Published in The Daily Star on Friday, 6 June 2014.
Implementation will be put to test
An immediate reaction to budget for FY2015
Dr Fahmida Khatun
AN immediate reaction to the budget for FY2015 is, “let this budget be different in terms of implementation and achievement”. The proposed budget for the next fiscal year which is about 16 percent larger than that of the revised budget of FY2014 brings in a lot of promises both in terms of expenditure and revenue. The fiscal framework has been designed in a way that the budget deficit will be the usual 5 percent of total budget. Total expenditure in budget FY2015 is set at 18.7 percent of Gross Domestic Product (GDP), an increase from 18.3 percent in the revised budget of FY2014. The size of Annual Development Programme (ADP) is sees an increase by 33.5 percent compared to the revised ADP of FY2014. The share of ADP is planned to be 6 percent of GDP.
The need for a large budget is obvious. Budget has to cater to the demand of a large population who need employment and income. Public expenditure shows an increasing trend during the last few years though during the first nine months of FY2014 public expenditure has been relatively slow. The growth of public expenditure has been constrained by the low level of resource mobilisation efforts. Much of it is due to political turmoil during the first half of FY2014. However, this is also due low expenditure capacity by ministries in implementing ADP. The size of the ADP has been revolving more or less around 3 to 5 percent of GDP during the last decade or so. This, in no standard is adequate to lead the country towards a middle income country that requires huge investment. Low public investment also contributes to low private investment which in turn discourages foreign investment. During the first nine months of FY2014, only 43 percent of ADP has been implemented which was 5 percent lower than the same period of FY2013.
An important feature of ADP projects is that the number of carry over projects is high. In the budget of FY2015 a total of 1034 projects are listed in the ADP, of which only 29 are new, 296 are carry over projects, 357 are to be completed in FY2015 and 352 projects will be continued beyond FY2015. The failure to complete projects within stipulated period leads to higher cost of projects and tells upon the quality of expenditures. Besides, the quality of expenditures also erodes due to ill planned and politically motivated projects. The Finance Minister has time and again pointed out several measures to improve the ADP implementation which include monitoring of major projects, special and intensive monitoring of projects in a few important ministries, improving efficiency of project directors etc. The amendment of public procurement act and public procurement rules have been made to facilitate ADP implementation. The outcome has not been significantly different, however.
As it looks, the proposed budget has put emphasis on revenue generation from domestic sources. This is a right move since one of the most important challenges will be the financing of the budget. In a resource poor country financing of planned development activities and budget deficit cannot be done by resources from one single source. Multi-sourcing and mix of resource package will determine the implementation to a large extent. During the last few years (since FY2006) there is a tendency to depend more on domestic resources for meeting expenditures. In recent years the gap between financing from domestic and foreign sources has widened further. In FY2010 the difference between financing from domestic sources and foreign sources was 0.5 percent of GDP, which reached 1.9 per cent in FY2013.
During the outgoing FY2014, budget deficit has been revised upward to 5 percent against the target of 4.6 per cent of GDP. Though up to March 2014 deficit finance was 1.4 per cent of GDP but this is expected to rise significantly towards the end of FY2014. Lower figure, till March 2014 was not because of any significant improvements in revenue generation but because of the lower development expenditure. The dependence on domestic resources as a source of financing has increased to more than 94.3 percent during July-March 2014. About 72.1 per cent of total budget deficit was financed by domestic resources in FY2013. Increased dependence on domestic resources for deficit financing is a matter of concern from the point of public finance management, particularly when domestic resources are not enough to meet the demand of the country.
In financing the budget for FY2015 from domestic sources lot of emphasis has been put on revenue generation by the National Board of Revenue (NBR). Towards that, NBR will have to achieve Tk 1,49,720 crore in FY2015, an additional Tk 24,720 crore compared to FY2014. In terms of composition of revenue, income tax will be the major source with a target of Tk 57,500 crore. Traditionally, the major source of NBR tax used to be the indirect tax during previous years. This is a positive move since direct tax is progressive in nature while indirect tax is discriminatory as the incidence falls disproportionately on people irrespective of their income. In order to mobilise higher tax, several measures have been announced, including reorganisation of tax slabs and changes in surcharges.
In view with the trend of revenue mobilisaiton effort in recent period, targets are ambitious that calls for a massive drive to bring new taxpayers in the tax net and realise revenue from tax dodgers. Unfortunately, tax evaders are powerful and are capable of finding ways to get away with avoidance while the common people experience difficulties, even harassment while making their tax files. A cooperative and encouraging approach for the genuine taxpayers and an uncompromising attitude towards tax evaders should be the guiding principle in tax collection efforts by NBR. Thus the improvement in the revenue scenario is contingent upon motivated and efficient human resources, and modern, transparent and accountable tax management system.
There is also gradual rise in non-development expenditure. Expenditures on account of public investment are desirable but not the increase in non-development expenditure, because development through such measures is not sustainable. Allocation for social safety net programmes (SSNP) as a percentage of GDP has been declining over the years. The proposed budget has not shown any significant increase for SSNPs. Both the coverage of beneficiaries and amount of allowances need to be increased for development to be inclusive.
In a modern democratic society national budget does not merely delineate the sources of revenues and identify the channels of resource flow to various directions of the economy. The budget in fact guides and manages the economy. Through the budget document the government can collect taxes from the citizens of the country, and plan expenditures for various development programmes. That is why the budget can impact the growth and income distribution. How far the proposed budget can contribute towards completing this journey will be determined by the performance of the budget.
The writer is an Economist and Research Director at the Centre for Policy Dialogue (CPD).