Budget 2015-16: Tackling governance issues

Finance Minister AMA Muhith is expected to present the national budget for fiscal year 2015-16 in parliament next month. As the readers are aware, the budget of a country is an account of the government's income and expenditure for the next fiscal year and a projection of targets for the year. The budget speech of the Finance Minister thus is viewed as a focus on the health of the economy. It is not only a speech but also a vision. However, as an individual, Mr Muhith could genuinely take pride in presenting 5-6 budgets in a row during which time the budget size has been significantly enlarged.
Again, some appreciable changes in internal resource mobilisation and undertaking reforms in some key areas are also worth noting. To many, the most important development 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 success.
The economic growth rate - an important indicator of the economy's health - in the past fiscal is estimated to hover around 5.4 per cent to 5.6 per cent under different 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 increase growth rate 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 making a dent into poverty.
The most disconcerting is that private investment in the last decade accounted for 26-27 per cent of GDP (gross domestic product). While private investment stagnated, public investment showed only a marginally 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 could we 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 which is unsustainable by its own nature.
By any stretch of imagination, the outgoing fiscal year was not a normal year. It was adversely affected by unprecedented political turmoil. Political instability has paralysed almost half of the fiscal year and seriously hit many sectors, especially services that contribute a large slice to our growth. Such violent 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 have witnessed before. But life has to roll on and the Finance Minister has to show the nation a roadmap to follow in its march forward.
Undoubtedly, the upcoming budget is going to be the most challenging one at least compared to the ones that the Finance Minister has presented so far. However, given his long experience in bureaucracy and politics, he is expected to show the correct road and drive us safely home.
But as a common citizen of the country, we would like to make a few points. The budget in the offing should see that the Finance Minister  lays the topmost priority on the ways and means of improving governance. That there has been serious deterioration in governance is revealed by many studies, and we can also reaslise this by looking around us. Unless governance can be improved, it would be a futile exercise to boost investment, and thus growth.  The Finance Minister, despite his laudable emphasis on infrastructural development, should continue to give his attention to infrastructure and connectivity expansion as the most important means of attracting investment are infrastructure and good governance. We do appreciate that the Finance Minister has expressed his reslove 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 on 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, we need to know the perceptions of enterprises about the constraints they tend to face. But perceptions appear to change over time. For example, in a World Bank-conducted survey in 2007, only 15 per cent of the sample enterprises viewed political instability as the main concern of the private sector and in 2013 survey, the figure rose to 45 per cent! While electricity was considered as 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 which 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, we can possibly argue that political instability and corruption lurk on 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 show the way of handling the upcoming crises, and improving upon the ongoing ones through a judicious policy-mix. There is no doubt that Bangladesh has made strides in managing the economy which has taken a positive turn but to raise the investment rate to 30 per cent of GDP is a daunting challenge that could only be faced with a new generation of economic and administrative reforms. It also needs firm political commitment  to apply  the rule of law for all and relaxation for none.

The writer is a Professor of Economics at Jahangirnagar University.  
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