of the Bangladesh economy during a time of great economic slowdown globally. One of the former advisers even suggested that a figure between 6 and 6.5 percent is appropriate given the growth expected in the current year (5.9 percent).
While it is true that 5.5 to 6.0 per cent is low, one is convinced that this was not come out of the performance barometer of only one year (2008-09). I am sure the finance ministry has ongoing mechanism in place to work out the year to year rate. One also expects that at least the major think tanks keep tabs on the macroeconomic issues and have prior knowledge about the method used by the ministry for this purpose.
Generally, elsewhere, three major scenarios are used for such a short term forecast: conservative, stable and optimistic. It appears from the press conference that 5.5 to 6.0 per cent growth next year is a conservative estimate by the government given the great global recession. Being conservative in the uncertain economic time is not a weakness, the honourable minister perhaps is cautious and likes to play on a back foot which is entirely fine. One should be mindful about a sudden external factor which could drag the economy down without warning, for example, swine flue pandemic or else, in an uncertain world.
It is the issue of whitening black money which remains as most contentious among think tanks, expert groups and at least with one trade association (MCCI). Even The Daily Star in its editorial on the 14th appealed to the government for a review or revision of the proposal. Personally, I have a position on whitening black money which I made clear via a DS op-ed published on 1 April 2009. Once again, it appears that the honourable minister was on the back foot. Among other things (including his personal preference) he was in the view that this measure was driven more by politics than economics or business ethics. Why was it driven by politics only? Did the measures taken also involve some expected economic gains? Certainly, these were not elaborated in the press conference, hence, created confusions among the commentators, experts and the media alike.
While one sympathises or can see some merits on the opposing views to the approach the budget paper proposed to realise additional resources and create employment out of the whitening scheme spreading over three years, one still is not convinced why a popular government should keep such a clean up process at the back burner on ethical or other grounds at the time of global crisis. Is not every dime is precious now? For this nation cleaning up the money corruption should start at the earnest in order to seal the sources of undisclosed money once and for all.
Let us summarise the discords before concluding. First, it has been mentioned that in the past such a measure brought minimum response hence the measure cannot be economically beneficial or sound. Second, without a provision of penalty such a tax concession to the offenders is morally unacceptable. Third, if at all tax concession has been allowed, this should be only for the honest earnings. Last but not least, the whitening measure proposed an age old 'feather dust' approach.
To be fair, it appears that both the commentators and the budget paper missed the fundamental point on this issue. The point here is to start a genuine attempt to clean the black money mess up accumulated over a long long period of time. The approach proposed by the budget paper in fact raised more questions than answers for this purpose. It allows a feather dust instead of a carrot and stick approach. In busting money corruption one expects that there must be a role for the presently independent ACC. Moreover, the proposed three year long tax concession on undisclosed money would simply not work. Concessions lasting for three years would certainly end up with feather dusting at the surface like the schemes introduced in 2000-01 and 2004-05. This is the last thing the nation wants from a government with unprecedented popularity and genuine engagement with the common people.
Dr Moazzem Hossain is the author of South Asian Economic Development, Routledge, London and New York, 2009.
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