Published in The Daily Star on Friday 31 May 2019
Bangladesh’s national budget for FY2020 will be the first budget of the newly elected government that came to power following the election in December 2018. Hence many would like to see how the budget is going to implement the promises made in the election manifesto of the ruling party. If taken seriously, election manifesto is a document which can act as the reference point of a political party to deliver on its commitments. The election manifesto of the ruling party is quite a comprehensive document that outlines the achievements of the last 10 years and elaborates the pledges to be delivered during the next five years. Some of the important deliverables will have to be achieved through budgetary allocations.
The issue of the size of the budget is not so relevant anymore. Quite naturally, the size will continue to increase in a growing economy with a large population. Still, the size hovers around 18 percent of our gross domestic product (GDP) on average. This is not large if compared with other emerging economies. Rather, the quality and inclusivity aspects of the budget are more important for Bangladesh at this point in time. The GDP growth for FY2019 is predicted to be 8.13 percent. Despite such a high growth, the economy is experiencing a number of challenges. Economic growth could not create enough jobs in the economy leaving some 11.6 percent of total youths unemployed. Inequality is evident in all respects, all forms—between rich and poor, between men and women, and between the eastern and western parts of the country. Private investment is stuck at around 23 percent of GDP. Exports and remittances have seen slow growth in FY2019. Thus formulating a budget is not an easy task in such circumstances.
One of the weak links of our national budget is its implementation. This is applicable both for Annual Development Plan (ADP) and revenue mobilisation. The estimated budget is revised downwards in the mid-way. Then again the final numbers at the end of the fiscal year are even lower than the revised budget in most cases. This demonstrates the weak capacity of our budget implementation effort. As opposed to our family budget, the national budget develops expenditure plans first. Then the finance minister looks for resources to make those expenditures. One of the major sources of resource is domestic resource mobilisation, of which taxation is a key component. As the development expenditure is increasing, the government has to set high targets of revenue mobilisation to meet up expenses. However, neither our tax base is broad enough nor our tax collection mechanism is efficient enough to generate the targeted amount of taxation. As a result, for the last couple of years, there has been a huge shortfall of revenue mobilisation from the targets. Even with such deficit in revenue generation, the budget deficit remains below the target of five percent. Why is that? Because ADP implementation also remains below the target. While this reflects our inability to fulfill commitments, the other aspect of the budget is no less important. And that is, the quality of budget implementation.
When it comes to the quality of expenditures, transparency and accountability are questionable in many cases. Large infrastructural projects are not completed timely. The delay costs dearly. Waste of resources and corruption are not unheard of. Many a time, poor quality infrastructures require an even larger amount for their maintenance. The other issue is to increase investment in social sectors. Such investment should not only be for construction of schools and clinics but also for ensuring quality of education and health services. Improving the quality of teachers through training, overseeing the curriculum and syllabus in schools and monitoring the healthcare services are only a few means for quality enhancement. Similarly, resource for social safety net programmes is essential to address poverty. Surprisingly, government pension is considered part of the social safety net budget which makes the social safety budget larger than the actual amount flowing to the poor.
We would also like to see how the budget addresses the ongoing crisis in the financial sector. The banking sector is burdened with huge amounts of default loans. The government has been injecting resources to the losing banks, mostly owned by the state. Such regular recapitalisation has not resulted in improvement of the health of the problem-struck banks. It has rather created incentives even for the private commercial banks to misappropriate taxpayers’ money. The recently published Financial Stability Report 2018 by the Bangladesh Bank points out that the net profit of the banking sector has decreased because of large amounts of default loans. This implies that banks’ contribution to revenue generation will be lower. Rescheduled loans are becoming defaulted again and again. But banks continue to reschedule those default loans. How is it consistent with the election pledges of the ruling party?
Zero tolerance to corruption has been announced by the highest political authority of the current government. This is a laudable move. But this is not going to be a simple task given the nature of governance in the country at present. It will require strong and harsh measures. Institutional reform of the organisations in charge of monitoring corruption issues and taking measures against the corrupt are still unfinished. Budget can allocate more resources for digital governance and capacity development of officials. However, if the responsible bodies are not allowed to function without influence and fear, we will not be able to progress much on this count.
So the finance minister has a tall order in front of him. In terms of issues, the upcoming budget will have to deal with the same old ones. But it is time to change the approach. During its third term in leading the country, the ruling party will have to address the sources rather than the symptoms of the problems. Budgetary measures will be one of the tools to eliminate those.
Fahmida Khatun is the Executive Director of Centre for Policy Dialogue (CPD).