Transitional budget amid many uncertainties
Wednesday, 11 June 2008
The budget-making exercise has otherwise been tormenting this time for all those who were involved in the process of finalising its estimates. Such estimates relate to fund flows into the public exchequer in the forms of both Consolidated Fund and Public Account of the Republic from domestic and external sources and also of setting out the outlays for non-development revenue and capital expenditures, and for development purposes. This is so, for both unfavourable indigenous factors and unsavoury exogenous circumstances. On the domestic front, the economy has come under severe adverse pressures caused by worsening price situation, income shocks for the country's vast multitude of the hapless citizens under depressed conditions of the economy and a series of back-to-back natural disasters. Furthermore, there have been disruptions to the supply-chain, swelling ranks of the unemployed and the under-employed amid wide-spread fear psychosis owing to the much-defused policy focus of the incumbent caretaker government on combating the menace of corruption, tax-evasion and other irregularities since long in an uninterrupted sequence primarily for reasons of deysfunctional institutions and malgovernance. All such things constitute a tall order for an unelected government having, according to its own public announcement, a two-year time-frame as its tenure and that would, going by its pledge under the electoral road-map, hold general election by the third week of December next to hand over power to an elected government. The political count-down to the general election has already begun amid many uncertainties in yet-uncharted political waters. On the external front, the concerns over the high -- and yet unpredictable -- surge in oil and food prices, the fallouts from financial troubles originating from the sub-prime lending crisis in the USA and the uncertainties about international developments relating to trade, aid etc., are mounting.
Against this backdrop, Finance Adviser Mirza Azizul Islam has announced the proposed national budget for fiscal 2008-09, envisaging an overall expenditure outlay of about Taka 1.00 trillion -- a level that is, according to instant post-budget reactions by many quarters, as reported in the media, considered too-high, over-ambitious and over-bloated. Leaving aside such reactions, under the given realities of Bangladesh's broad societal conditions in which 'economic populism' is otherwise strong -- and fiscal literacy is not necessarily so -- there is no denying that the projected increase in the overall size of the proposed budget for the forthcoming fiscal by about 16 per cent over the revised budget for the outgoing fiscal will be no easy task to accomplish in the midst of wider concerns about the socio-economic and political uncertainties, both internal and external. However, the finance adviser, in his budget speech, has carefully avoided to say anything about the coming general election and the associated unfolding developments in the country's polity. He has projected in the budgetary expenditure in the next fiscal at over 6.8 per cent higher, in nominal terms, than the overall public spending shown in the revised budget for fiscal 2007-08, if the average inflation can be kept limited to an estimated level of 9.0 per cent in fiscal 2008-09. Under the present circumstances, controlling the inflationary rate within the projected level in the forthcoming fiscal will present a daunting challenge for the government, irrespective of changes in the political power matrix after the general election.
The growth rate of the country's Gross Domestic Product (GDP) has been projected at 6.5 per cent for fiscal 2008-09 compared to 6.2 per cent in the outgoing fiscal, based mainly on a bumper boro production at over 17.5 million tonnes in the year under report. Realisation of the projected GDP growth rate in fiscal 2008-09 will largely depend on the capacity of the government to implement the Annual Development Programme (ADP), the quality and proper targeting of public expenditures and the response of the private sector to the new fiscal measures that the finance adviser has proposed to help boost private investments. He has mentioned about the functioning of Bangladesh Better Business Forum, Regulatory Reforms Commission, public-private partnership programmes etc., as pro-active policy moves by the government to harness better the potential of the private sector in accelerating the pace of new investment and other activities by the business in general. But the persistent phenomenon of a severe power supply crunch and many other lingering infrastructural and related constraints, both economic and non-economic ones, that are still affecting adversely the process for the growth of a competitive -- without having any crony syndrome -- market-oriented economy with its private sector operating cost-effectively in to-day's globalised economy, have not yet received any befitting priority attention that such constraining factors do rightly deserve from the government. In this backdrop, the expectation about a real boost to new private investments is predicated upon many 'ifs' and 'buts'. As far as the new fiscal proposals are concerned, there are, however, some positive elements that should otherwise provide some welcome relief to all concerned. The proposed budget for fiscal 2008-09 projects a growth of about 19 per cent in tax collections by National Board of Revenue (NBR), about 10 per cent in non-tax NBR revenue collection and 0.6 per cent in non-tax revenue over the revised estimates in fiscal 2007-08. The collection of tax by the NBR at the projected increased level will require hard year-round monitoring, particularly in a situation where the government has claimed that its new fiscal proposals are purported to help create a business-friendly tax regime through reliance more on compliance than on coercion.
