Budget 'won't help achieve poverty reduction target'
Saturday, 13 June 2009
Unnayan Onneshawn (UO), a local development think tank, said Friday the proposed budgetary measures would not help achieve the poverty reduction target of the present government, reports UNB.
In its budget response, the UO said that the huge government borrowing would create an adverse impact on the macro-economic balance and in the long run would jack up the inflation.
"As per the budgetary proposal the government has to rely heavily on borrowings -- external and domestic -- to meet the budget deficit that is set to Tk 343.58 billion or 5.0 per cent of GDP, which is the highest in Bangladesh."
It said the large deficit financing would certainly have macroeconomic impacts. Besides, the proposed budget estimated a revenue generation of Tk 794.61 billion that would be a difficult task to achieve.
The UO said uncertainty on future investment still loomed large as the proposed measures did not follow any comprehensive investment strategy, nor did it have any strategic link between growth and poverty reduction, though prima facie it looked that the size of public investment as well as incentives to the private sector were expected to help increase future investment.
It said that though there were some measures in the budget for expanding the social safety net, it would not be enough to bring down poverty to 25 per cent by 2013 as envisaged by the government in its election manifesto.
"One of the reasons is that the number of additional poor that will incorporate into the government social safety-net programme for the next one year is far less than the number of people that required to be graduated out of poverty each year to achieve the target."
Outlining the negative impact of the huge government borrowing proposed in the budget, the UO said if the government borrowed from the commercial sources it would definitely crowd out private investment impeding the government's objective to increase investment and disturb the money market due to increase in credit demand.
It said excess money supply to meet the borrowing would reduce the value of money relative to that of goods and services as there would be too much money to chase fewer goods and services creating inflation.
It said since the current fiscal had already run down with high public borrowing, especially that from the domestic sources, an even higher budget deficit would clearly worsen the public debt situation.
"In fact, the country is effectively caught in a 'debt trap' whereby a high existing level of outstanding debt implies a high level of interest payments which lead to a large budget deficit in the subsequent years that has to be financed correspondingly by large borrowings which add to the debt and so on."
The UO said the result was increasing growth in debt and budget deficits which created fundamental macro economic imbalances and had a number of unfavourable consequences including the 'crowding out' of the private sector and a decline in private investment through rise in interest rates and a rise in the current account deficit in the balance of payments.
On government's pledge to make the agriculture and rural sector vibrant, it said that decrease in agriculture subsidy was unexpected when the government pledged to ensure self-sufficiency in food. When farmers were struggling with increasing cost of production and were deprived of fair prices, decrease in subsidy was a shocking blow.
The UO noted that though the government stressed rural development, except for 'one house one farm' programme', the budget offered no other specific measures for rural development.
Besides, the budget for rural development and LGED was proposed combining development and non-development components, which might not capture actual development programme in rural area. While political interference has dominated in project selection in the past, corruption and ineffective local government remain major hurdles, the UO said.
In its budget response, the UO said that the huge government borrowing would create an adverse impact on the macro-economic balance and in the long run would jack up the inflation.
"As per the budgetary proposal the government has to rely heavily on borrowings -- external and domestic -- to meet the budget deficit that is set to Tk 343.58 billion or 5.0 per cent of GDP, which is the highest in Bangladesh."
It said the large deficit financing would certainly have macroeconomic impacts. Besides, the proposed budget estimated a revenue generation of Tk 794.61 billion that would be a difficult task to achieve.
The UO said uncertainty on future investment still loomed large as the proposed measures did not follow any comprehensive investment strategy, nor did it have any strategic link between growth and poverty reduction, though prima facie it looked that the size of public investment as well as incentives to the private sector were expected to help increase future investment.
It said that though there were some measures in the budget for expanding the social safety net, it would not be enough to bring down poverty to 25 per cent by 2013 as envisaged by the government in its election manifesto.
"One of the reasons is that the number of additional poor that will incorporate into the government social safety-net programme for the next one year is far less than the number of people that required to be graduated out of poverty each year to achieve the target."
Outlining the negative impact of the huge government borrowing proposed in the budget, the UO said if the government borrowed from the commercial sources it would definitely crowd out private investment impeding the government's objective to increase investment and disturb the money market due to increase in credit demand.
It said excess money supply to meet the borrowing would reduce the value of money relative to that of goods and services as there would be too much money to chase fewer goods and services creating inflation.
It said since the current fiscal had already run down with high public borrowing, especially that from the domestic sources, an even higher budget deficit would clearly worsen the public debt situation.
"In fact, the country is effectively caught in a 'debt trap' whereby a high existing level of outstanding debt implies a high level of interest payments which lead to a large budget deficit in the subsequent years that has to be financed correspondingly by large borrowings which add to the debt and so on."
The UO said the result was increasing growth in debt and budget deficits which created fundamental macro economic imbalances and had a number of unfavourable consequences including the 'crowding out' of the private sector and a decline in private investment through rise in interest rates and a rise in the current account deficit in the balance of payments.
On government's pledge to make the agriculture and rural sector vibrant, it said that decrease in agriculture subsidy was unexpected when the government pledged to ensure self-sufficiency in food. When farmers were struggling with increasing cost of production and were deprived of fair prices, decrease in subsidy was a shocking blow.
The UO noted that though the government stressed rural development, except for 'one house one farm' programme', the budget offered no other specific measures for rural development.
Besides, the budget for rural development and LGED was proposed combining development and non-development components, which might not capture actual development programme in rural area. While political interference has dominated in project selection in the past, corruption and ineffective local government remain major hurdles, the UO said.