Capacity constraints may impede budget implementation
Sunday, 13 June 2010
Shahiduzzaman Khan
In his post-budget press conference late last week, Finance Minister AMA Muhith strongly defended the growth rate, set at 6.7 per cent, for the next fiscal year and criticised those who were preaching that the country could achieve higher growth despite the negative impact of global economic downturn.
In its budget review, the Center for Policy Dialogue said industries are, at present, facing a shortage of gas, electricity and an uncertainty in external demand. It'll be challenging to attain the 6.7 percent growth; rather a target between 6.0 percent and 6.5 percent may be more realistic, it said. It also warned the government about the soaring inflation, saying it may not be within the projected 6.5 percent.
But the upbeat finance minister said the government has successfully tackled the fallout of the global economic recession and the people are much better off now and added the country is not immune to economic meltdown impacts as the domestic economy is very small compared to the economies of developed countries. He said the budget is not at all 'ambitious' as the amount is very much needed for the huge population of the country. The minister asserted that increase in tax-GDP ratio by 0.7 per cent in one year is a big achievement of the government. Official figure, however, reveals that the tax-GDP ratio at present is about 8.5 percent.
The minister observed this year is different as prices of every day commodities have remained unchanged even after the presentation of the budget. A price hike of essentials with a budget being proposed in parliament had turned into a culture. But that was not the case this time, he added. Indeed, the prices of most of the essential commodities remained unchanged on the following day of the budget announcement.
This year's budget is largely a follow-up to the previous one. The measures laid out in the current year's budget, it appears, have been consolidated in the proposed outlay. The finance minister said he believes the public-private partnership projects will be implemented in the upcoming fiscal year, as the government has already been working to draw up a guideline to that end. He however said he reckons there is some risk in PPP implementation.
On the next year's ADP implementation, Mr Muhith said the government has taken various measures to improve the implementation capacity of the public sector. Many doubt about the efficiency of the public sector but the situation is not so bad. ADP implementation has increased by 40 per cent and it is a remarkable achievement in the history of Bangladesh, he said.
According to official figures, the ADP implementation is over 70 per cent in July-May period. However, this figure is yet to be confirmed. The government has revised the ADP target to Tk 285 billion for the current fiscal. The planning ministry and other government agencies concerned in different phases evaluate and monitor the development. But the implementation of the national budget is a most formidable challenge than mobilisation of resources by the government. It was seen that collection of revenues is easier than their proper utilisation. Ensuring the use of resources allocated for non-development activities is also no less difficult than implementing the development programmes. Although implementation of the budget is the biggest challenge, the finance minister asserted that the size of the total outlay was not ambitious.
There is no denying that the budget framed against the backdrop of global recession has attempted to stimulate local demands, provide appropriate protection to domestic industries and deliver a wider range of social safety measures aimed at ameliorating the economic condition of the people. Nevertheless, the government will to meet the large gap between the development and the revenue budget from the domestic sources, mainly borrowing from the banking system. Domestic borrowing would be certain to put pressure on private investments by drying up bank liquidity. As a result, on the one hand the government's objective to increase investment might be impeded and, on the other hand, money market would face disturbances due to increase in credit demand. The government could be fuelling inflation due to a number of implications of budgetary measures, especially if it depends on the central bank for money supply. There must be a cap on the government's borrowing from the banking sector.
According to its election manifesto, the Awami League (AL)-led grand alliance government would like to achieve 8.0 per cent growth rate by 2013 in the medium term and 10 per cent by 2017, reduce poverty to 25 per cent in five years, build massive social safety network, introduce village level rationing and employment schemes for the jobless. All these are challenging tasks for the government and the problem here lies with their implementation and financing.
The government needs to give priority to select more small projects in relatively disadvantaged areas where poverty level is high and employment opportunity is limited, as the selection of healthy and flawless projects is deemed crucial for successful implementation of the national budget. Moreover, public and private investments have to be accelerated while exports should require adequate attention to maintain the upward growth.
On the proposed budget, country's trade and industry circle said the significantly increased allocations made for energy, agriculture and rural economy, education, human resource development, IT, health, local government, and social safety nets are commendable. In particular, the coal policy needs to be immediately announced, with open-pit mining process put to use to harness a valuable resource the country already possesses. The allocation of Tk 61.15 billion for energy and power sector is a commendable step by the government, as development of the economy hinges on gas and power, they said.
The budget focuses on high growth rates in GDP, exports, imports, remittances and investment. Special attention, however, needs to be given to specific measures to contain inflation in the light of rising global commodity prices. The announcement of a Tk 20 billion stimulus package for the recession-hit export sector is also a welcome move, say the trade and business circle. The priority to power, energy and transportation sectors will set a roadmap of the infrastructure development of the country. Infrastructure development is considered a pre-condition for the development of Bangladesh. The budget has allocated Tk 61.15 billion for power and energy sectors. This is the second highest allocation after education sector. Some say the government should consider more allocation in the sector in order to come out of the existing power and energy crisis. Allocation in unproductive sectors should be reduced to allow more in power and energy.
Whatever the size of the upcoming budget, the government needs to concentrate on the implementation issue of the priority development projects in various sectors. Every year, a large amount of project money remains unspent due to negligence and so-called 'inefficiency' of the authorities concerned. This trend has to be reversed. The government's avowed policy for a 'change' won't work, if there is no speed and vibrancy in the administrative machinery.
szkhan@dhaka.net
In his post-budget press conference late last week, Finance Minister AMA Muhith strongly defended the growth rate, set at 6.7 per cent, for the next fiscal year and criticised those who were preaching that the country could achieve higher growth despite the negative impact of global economic downturn.
