Dilemma of the upcoming budget
Syed Fattahul Alim | Friday, 30 May 2008
The relentless rise in the prices of commodities globally has forced the weaker economies into a tight spot. Bangladesh is one of the countries hardest hit by this wild behaviour of the price of commodities in the global market. Countries like Bangladesh are fighting an uneven war against this unprecedented situation in the global marketplace caused by factors which are beyond their control. But as the vulnerable always are, it is again they who are paying the highest price to survive in this situation.
To keep the price of essential commodities within the tolerable limit the government had to go for zero tariff provision for certain essential commodities. But how can such a measure arrest the price of these items in the local market, if the price of those goods continues to go up in the international market? It is not only due to global inflation that the prices of commodities have been spiralling upwards in the international market. There have also been shortages in the supply chain of the commodities. Both the factors are working in tandem to push the prices of commodities up everywhere. So, what can the government here do about it at home? So even zero tariffs on the import of the essential items is proving to be of little comfort for the consumers of these commodities locally. As a consequence the prices of the commodities are apparently remaining unresponsive to the various fiscal measures taken by the government to check upward surge of the prices.
But where is the end? Such an erratic behaviour of the commodities market is leading the weaker economies towards more uncertainties. The various prescriptions the economists and all others concerned have come up with include taking budgetary measures to increase production and widen social safety net for the low income and the vulnerable groups in the economy.
The importers, on the other hand, are clamouring for further reduction in the duties of certain essential commodities including edible oil, sugar, milk products, etc.
Against this backdrop, Professor Mustafizur Rahman, an economist and executive director of the Centre for Policy Dialogue (CPD), for example, has said that fiscal measures have now become ineffective in lowering the prices of essential commodities as the government has already imposed zero duty on a number of essential items including rice and wheat. In this situation, the options are to provide more incentive to increase local production of the commodities and to that end increase allocation of more funds in the Annual Development Programme (ADP) of the budget for the agricultural sector, he suggested.
Other economists including Abu Ahmed has echoed a similar view emphasising again the importance of continuing the provision of subsidised marketing of food items for the low income groups, while at the same time stressing that the ultimate solution lies in raising the income and purchasing capacity of the people.
That the fiscal measures are losing their efficacy in reducing commodities' price has been pointed out by economists, business leaders and bankers alike. Many, on the other hand, have suggested that the government should reduce hurdles that go to increase the cost of essential commodities in the supply chain in the local market as well as develop public-private partnership for procurement of the items from the local market and building up safe stock of the same. The business leaders say, if the government procures the essential commodities through local tenders from the importers at home rather than through international tenders, the commodities could be bought at a cheaper rate from local suppliers.
Theses are but the stop-gap measures to keep the prices of the commodities within the means of the local consumers. But the long-term measures like allocating more funds in the ADP for increasing agricultural production will not leave their impact on the day to day market at once. It will take months and even years to reap the benefits of the long-term steps. Meanwhile, the short-term steps will help the government maintain the supply chain of the vital commodities within the reach of the common people as far as possible.
Now, how is the government going to have the huge fund to meet all these needs like provision of subsidies for widening he safety net for he vulnerable group and allocating more fund for agriculture when simultaneously it is also losing its revenue from the imports due to tariff reduction on some very essential goods as well as to bankrolling the Bangladesh Petroleum Corporation (BPC) the cost of fuel oil import from the international market and supplying those to the local consumers again, at a subsidised rate? Add to this the subsidies it has been constantly pouring into the losing State-Owned Enterprises (SOEs).
Now that the budget for the fiscal (2008-09) is round the corner, the people are passionately waiting to see what the future has in store for them in the next financial year. It has been learnt that to make both ends meet, the government will go for enhanced borrowing from the domestic sources, mostly from the banking and the non-banking financial institutions, to finance the upcoming budget. It has been further learnt that the amount of borrowing this time will reach as high as Tk 170 billion, which is Tk 53 billion more than what was targeted earlier. Of the entire amount, the government would make 80 per cent of the borrowing from the banking sector and the rest from the non-banking sources. This is going to be the highest borrowing by the government from the domestic sources since independence of the country.
Now it is again the old dilemma in a new garb. The higher amount of governmental borrowing must happen at the cost of crowding out of the private sector. It has often been said in this column how crucial is the bank credit and that too at a cheaper rate for the private sector entrepreneurs. The growth of the private sector cannot under any circumstances be stifled, if the economy is to expand and the government wants to earn higher amount of revenue from it. And unless it earns higher revenue, how can it give the subsides necessary to feed the public at a cheaper rate as well as supply them with the fuel oils at a price far lower than in the international market? What is more, the Finance Adviser AB Mirza Azizul Islam has said that the subsidies in the revenue budget would lead to an increase in the budgetary deficit by five per cent.
Some economists have blamed the higher governmental borrowing on the larger ADP for the next fiscal. Zaid Bakht of the Bangladesh Institute of Development Studies (BIDS) has said that the enhanced borrowing from the domestic market could be avoided had the government cut the ADP amount by Tk 35 to 55 billion.
So, it is again going round and round the mutually conflicting positions of increasing government expenditures, while the revenue earning is being compromised in certain sectors and bank borrowing by government increased at the cost of the growth of the private sector, which again, is the biggest source of government's earning.
The main source of the crisis that Bangladesh like all other least developed Third World economies are facing is rooted beyond their national borders. Bangladesh is facing an enormous challenge to feed its huge population at a cost that is affordable and at the same time let the economy run by keeping the pipeline of its fossil energy source undisturbed. It is a daunting task when the resources are few and international help to tide over the difficulties is not forthcoming.
