Finance Minister AMA Muhith is expected to present the national budget for 2014-15 in parliament next month. The budget of a country is an account of government's income and expenditure and a projection of growth for the incoming fiscal year. The budget speech of the Finance Minister thus is viewed as a check-up report on the overall health of the economy.
As an individual, Mr Muhith can genuinely take pride in presenting six budgets in a row; his government can duly claim credit for enlarging the budget size to Tk 2.5 trillion or more. Again, some appreciable changes in terms of internal resource mobilisation, and undertaking reforms in some key areas are also worth noting. To many, the most important advancement has been in the area of energy - more power generation and less load-shedding than in the past - although criticisms regarding rental power still cast a shadow on the path of success. Netting out the odds from the evens, the economic growth rate - an important indicator of the economy's health - in the current fiscal is estimated to hover around 5.4 per cent to 5.6 per cent under different shades of assumptions (the government sticks to 6.2 per cent plus). It may be mentioned here that Bangladesh has been passing through a zone of 6.0 per cent-6.7 per cent growth rate for the last one decade as compared to 4.0 per cent for the initial decades after independence. This possibly tells us that economic reforms that helped graduate from 4.0 per cent to 6.0 per cent plus may not be effective in pushing the growth trajectory to 7.0 per cent-8.0 per cent which is direly needed for eradicating poverty.
The most disconcerting note for the last decade is that the rate of private investment centred round 26-27 per cent of GDP (gross domestic product). Private investment stagnated while public investment showed a marginal upward trend. With the present capital-output ratio of 4, the economic growth rate could hardly exceed 6.0 per cent. The question is without investment rate going up, how we could expect a rise in the growth rate and a fall in the poverty rate. One could also argue that the attained economic growth is adduced mostly to the informal sector, contributed by corruption and environmental hazards making it unsustainable.
By any stretch of imagination, the outgoing fiscal year was not a normal year. It was adversely affected by political turmoil of an unprecedented scale in Bangladesh's history. Political instability paralysed almost half of the fiscal year, and has seriously hit many sectors, especially services, below the belt. These sectors contribute a larger slice to our growth. Such heinous happenings not only affected the quantity of growth but also its quality. It appears that the political sky is still shrouded with cloud and thunderstorms to threaten another bout of instability that we witnessed before. But life has to roll on and the Finance Minister has to show the nation the signs of solace.
Undoubtedly, the upcoming budget is going to be the most challenging one at least compared to the ones that Mr. Muhith has presented so far. Quite obviously, and given his long experience in bureaucracy and politics, he could see the road ahead and drive us safely home.
But as a common citizen of the country, we would like to make a few points. In the budget in the offing the Finance Minister should give topmost priority to improving governance. That there has been serious deterioration in governance is revealed by many studies, and we can also watch its wane by looking around us. Unless governance can be improved, it would be a futile exercise to boost investment and thus growth.
The Finance Minister should continue giving emphasis on infrastructural development. Infrastructure development and connectivity expansion are the most important way of attracting investment.
We are happy to note that the Finance Minister has expressed his vow to improve the quality of human capital base. After decades of emphasis on quantity of enrolment in educational and other institutions, time has come to look at the quality of education. Progress in and potential of decentralisation of power, privatisation of loss-making state-owned enterprises and further reforms in revenue collection and administration should get emphasis in his budget speech.
The million-dollar question at the moment is how to boost private investment. To answer this question, we need to know the perceptions of enterprises about the constraints they tend to face, and the perceptions appear to change over time. For example, in a World Bank survey in 2007, 15 per cent of the sample enterprises viewed political instability as the main concern of the private sector but in 2013 survey, the share rose to 45 per cent! While electricity was considered a big constraint by 45 per cent of sample enterprises in 2007, it declined to 28 per cent in 2013. Similarly, access to finance appeared as a major concern by 40 per cent in 2007; it was reduced to 15 per cent in 2013.
Finally, more enterprises see corruption as a major obstacle to investment than in the past. If the survey results are taken with a grain of salt, political instability and corruption lurk in the horizon as major impediments to increased private investment.
It can possibly be assumed that the government has made progress in reducing the barriers of access to finance and electricity over time but corruption and political instability are posing as threats to negate overall investment. We can only hope that the Finance Minister would suggest ways and means of handling such crises through a judicious policy-mix. There is no doubt that Bangladesh has made strides in helping the economy take a positive turn but to raise the investment rate to 30 per cent of GDP is a very big challenge that could only be faced with a new generation of economic and administrative reforms. It also needs firm political commitment to rule of law for all and relaxation for none.
The writer is a Professor of Economics at Jahangirnagar University. [email protected]
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