In its budget review, the Center for Policy Dialogue said industries are, at present, facing a shortage of gas, electricity and an uncertainty in external demand. It'll be challenging to attain the 6.7 percent growth; rather a target between 6.0 percent and 6.5 percent may be more realistic, it said. It also warned the government about the soaring inflation, saying it may not be within the projected 6.5 percent.
But the upbeat finance minister said the government has successfully tackled the fallout of the global economic recession and the people are much better off now and added the country is not immune to economic meltdown impacts as the domestic economy is very small compared to the economies of developed countries. He said the budget is not at all 'ambitious' as the amount is very much needed for the huge population of the country. The minister asserted that increase in tax-GDP ratio by 0.7 per cent in one year is a big achievement of the government. Official figure, however, reveals that the tax-GDP ratio at present is about 8.5 percent.
The minister observed this year is different as prices of every day commodities have remained unchanged even after the presentation of the budget. A price hike of essentials with a budget being proposed in parliament had turned into a culture. But that was not the case this time, he added. Indeed, the prices of most of the essential commodities remained unchanged on the following day of the budget announcement.
This year's budget is largely a follow-up to the previous one. The measures laid out in the current year's budget, it appears, have been consolidated in the proposed outlay. The finance minister said he believes the public-private partnership projects will be implemented in the upcoming fiscal year, as the government has already been working to draw up a guideline to that end. He however said he reckons there is some risk in PPP implementation.
On the next year's ADP implementation, Mr Muhith said the government has taken various measures to improve the implementation capacity of the public sector. Many doubt about the efficiency of the public sector but the situation is not so bad. ADP implementation has increased by 40 per cent and it is a remarkable achievement in the history of Bangladesh, he said.
According to official figures, the ADP implementation is over 70 per cent in July-May period. However, this figure is yet to be confirmed. The government has revised the ADP target to Tk 285 billion for the current fiscal. The planning ministry and other government agencies concerned in different phases evaluate and monitor the development. But the implementation of the national budget is a most formidable challenge than mobilisation of resources by the government. It was seen that collection of revenues is easier than their proper utilisation. Ensuring the use of resources allocated for non-development activities is also no less difficult than implementing the development programmes. Although implementation of the budget is the biggest challenge, the finance minister asserted that the size of the total outlay was not ambitious.
There is no denying that the budget framed against the backdrop of global recession has attempted to stimulate local demands, provide appropriate protection to domestic industries and deliver a wider range of social safety measures aimed at ameliorating the economic condition of the people. Nevertheless, the government will to meet the large gap between the development and the revenue budget from the domestic sources, mainly borrowing from the banking system. Domestic borrowing would be certain to put pressure on private investments by drying up bank liquidity. As a result, on the one hand the government's objective to increase investment might be impeded and, on the other hand, money market would face disturbances due to increase in credit demand. The government could be fuelling inflation due to a number of implications of budgetary measures, especially if it depends on the central bank for money supply. There must be a cap on the government's borrowing from the banking sector.
According to its election manifesto, the Awami League (AL)-led grand alliance government would like to achieve 8.0 per cent growth rate by 2013 in the medium term and 10 per cent by 2017, reduce poverty to 25 per cent in five years, build massive social safety network, introduce village level rationing and employment schemes for the jobless. All these are challenging tasks for the government and the problem here lies with their implementation and financing.
The government needs to give priority to select more small projects in relatively disadvantaged areas where poverty level is high and employment opportunity is limited, as the selection of healthy and flawless projects is deemed crucial for successful implementation of the national budget. Moreover, public and private investments have to be accelerated while exports should require adequate attention to maintain the upward growth.
On the proposed budget, country's trade and industry circle said the significantly increased allocations made for energy, agriculture and rural economy, education, human resource development, IT, health, local government, and social safety nets are commendable. In particular, the coal policy needs to be immediately announced, with open-pit mining process put to use to harness a valuable resource the country already possesses. The allocation of Tk 61.15 billion for energy and power sector is a commendable step by the government, as development of the economy hinges on gas and power, they said.
The budget focuses on high growth rates in GDP, exports, imports, remittances and investment. Special attention, however, needs to be given to specific measures to contain inflation in the light of rising global commodity prices. The announcement of a Tk 20 billion stimulus package for the recession-hit export sector is also a welcome move, say the trade and business circle. The priority to power, energy and transportation sectors will set a roadmap of the infrastructure development of the country. Infrastructure development is considered a pre-condition for the development of Bangladesh. The budget has allocated Tk 61.15 billion for power and energy sectors. This is the second highest allocation after education sector. Some say the government should consider more allocation in the sector in order to come out of the existing power and energy crisis. Allocation in unproductive sectors should be reduced to allow more in power and energy.
Whatever the size of the upcoming budget, the government needs to concentrate on the implementation issue of the priority development projects in various sectors. Every year, a large amount of project money remains unspent due to negligence and so-called 'inefficiency' of the authorities concerned. This trend has to be reversed. The government's avowed policy for a 'change' won't work, if there is no speed and vibrancy in the administrative machinery.
szkhan@dhaka.net