For better revenue collection, more investment
Saturday, 20 September 2008
Abdur Rahim
CONTRARY to claims by government officials that they can do with less aid, the reality is that aid still remains a big source of support for the economy. Specially, as revenue collection is yet not up to the mark, foreign aid supports the government to carry out its development activities without taking recourse to any larger domestic borrowing and, thus, involving large budget deficits. But the government can reduce its aid dependence by encouraging more investment cutting wastage and improving revenue collection. And the imperative here is becoming stronger as the prospects for external aid flows on the scale as they used to be, are becoming uncertain.
On its part, the caretaker government has been borrowing from the internal sources to make up for the revenue shortfall in the face of larger claims upon the public resources to meet the needs for large subsidies and operationalisation of various 'social safety net' programmes. In fact, this such borrowing from the banking system took place even before the arrival of this caretaker government under it. The trend has only accelerated. The government is strapped for cash for which there are some crowding-out effects on the private sector borrowers, particularly in the medium and longer terms.
Traditionally, the answer to in internal resource shortfall was met from the injections of foreign aid. Revenue collection at a level lower than the required level to meet the overall budgetary needs has heightened the role of foreign aid, in order to lower the extent of large domestic borrowing to meet the budget deficits.
But the latest global trends present now a disconcerting picture. The flow of foreign aid has, thus, been on the decline, on an overall basis. Aid disbursement for most developing and least developing countries has fallen, according to media reports. Aid availability, according to available indications, could further shrink globally.
Meanwhile, in the case of Bangladesh, there is an additional worry over the implementation of some of the harsh conditionalities for disbursement of external aid. Reports suggest that donors are not convinced that the government would be in a favourable situation to fulfill the conditionalities for a faster aid disbursement.
As aid flows are now expected to come down, the government needs to encourage greater private investments and to mobilise domestic resources more efficiently to help boost the economy.
CONTRARY to claims by government officials that they can do with less aid, the reality is that aid still remains a big source of support for the economy. Specially, as revenue collection is yet not up to the mark, foreign aid supports the government to carry out its development activities without taking recourse to any larger domestic borrowing and, thus, involving large budget deficits. But the government can reduce its aid dependence by encouraging more investment cutting wastage and improving revenue collection. And the imperative here is becoming stronger as the prospects for external aid flows on the scale as they used to be, are becoming uncertain.
On its part, the caretaker government has been borrowing from the internal sources to make up for the revenue shortfall in the face of larger claims upon the public resources to meet the needs for large subsidies and operationalisation of various 'social safety net' programmes. In fact, this such borrowing from the banking system took place even before the arrival of this caretaker government under it. The trend has only accelerated. The government is strapped for cash for which there are some crowding-out effects on the private sector borrowers, particularly in the medium and longer terms.
Traditionally, the answer to in internal resource shortfall was met from the injections of foreign aid. Revenue collection at a level lower than the required level to meet the overall budgetary needs has heightened the role of foreign aid, in order to lower the extent of large domestic borrowing to meet the budget deficits.
But the latest global trends present now a disconcerting picture. The flow of foreign aid has, thus, been on the decline, on an overall basis. Aid disbursement for most developing and least developing countries has fallen, according to media reports. Aid availability, according to available indications, could further shrink globally.
Meanwhile, in the case of Bangladesh, there is an additional worry over the implementation of some of the harsh conditionalities for disbursement of external aid. Reports suggest that donors are not convinced that the government would be in a favourable situation to fulfill the conditionalities for a faster aid disbursement.
As aid flows are now expected to come down, the government needs to encourage greater private investments and to mobilise domestic resources more efficiently to help boost the economy.