On the expenditure side, there will be, according to the proposed budget, an increase of Taka 203.48 billion in governmental spending in fiscal 2008-09 -- a record high in any given year. The reasons for such an expenditure surge, despite the cut in the size of the Annual Development Programme (ADP) that reflects trimming of, what is otherwise termed, public development expenditure, are understandable. The 'expanded social safety-net programmes' for the intended benefits of the disadvantaged segment of the population in the prevailing socio-economic conditions interwined with adverse global situation, "enlarged subsidies bill" for agricultural inputs, food and fuel supplies, "enhanced" salary expenses of teachers and doctors, bulging debt service repayments, additional compensation packages for public employees etc., will largely account for the surge in non-development current expenditure of the government in the forthcoming fiscal. The monitoring of such expenditures for linking the same with the goals and purposes thereof in a meaningful way, alongwith effective measures to help improve the overall quality of public expenditure, will call for extra-ordinary efforts for ensuring the standard rules of the game for performance budgeting and, thus, for preventing misuse or abuse of public resources.
Having noted this, this paper would, however, welcome the move of the government, as announced by the finance adviser, to promulgate an ordinance titled, Public Resources and Budget Management Ordinance, 2008 to fulfill, what the adviser has noted, the requirements of the Constitution that stipulates that "the deposit into and the withdrawal of public money, into the Consolidated Fund and the Public Account of the republic shall be regulated by an Act". Now, there is no such law in place. The proposed ordinance will hopefully strengthen the process for better planning and budget management reforms.
The proposed budget for fiscal 2008-09 will be operational for July 01, 2008, following the response of the government to the suggestions and proposals received by the ministry of the finance to it "from anyone from any corner within the country or outside" until June 16, 2008 and the promulgation of related ordinances by the President in the absence of Parliament. For the caretaker government, it will be important to accommodate all reasonable suggestions and proposals, at this stage to the proposed budget for fiscal 2008-09, in order to give the stakeholders a sense of effective participation in the budget-making process, now that its budgetary proposals are subject to no other scrutiny. It must also be careful about the socio-economic implications of the proposed budget, keeping in view the fact that the next elected government does have a reasonable operational leeway to make adjustments and readjustments in the fiscal framework in the light of its 'mandate' of the people. This is because the future elected government, if everything goes fine with the electoral road-map, will be responsible for implementation of the proposed budget in the next half of the forthcoming fiscal.
Against this backdrop, Finance Adviser Mirza Azizul Islam has announced the proposed national budget for fiscal 2008-09, envisaging an overall expenditure outlay of about Taka 1.00 trillion -- a level that is, according to instant post-budget reactions by many quarters, as reported in the media, considered too-high, over-ambitious and over-bloated. Leaving aside such reactions, under the given realities of Bangladesh's broad societal conditions in which 'economic populism' is otherwise strong -- and fiscal literacy is not necessarily so -- there is no denying that the projected increase in the overall size of the proposed budget for the forthcoming fiscal by about 16 per cent over the revised budget for the outgoing fiscal will be no easy task to accomplish in the midst of wider concerns about the socio-economic and political uncertainties, both internal and external. However, the finance adviser, in his budget speech, has carefully avoided to say anything about the coming general election and the associated unfolding developments in the country's polity. He has projected in the budgetary expenditure in the next fiscal at over 6.8 per cent higher, in nominal terms, than the overall public spending shown in the revised budget for fiscal 2007-08, if the average inflation can be kept limited to an estimated level of 9.0 per cent in fiscal 2008-09. Under the present circumstances, controlling the inflationary rate within the projected level in the forthcoming fiscal will present a daunting challenge for the government, irrespective of changes in the political power matrix after the general election.
