Published in The Financial Express on Thursday, 4 June 2015.
Budget for FY ’16: Priority attention to HR dev likely
Finance Minister Abul Maal Abdul Muhith will place before parliament the national budget for the financial year (FY’16) today (Thursday). He is expected to put greater emphasis in his budget speech on human resource development. The size of the estimated budget, as already reported in the media well ahead of its announcement, will be anywhere between Taka 2.95 billion (2.95 lakh crore) and Tk 3.0 trillion (3.0 lakh crore).
Mr Muhith has earlier said the greater emphasis on human resource development would not anyway change the government’s focus on the development of infrastructure, gas and power. In this context, “greater emphasis” will imply giving some extra efforts for further development of education, health and other social sectors. Achieving higher growth in future does certainly hinge on human resource development.
The budget for the forthcoming fiscal year (FY), 2015-16, will, according to earlier statements by the finance minister, receive adequate attention of the government to the timely implementation of the ongoing mega projects like the Padma Bridge, metro rail and Moghbazar-Mouchak flyover. Furthermore, the government is expected to maintain its focus on poverty reducing initiatives, channelling substantial budgetary allocations for employment generation and social safety-net.
However, as was in the past, the capacity of the line ministries for implementation of public sector development projects has again become a hotly debated issue. Every year, questions are raised relating to the progress in the implementation of the Annual Development Programme (ADP). The ADP implementation, in most cases, keeps a low pace until the third quarter of any fiscal, but it suddenly picks up speed in the final quarter.
The implementation of the ADP has continued to demonstrate underperformance for most part of the fiscal year, as usual. According to data for the first 10 months of the current fiscal, spending under the ADP was 51.8 per cent of the originally planned allocation. A large portion of the fund development projects will obviously be spent in the last month, a practice that always draws flak from different circles. Whether matching physical progress in ‘development’ activities against this level of spending can be made or not in one single or two months, is an entirely different issue here.
Analysts does, of course, note that hasty ‘implementation’ gives rise to misuses of a large chunk of public money. It is critically important for the government to take effective steps to check irregularities, stop misuses of funds and improve quality of project execution work.
Besides the slow implementation of the ADP, there are other areas of the economy that need to undergo thorough reforms.
Suggestions have come up to set up some independent commissions for better management of the economy. The prevailing macroeconomic stability along with lower price levels supports such actions, independent think-tank the Centre for Policy Dialogue (CPD) said in its latest review of the Bangladesh economy for the outgoing fiscal.
Such commissions can be set up in the areas dealing with agriculture pricing, local government financing, public expenditure reviews, financial sector reform and setting up of an “independent” statistical commission to ensure transparency and objectivity of official data and to validate the macroeconomic correlates.
The fact that Bangladesh needs to carry out deep-seated institutional and policy reforms on a fast track, is irrefutable. Otherwise, it will not be able to go beyond the 6.0 per cent plus growth rate. No serious attention could so far be given by the government to different reform initiatives that are needed to help boost the performance of the economy and create the much-needed employment opportunities.
Incidentally, the outgoing fiscal year has seen a number of macroeconomic advantages for Bangladesh such as relatively lower level of inflation, declining interest rate, stable exchange rate, manageable fiscal deficit, positive balance of payments and otherwise comfortable foreign exchange reserves. Also, the low global commodity prices, including that of oil, have provided some respite, in terms of resources needed to meet subsidy demands.
On the other hand, acceleration in private investment remained an illusive goal while the National Board of Revenue’s (NBR’s) tax-revenue-collection growth was below target, despite its collections of import duty and supplementary duty collections having been on track.
Much lower than the expected level of private sector investment has largely dimmed the prospects for the country’s growth prospects on a high trajectory. There was also low inflow of foreign assistance. Export growth was minimal, while a vibrant rural economy was mired by the prolonged political violence that impacted farmers and agriculture sector alike. Failure to ensure incentive prices to rice farmers has been yet another negative for the economy.
The country’s data production on important indicators, including gross domestic product (GDP) calculation, is now widely criticised because of, what the analysts say, lack of credibility. The growth performance does not reflect the reality and the data of resource mobilisation by the NBR do not match with that of the Finance Division.
Although the size of the national budget for the forthcoming fiscal is not large relative to the country’s gross domestic product (GDP), fears have meanwhile been expressed by a good number of analysts about mobilisation of the targeted revenue becoming too daunting a task for the government. The government, as the reports said, will set a revenue target for the NBR at Tk 1.76 trillion for the upcoming FY which will be Taka 500 billion higher than the estimated actual receipts in the outgoing one. As such, the revenue target for the next fiscal might create an extra pressure on the NBR.
If the target is deemed unrealistic, the government, as exports say, will have to depend on more borrowings from the banking sector or will be forced to downsize of next fiscal’s ADP. Overall public expenditure should, as the economic rationale suggests, be determined on the basis of possible revenue collection and other receipts of the government.
The country’s per capita income now stands at US$ 1,314. It is expected to graduate to the status of a middle-income country within a few years. But its growth performance has to be sustained and be maintained, at least, at the current, if not higher, level for three consecutive years.
The other day, the finance minister made a fervent call to the business community to remain pro-active about enhancing their capacity to stay afloat in businesses amid new crises that may arise in coming years due to steep reduction of supplementary duty at the import stage and implementation of new value-added tax.
Meanwhile, an analysis by the finance ministry on budget implementation said internal demand remained vibrant riding on positive development in agriculture, dynamism in rural economy, healthy remittance inflow and wage-hike in the garment sector.
In the outgoing fiscal, subsidy expenditure of the government was slashed due to the lower fuel oil prices on the international markets that enabled it to divert enhanced public allocations to priority sectors of the economy. Inflation and bank interest rates saw downward trends with exchange rates remaining stable. These are otherwise positive indicators of macro-economic stability which is a precondition for economic expansion, it explained.
Against backdrop of the prevailing opportunities and challenges, the economic benchmarks will be decided or determined for the forthcoming fiscal. Diligent fiscal management will be critical for achieving those benchmarks. This will require significant reflex actions to help achieve a realistic revenue target and ensure proper implementation of the development programme.