Published in The Financial Express on Saturday, 19 April 2014.
Framing budget on ground realities
Jafar Ahmed Chowdhury
Every country prepares its national budget for a financial year. But the nomenclature differs from country to country depending on the form of government it has. The capitalist and the socialist countries have different kinds of budgets and planning processes. However, the central planning mechanism became popular with its introduction in the now-defunct Soviet Union. Almost all developing countries have been following central planning. Bangladesh is no exception to it. Every country of the sub-continent has a Planning Commission. The composition and the functions of the Planning Commission are almost the same in these countries. The exception in India is that it has a Deputy Chairman (generally former renowned Secretary to the government or a renowned economist) who is treated as a second powerful man after the Prime Minister. This gives the Planning Commission of India the real authority over the development projects and programmes.
Bangladesh has been following central planning since its inception. Over time, the country has achieved socio-economic progress. The Planning Commission has now taken an effective institutional shape. However, over last few years, some weaknesses in the planning process of Bangladesh have been observed. Firstly, the budget sets some targets which appear to be imaginary. Instead of terming them as targets, one can say that those are really assumptions. For instance, a growth target is fixed (assumed) and a revenue target is set. The experience has shown that these two targets could not be achieved over many years. Because, these are assumed or imposed. Every year, the Chairman of National Board of Revenue (NBR) is found to show his reluctance to imposed revenue target in the meeting of the Resource Committee headed by the Finance Minister. This comes to the press off and on. Proper attention is not given to foreign aid during estimate of resources for the budget. Enough foreign aid remains in the pipeline. The ministries do not prefer foreign aid as there are supervision and conditionalities of the donors. Had there been rigorous exercise by concerned ministries including Economic Relations Division (ERD), the government could ease its borrowing from the domestic banking system.
The most striking mismatch has been found in achieving GDP (gross domestic product) growth rate. Every year actual GDP growth rate falls short of the announced target. Multinational lending institutions like the World Bank and the Asian Development Bank and local research organisations like the Centre for Policy Dialogue make different growth projections every year which show less figures than what the government or the Finance Minister claims. The fact is that there is no serious exercise as to the setting of growth rates. It is easy to say that the growth rate will be 7.2 per cent. But there is no explanation nor any exercise how this target will be achieved. In order to achieve this target, there must be such an exercise that will show the required growth rate of investment and simultaneously growth in industry, agriculture and service sectors. There must be modalities to be shown in the budget as to how these required growths are to be achieved. Similarly when the authority says that poverty will be reduced by a certain percentage, it should specify how this will be achieved. There should be explanation as to creation of employment and provision of social safety net. In the case of electricity, the installed capacity and generation are increasing every year. But the system fails to meet demands of both industries and households. True, the demand is increasing every year. But where is the plan that the demand of industries will be met and a certain percentage of population (say 70 per cent) will get electricity. The plan document speaks of increasing installed capacity but it does not say about targets of meeting demand.
Institutionally, the General Economics Division of the Planning Commission is supposed to formulate and review general economic policies of the country. It has an important say in the monetary and fiscal policies too. The important assignment is to develop growth models to suit the socio-economic objectives of the government. This exercise has been found absent for a long time. Some of the jobs are given to the Bangladesh Bank (central bank). Some figures are forecast by the Finance Division. The central bank is found to speak in line with the government. Again there are various factors both internal and external that affect economic activities. The budget exercise should properly take these factors into consideration. The economy, for example, suffered a setback due to political unrest during fiscal year 2013-14. The loss, according to World Bank estimate, was to the tune of US $ 1.4 billion. The Finance Minister while announcing the budget in June, 2013 did not seriously take into cognisance the issue of possible political unrest. All these result in mismatch between announced and achieved growth rates.
This mismatch is also reflected in the annual development programme (ADP). Scores of projects come to the Planning Commission. The amount of resources for the ADP is fixed in the meeting of the Resource Committee. The Planning Commission then accommodates the projects within the limit of the allocated resources. The Planning Commission cannot assert properly. The Planning Minister or the State Minister looks forward to the Finance Minister for ADP funds.
Prudence suggests that in order to administer budget effectively for achieving set targets, a serious look is to be given to remove its inner weaknesses.
The writer is an economist and former Planning Secretary