The government faces scrutiny in presenting the last budget for this term
Fahmida Khatun
Budget is a means to implement economic activities of a government. The political government prepares the budget in line with its political philosophy. This was the case with the present government as well when it took over power in 2009. The government set several milestones when it presented the first budget during its current regime. These included among others, growth of gross domestic product (GDP) to 8 percent by 2014 and to 10 percent by 2017, maintaining price stability, enhancing rate of investment to at least 30 percent of GDP, undertake three year special programme to mitigate the power and energy sector deficit, curbing corruption and attaching highest priority to establish digital Bangladesh. Now after four years, as the fifth budget of the present government is announced, a common citizen would like to reflect on the earlier commitments made by the government and try to compare those with the actual performance. This is more so as the budget is also considered by citizens as an instrument for realization of their expectations. However it depends, to a large extent, on the context and reality under which the budget is prepared and implemented. That is, the performance of the economy can influence the implementation of the budget significantly.
The budget for fiscal 2014 has been prepared in the backdrop of a few distinguishing features that the economy experienced during fiscal 2013. The macroeconomic scenario in the current fiscal year indicates that there has been impressive achievement in case of income tax, export growth, remittance flow and balance of payment. Though revenue collection of the National Board of Revenue (NBR) falls short of the target, the achievement in case of direct tax, particularly of income tax, has been significant.
In July-April 2013, the increase in income tax has been 34.6 percent against the target of 24.9 percent in fiscal 2013. Besides, despite low recovery of global financial crisis, exports from Bangladesh increased 10.1 percent in July-April, compared to the same period a year ago. Similarly, remittance in the same period has increased by 15.9 percent.
Utilisation of foreign aid in project implementation has accelerated as there has been a higher flow of foreign aid. Supported by these, the balance of payments sees a large surplus and foreign exchange reserves get stronger. There has been improvement in government investment as the implementation of annual development plan (ADP) has been greater in July-March of fiscal 2013 compared to the same period in fiscal 2012. Another major achievement of the present government is food self-sufficiency which has been possible through incentive measures.
The budget for fiscal 2013-14 comes at a time when the economy is faced with some challenges in terms of meeting its targets in the area of GDP growth, performance of NBR and private investment. Based on nine months’ data, Bangladesh Bureau of Statistics has predicted that the GDP growth will be around 6 percent. The revenue collection scenario in July-April of fiscal 2013 has increased 16.1 percent which is lower than the targeted level at 18.5 percent. The private investment scenario is depressed. As a share of GDP private investment is expected to be 19 percent compared to 20 percent in fiscal 2012. The investment scenario has been dampened by power and energy crises, high bank interest rates and political instability. Low investment is reflected through a lower flow of credit to the private sector and lower imports of capital machinery.
Against this backdrop, the budgetary framework for fiscal 2014 reveals that total expenditure has been increased by 17.5 percent in fiscal 2014 compared to revised budget of fiscal 2013. Total revenue on the other hand, will be 19.9 percent higher in fiscal 2014 than the previous fiscal year. The higher target of revenue is justified as the current trend of revenue mobilisation is not so encouraging and has become dependent largely on direct income. This is, of course a positive move. Due to depressed investment demand, import of capital machineries has observed a negative growth during July-March period of fiscal 2013. Import duty grew only 0.9 percent in the same period as opposed to the target of 16.2 percent. In the coming months, as the country approaches to national election, political instability is apprehended to be intensified resulting in further discouragement for investment. Hence the import duty has lower chances to pick up. The NBR has a tough task to expedite their efforts to meet up the gap in revenue generation.
The financing of the deficit budget, which is set at 4.6 percent of GDP, will come largely from domestic sources. Though the share of bank borrowing as percentage of GDP remains the same, the share of bank borrowing in total budget deficit is set at 47.2 percent in fiscal 2014. This is higher than the initial allocation of fiscal 2013. However, the target of bank borrowing in fiscal 2013 has risen to Tk 28,500 crore against the target of Tk 23,000 crore resulting in higher interest payments. During the first half of fiscal 2013, interest payment has been 33.6 percent against the 15.7 percent target. This is not desirable as these resources could be used for productive activities towards poverty alleviation. The target for non-bank borrowing through national savings schemes (NSS) has seen a significant reduction in terms of realisation in fiscal 2013. This has probably led the budget to set a lower target for NSS in fiscal 2014. However, if there is not enough incentive through upward revision of interest rate on NSS, any progress on this success may once again be difficult to make.
The much-debated provision of whitening of undisclosed money is once again back in the proposed budget. Owners of undisclosed money can legalise their money by paying 10 percent tax on the transfer or contact price while buying land, plot or flat. While these provisions are supposed to inject money in the system and help mobilise resources for financing the budgetary activities, the success has been negligible. Apart from low collection, the ethical ground of such provisions for undisclosed money is very weak as tax evaders are supposed to be punished rather than rewarded with such leniency. It is unfortunate that regular taxpayers are often harassed by the authorities while tax evaders curry favour.
A closer look at the ADP indicates the share of allocation for carryover and unapproved projects in the budget of fiscal 2014 is higher than in fiscal 2013. Given the increase in spending, the completion of carryover projects demand highest priority. Also allocation for unapproved projects should be reduced. The allocation for much-talked-about Padma bridge will mostly remain unutilised since the initiation of the actual implementation of the project requires several preparatory activities. There is inadequate time before the national election to complete these initial tasks.
In terms of sectoral allocation the reduction in allocation for agriculture, both in terms of volume and as percentage of total budget is confusing since the objective is to make the country self sufficient. Health, an important sector for human development saw an increase of only Tk 340. As a share of total budget, the share of health sector has declined in the proposed budget. Similarly, in case of social safety net programme (SSNPs), there is a decline in allocation for SSNPs in fiscal 2014 in terms of its share both in total budget and in total GDP. This is contradictory to the overarching goal of the budget: poverty eradication.
Dr Fahmida Khatun is the research director of Centre for Policy Dialogue.