Challenges for 2015-16 budget

Perhaps very few of us know that five Finance Minister/Advisors out of the nine that Bangladesh had so far belonged to a particular batch. They are M Sayeduzzaman, M Saifur Rahman, Wahidul Huq, Maj. Gen (retd) A Munim and AMA Muhith. Two of them passed away and one has been living abroad. This information came out of an informal chat before a formal discussion on Budget 2015-16 recently.  It is nice to see that AMA Muhith and Syeduzzaman - both 83 - are still found to be 'super-active'. The former has been on the crease batting as the Finance Minister of Bangladesh.
As we all know, pre-budget discussions with different stakeholders including trade bodies, professional groups, intellectuals, politicians etc become almost a ritual on the eve of  every budget. The Finance Ministry is on its toes in giving the final shape to the budget. We were recently invited to a pre-budget discussion. This fiscal's budget is going to be a challenging one on many counts. First, after a political calm for first six months of the current fiscal year, the economy has been engulfed by political violence. The estimated economic losses range between 0.5 to 2 per cent of the GDP. As compared to a situation of certainty during the first six months, chaos, confusions and uncertainty gripped the economy during the last three months (January to March 2015).
Crisis is not always a curse but at times it could turn out to be a blessing. Surviving the first-ever acute political crisis, the economy and the society has been back to its normal course of action. It reinforces the argument that the Bangladesh economy has grown resilient over time and man-made or natural calamities would not be able to extend heavy blows to it as it would have decades back. Secondly, once crisis becomes a regular incident, economic agents try to recast their portfolio and decisions in the light of emerging scenario. This is exactly what happened very recently. Despite the turmoil, the economic loss would at best stand at 0.5 per cent of the GDP. But admittedly, the image crisis has harmed the flow of foreign investment.
The Finance Minister in his introductory remarks informed us that the economic growth rate of 2014-15 (current fiscal) would stand at 6.8 per cent. This compares with 5.6 per cent of the World Bank estimate and 6.2 per cent by other institutions.  His projection could raise eyebrows but he has his own arguments. For example, the economic growth rate was almost hitting 7 per cent during the first 6 months of the current fiscal and, after a lull in three months, all indicators have been showing a positive trend. Secondly, the economic loss due to the political crisis has been 'very minimal' inviting no concern or interventions. Thirdly, the external sector - thanks to the fall in oil and commodity prices - has been behaving as expected.
It was nice to note that human resource development and health are going to get topmost priority in the upcoming budget. In the last budget, emphasis was on energy and transport sectors and as progress has been praiseworthy in both, the emphasis has been shifted from physical to human infrastructure. One could hardly disagree with the Finance Minister on the priority in the budget.
Surely Bangladesh has progressed well in terms of access to energy and expansion of roads. But it has equally to be admitted that the emphasis has mostly been on road transport rather than on railways and water transport. Road transport requires more lands and it is less environment-friendly whereas railway and water transport require less lands and more environment-friendly. In the next budget, one would also like to see steps taken to revitalise the rural economy. Especially, more resource allocation should be on agricultural research and extension.
Of course, one could question whether the Finance Minister's expectation of 6.8 per cent would to be validated by the existing GDP-investment ratio or prevailing ICOR nor could one accept the projection made by the World Bank which stands at 5.6 per cent. It appears that the WB has outrightly deducted loss of 1 per cent from the GDP growth rate estimate. Based on 'quick and dirty' estimates on the economic losses during the last three months, increase in Aus, Aman production over the same period last year and an expected bumper crop brewing over Boro rice, trend in export, import, private credit flows, foreign assistance and remittances, we can possibly project that the economic growth rate for 2014-15 would range 6-6.5 per cent. Again this means that Bangladesh continues to be locked in 6 per cent plus growth rate and there is little chance of crossing the wall.
However, in that pre-budget discussion session, Dr Farashuddin, an eminent economist and former governor of the Bangladesh Bank, raised a few pertinent points and we feel tempted to present them for our readers. First, Bangladesh direly needs to beef up economic growth rate - at least to come out of the hang-over of prevailing 6 per cent growth.  Of course, the sources of growth are important but inequality and distributional consequences could be faced with separate policy tools.  Second, one needs to be cautious in allowing the private sector to seek foreign funds as it might fuel capital flight (This view has also been supported by another former BB governor Dr Salehuddin). Third, the next budget should see whether micro enterprises in rural areas could get allocation. For example, farmers could buy a thresher and thus lessen dependence on millers; farmers could develop storage capacities provided sufficient funds are available to them; small fruit processors could be involved in more value addition etc.  And fourth, the government should seize upon the opportunities created by the downward trend in oil and commodity prices and divert the surplus to productive pursuits.
The challenges before the budget have also been aired during the discourse. First, the higher rate of interest on savings certificate at 12-14 per cent has immensely increased the sales of certificates and caused a burden of interest payment on the government. In the next budget, the wild disparity between interest rate on savings certificates and bank deposits should disappear. Revenue generation has lagged far behind the target and more revenue generation would  require increased efficiency on the part of tax collectors and the implementation of the VAT act. Private investment has been limping on account of many factors which are well-known (such as infrastructural deficiency) but the recent political crisis has resulted in economic uncertainty to deter both foreign and domestic investment.
Unless political uncertainty could be resolved through discussions, the required amount of investment may not flow and growth rate might be stuck up at 6 per cent or so. The challenges are also there regarding the completion of the 'mega projects' in due time and deepening of the reforms. Without convincing progress in these two fronts, attainment of 7-8 per cent growth rate may remain elusive. And finally, the governance issues like independence of judiciary, transparency of the Anti Corruption Commission, constitutional bodies, providing more space to local bodies etc. have to be resolved to overcome the existing impasse.

The writer is a Professor of Economics at Jahangirnagar University.
 [email protected]