Basics before the Budget

The Centre for Policy Dialogue (CPD) every year produces a report on Bangladesh Economy. It has long been engaged in this kind of exercise - a critical assessment on the performance of the economy as well as of effectiveness of policies. The year 2016 is no exception to that and here are some observations - albeit paraphrased - from that report.
The review done by CPD, usually before the formulation of National Budget, helps policy makers get an idea about achievements and failures. As we all know, the national budget for FY2017 in Bangladesh will be prepared in the context of a set of "traditional, as well as emerging tensions in the national economy. The upcoming budget will be launched also in the backdrop of an inhospitable global economic environment."
The report kicks off with a comforting note on a number of areas. Bangladesh economy is currently enjoying a number of advantages: (a) the provisional gross domestic product (GDP) growth figure has been estimated to be 7.05 per cent for the current fiscal year; (b) macroeconomic situation in FY2016 has largely been rather stable;  (c) low levels of global commodity prices ensured that the inflation rate continued to fall throughout the fiscal year; (d) exchange rate of Bangladesh Taka (BDT) remained stable, while the overall balance of payments improved significantly; (e) export performance was resilient and public expenditure experienced expansion.
However, the rosy rays were also pitted against some conundrums. For example, and as the Report contends, from the perspective of quality of macroeconomic management some conventional issues continue to remain the key concerns. Programmed fiscal framework for FY2016 evinced serious weaknesses as targets for both revenue mobilisation and public expenditure fell significantly short of their respective targets. Leakages in public expenditure emanating from lack of good governance, delayed implementation and cost escalation seriously undermined budgetary discipline. Actual revenue growth repeatedly missed the target due to lax implementation of rules, lack of tax compliance and weak governance. Many planned reforms have fallen behind the schedule due to negligence, inertia and failure to recognise the urgency of reforms. Rejuvenation of private investment has again remained elusive while public investment performance was the weakest in recent years.
The CPD Report 2016 goes on recording some serious problems constraining higher growth trajectory and proper distribution of resources such as weak discipline in the financial market, lack of capital market support and weak supervision of the central bank undermining the cause of investment etc went to constrain investor confidence. "Continuing global economic slowdown will likely make continuation of current good performance in exports more challenging in the near term future. Financial security has emerged as a new concern in the backdrop of various scams in the commercial banks and heist from central bank reserves. The recent Panama Papers episode and rise in Swiss Bank deposits are also reasons for disquiet. All these once again reinforce the cause of taking initiatives towards good governance in the financial sector."
Ipso facto, the Report reckons that the upcoming budget will need to raise the quality of budgetary and fiscal planning and put emphasis on the needed reforms. Current economic growth projections should be reviewed in view of composition of incremental GDP, which is unlikely to lead to high job creation. This is particularly important in view of subsequent developments in the economy from the perspective of implementing the ongoing Seventh Five Year Plan (7FYP). The upcoming national budget provides an opportunity for Bangladesh to reflect on the Sustainable Development Goals (SDGs) and their implementation at the national level. Fiscal policies could be an important tool for the government to make a strong start towards attainment of the global development agenda.
Specifically about the divergence 'expected' and 'achieved' economic growth, the Report relies on some perennial statistics. The government expects economic growth to cross past the 7 per cent threshold but the level of private investment may continue to remain a concern. According to the provisional estimates by the Bangladesh Bureau of Statistics (BBS), GDP growth in FY2016 is expected to be 7.05 per cent. It is only for the second time that in  course of the last two decades (since FY2007) that the GDP growth would exceed 7.0 per cent. Of the 7.05 per cent overall growth in FY2016, agriculture sector is to contribute 0.4 per cent (0.53 per cent inFY2015), industries sector 95 per cent (2.74 per cent in FY2015), and services sector 3.44 per cent (3.00 per cent in FY2015). As is found, services sector's growth contribution is expected to be boosted by the growth in public administration, defence, education, health and social works - as a consequence of significant revision of government pay scale. Indeed, if the growth rates of FY2015 (6.55 per cent) and FY2016 (7.05 per cent) are compared, of the extra growth of 0.5 percentage points, 0.4 percentage points is expected to be contributed by the national pay scale revision. This then draws attention to issues of both quality and sustainability of the GDP growth.
"For Bangladesh" the Report says, "acceleration in the GDP growth rate is a significant macroeconomic attainment. The nature of recent acceleration of GDP growth suggests that it is largely driven by rise in public salaries. It is highly likely that such boost will last for one more year when the second adjustment is made in view of the newly approved government pay scale (allowances). It is crucial that such acceleration in economic growth is accompanied by enhanced private investment and more quality jobs for the large young labour force of the country. Along with this, it is also equally important to take into cognisance that economic growth can only serve development when it is distributed in a just way. Appropriate fiscal measures, redistributive policies and enhanced delivery of quality public service to the marginalised are the best ways to serve this core objective of the budget in countries such as Bangladesh."
Abdul Bayes is Professor of Economics at Jahangirnagar University.
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