The incumbent government will have to navigate through this critical hour of national life very cautiously. It is a time for more conservative outlook towards expenditures. Avoidable expenses must be cut in the next budget so that the very life support system of the economy is not strained under any circumstances.
To keep the price of essential commodities within the tolerable limit the government had to go for zero tariff provision for certain essential commodities. But how can such a measure arrest the price of these items in the local market, if the price of those goods continues to go up in the international market? It is not only due to global inflation that the prices of commodities have been spiralling upwards in the international market. There have also been shortages in the supply chain of the commodities. Both the factors are working in tandem to push the prices of commodities up everywhere. So, what can the government here do about it at home? So even zero tariffs on the import of the essential items is proving to be of little comfort for the consumers of these commodities locally. As a consequence the prices of the commodities are apparently remaining unresponsive to the various fiscal measures taken by the government to check upward surge of the prices.
But where is the end? Such an erratic behaviour of the commodities market is leading the weaker economies towards more uncertainties. The various prescriptions the economists and all others concerned have come up with include taking budgetary measures to increase production and widen social safety net for the low income and the vulnerable groups in the economy.
The importers, on the other hand, are clamouring for further reduction in the duties of certain essential commodities including edible oil, sugar, milk products, etc.
Against this backdrop, Professor Mustafizur Rahman, an economist and executive director of the Centre for Policy Dialogue (CPD), for example, has said that fiscal measures have now become ineffective in lowering the prices of essential commodities as the government has already imposed zero duty on a number of essential items including rice and wheat. In this situation, the options are to provide more incentive to increase local production of the commodities and to that end increase allocation of more funds in the Annual Development Programme (ADP) of the budget for the agricultural sector, he suggested.
Other economists including Abu Ahmed has echoed a similar view emphasising again the importance of continuing the provision of subsidised marketing of food items for the low income groups, while at the same time stressing that the ultimate solution lies in raising the income and purchasing capacity of the people.
That the fiscal measures are losing their efficacy in reducing commodities' price has been pointed out by economists, business leaders and bankers alike. Many, on the other hand, have suggested that the government should reduce hurdles that go to increase the cost of essential commodities in the supply chain in the local market as well as develop public-private partnership for procurement of the items from the local market and building up safe stock of the same. The business leaders say, if the government procures the essential commodities through local tenders from the importers at home rather than through international tenders, the commodities could be bought at a cheaper rate from local suppliers.
Theses are but the stop-gap measures to keep the prices of the commodities within the means of the local consumers. But the long-term measures like allocating more funds in the ADP for increasing agricultural production will not leave their impact on the day to day market at once. It will take months and even years to reap the benefits of the long-term steps. Meanwhile, the short-term steps will help the government maintain the supply chain of the vital commodities within the reach of the common people as far as possible.
Now, how is the government going to have the huge fund to meet all these needs like provision of subsidies for widening he safety net for he vulnerable group and allocating more fund for agriculture when simultaneously it is also losing its revenue from the imports due to tariff reduction on some very essential goods as well as to bankrolling the Bangladesh Petroleum Corporation (BPC) the cost of fuel oil import from the international market and supplying those to the local consumers again, at a subsidised rate? Add to this the subsidies it has been constantly pouring into the losing State-Owned Enterprises (SOEs).
Now that the budget for the fiscal (2008-09) is round the corner, the people are passionately waiting to see what the future has in store for them in the next financial year. It has been learnt that to make both ends meet, the government will go for enhanced borrowing from the domestic sources, mostly from the banking and the non-banking financial institutions, to finance the upcoming budget. It has been further learnt that the amount of borrowing this time will reach as high as Tk 170 billion, which is Tk 53 billion more than what was targeted earlier. Of the entire amount, the government would make 80 per cent of the borrowing from the banking sector and the rest from the non-banking sources. This is going to be the highest borrowing by the government from the domestic sources since independence of the country.
Now it is again the old dilemma in a new garb. The higher amount of governmental borrowing must happen at the cost of crowding out of the private sector. It has often been said in this column how crucial is the bank credit and that too at a cheaper rate for the private sector entrepreneurs. The growth of the private sector cannot under any circumstances be stifled, if the economy is to expand and the government wants to earn higher amount of revenue from it. And unless it earns higher revenue, how can it give the subsides necessary to feed the public at a cheaper rate as well as supply them with the fuel oils at a price far lower than in the international market? What is more, the Finance Adviser AB Mirza Azizul Islam has said that the subsidies in the revenue budget would lead to an increase in the budgetary deficit by five per cent.
Some economists have blamed the higher governmental borrowing on the larger ADP for the next fiscal. Zaid Bakht of the Bangladesh Institute of Development Studies (BIDS) has said that the enhanced borrowing from the domestic market could be avoided had the government cut the ADP amount by Tk 35 to 55 billion.
So, it is again going round and round the mutually conflicting positions of increasing government expenditures, while the revenue earning is being compromised in certain sectors and bank borrowing by government increased at the cost of the growth of the private sector, which again, is the biggest source of government's earning.
The main source of the crisis that Bangladesh like all other least developed Third World economies are facing is rooted beyond their national borders. Bangladesh is facing an enormous challenge to feed its huge population at a cost that is affordable and at the same time let the economy run by keeping the pipeline of its fossil energy source undisturbed. It is a daunting task when the resources are few and international help to tide over the difficulties is not forthcoming.
The incumbent government will have to navigate through this critical hour of national life very cautiously. It is a time for more conservative outlook towards expenditures. Avoidable expenses must be cut in the next budget so that the very life support system of the economy is not strained under any circumstances.