Budget and recession
Sunday, 7 June 2009
The announcement of the national budget for the next fiscal year (2009-10) is only days away. As has been already indicated by Finance Minister AMA Muhith, the next budget, in keeping with the tradition of budget making in this country since independence, will be bigger than the one for the outgoing fiscal with hike in revenue and development expenditures. But never in the past a finance minister had to prepare an annual budget in an external environment, considered one of the worst in the world history, having serious implications on export, remittance, investment and domestic demand. The Bangladesh economy, in fact, has managed to remain, more or less, unscathed in the outgoing fiscal, thanks largely to prudent macroeconomic management. This is evident from the official GDP (gross domestic product) growth projection at 5.88 per cent for 2008-09, only 0.31 per cent lower that that of the previous year.
But the situation may not be the same in the coming fiscal. Two separate reports released by the Asian Development Bank and the Bangladesh Bank last Wednesday in Dhaka hammered on one particular point -- the global financial crisis, which has now turned into a deep recession, would pose as a big challenge for the Bangladesh economy. The recession has already left its negative marks on exports, remittance and foreign investment flow, leading to a slowdown in the private sector investment. So, the economic growth trend of the economy in the next fiscal, obviously, would depend largely on the developments involving the global recession. The downside risks would continue to remain in place if the recession persists throughout the fiscal. Taking note of the situation, the country programme head of the ADB has, rightly, described the next budget, the first one to be presented by the government elected through the December 29 general election, as a 'critical' one.
The budget will be 'critical', in terms of revenue generation and expenditure. The raising of taxes will be an uncalled for step at the present juncture when growth is declining. The most prudent steps, it seems, would be to plug revenue leakages in areas of customs, value added tax (VAT) and income tax, both at individual and corporate levels. If tax increases are not an option, the finance minister needs to go for reining in expenditure. But in the backdrop of economic slowdown, the government may be ill advised to overlook the implications of higher fiscal deficit and make expenditure necessary to stick to 'electoral pledges'. The incumbent government made scores of electoral promises. But the situation dictates that it should take up only those promises for implementation that best suit the need of the time and economy and discourage unproductive expenditure.
Priorities for the government are, actually, clear. It should address the problems of weak infrastructure, including acute power and gas shortage, transportation bottlenecks and inefficient port facility. Without necessary improvement in these areas, investments, both local and foreign, and resultant boost to the economy, would continue to remain as elusive as ever. The investment situation in the outgoing fiscal has been unsatisfactory. For, the private investment increased marginally and the public investment declined to 4.6 per cent of the GDP. Here, the implementation of the annual development programme (ADP) in right earnest is an issue that deserves priority attention of the government. Last but not the least, the government, which appears to be very enthusiastic about the implementation of large infrastructure projects under the private-public partnership (PPP) should keep itself ready to start implementing these projects on its own in the event of poor response from the private sector.
But the situation may not be the same in the coming fiscal. Two separate reports released by the Asian Development Bank and the Bangladesh Bank last Wednesday in Dhaka hammered on one particular point -- the global financial crisis, which has now turned into a deep recession, would pose as a big challenge for the Bangladesh economy. The recession has already left its negative marks on exports, remittance and foreign investment flow, leading to a slowdown in the private sector investment. So, the economic growth trend of the economy in the next fiscal, obviously, would depend largely on the developments involving the global recession. The downside risks would continue to remain in place if the recession persists throughout the fiscal. Taking note of the situation, the country programme head of the ADB has, rightly, described the next budget, the first one to be presented by the government elected through the December 29 general election, as a 'critical' one.
The budget will be 'critical', in terms of revenue generation and expenditure. The raising of taxes will be an uncalled for step at the present juncture when growth is declining. The most prudent steps, it seems, would be to plug revenue leakages in areas of customs, value added tax (VAT) and income tax, both at individual and corporate levels. If tax increases are not an option, the finance minister needs to go for reining in expenditure. But in the backdrop of economic slowdown, the government may be ill advised to overlook the implications of higher fiscal deficit and make expenditure necessary to stick to 'electoral pledges'. The incumbent government made scores of electoral promises. But the situation dictates that it should take up only those promises for implementation that best suit the need of the time and economy and discourage unproductive expenditure.
Priorities for the government are, actually, clear. It should address the problems of weak infrastructure, including acute power and gas shortage, transportation bottlenecks and inefficient port facility. Without necessary improvement in these areas, investments, both local and foreign, and resultant boost to the economy, would continue to remain as elusive as ever. The investment situation in the outgoing fiscal has been unsatisfactory. For, the private investment increased marginally and the public investment declined to 4.6 per cent of the GDP. Here, the implementation of the annual development programme (ADP) in right earnest is an issue that deserves priority attention of the government. Last but not the least, the government, which appears to be very enthusiastic about the implementation of large infrastructure projects under the private-public partnership (PPP) should keep itself ready to start implementing these projects on its own in the event of poor response from the private sector.