The growth rate of the country's Gross Domestic Product (GDP) has been projected at 6.5 per cent for fiscal 2008-09 compared to 6.2 per cent in the outgoing fiscal, based mainly on a bumper boro production at over 17.5 million tonnes in the year under report. Realisation of the projected GDP growth rate in fiscal 2008-09 will largely depend on the capacity of the government to implement the Annual Development Programme (ADP), the quality and proper targeting of public expenditures and the response of the private sector to the new fiscal measures that the finance adviser has proposed to help boost private investments. He has mentioned about the functioning of Bangladesh Better Business Forum, Regulatory Reforms Commission, public-private partnership programmes etc., as pro-active policy moves by the government to harness better the potential of the private sector in accelerating the pace of new investment and other activities by the business in general. But the persistent phenomenon of a severe power supply crunch and many other lingering infrastructural and related constraints, both economic and non-economic ones, that are still affecting adversely the process for the growth of a competitive -- without having any crony syndrome -- market-oriented economy with its private sector operating cost-effectively in to-day's globalised economy, have not yet received any befitting priority attention that such constraining factors do rightly deserve from the government. In this backdrop, the expectation about a real boost to new private investments is predicated upon many 'ifs' and 'buts'. As far as the new fiscal proposals are concerned, there are, however, some positive elements that should otherwise provide some welcome relief to all concerned. The proposed budget for fiscal 2008-09 projects a growth of about 19 per cent in tax collections by National Board of Revenue (NBR), about 10 per cent in non-tax NBR revenue collection and 0.6 per cent in non-tax revenue over the revised estimates in fiscal 2007-08. The collection of tax by the NBR at the projected increased level will require hard year-round monitoring, particularly in a situation where the government has claimed that its new fiscal proposals are purported to help create a business-friendly tax regime through reliance more on compliance than on coercion.
On the expenditure side, there will be, according to the proposed budget, an increase of Taka 203.48 billion in governmental spending in fiscal 2008-09 -- a record high in any given year. The reasons for such an expenditure surge, despite the cut in the size of the Annual Development Programme (ADP) that reflects trimming of, what is otherwise termed, public development expenditure, are understandable. The 'expanded social safety-net programmes' for the intended benefits of the disadvantaged segment of the population in the prevailing socio-economic conditions interwined with adverse global situation, "enlarged subsidies bill" for agricultural inputs, food and fuel supplies, "enhanced" salary expenses of teachers and doctors, bulging debt service repayments, additional compensation packages for public employees etc., will largely account for the surge in non-development current expenditure of the government in the forthcoming fiscal. The monitoring of such expenditures for linking the same with the goals and purposes thereof in a meaningful way, alongwith effective measures to help improve the overall quality of public expenditure, will call for extra-ordinary efforts for ensuring the standard rules of the game for performance budgeting and, thus, for preventing misuse or abuse of public resources.
Having noted this, this paper would, however, welcome the move of the government, as announced by the finance adviser, to promulgate an ordinance titled, Public Resources and Budget Management Ordinance, 2008 to fulfill, what the adviser has noted, the requirements of the Constitution that stipulates that "the deposit into and the withdrawal of public money, into the Consolidated Fund and the Public Account of the republic shall be regulated by an Act". Now, there is no such law in place. The proposed ordinance will hopefully strengthen the process for better planning and budget management reforms.
The proposed budget for fiscal 2008-09 will be operational for July 01, 2008, following the response of the government to the suggestions and proposals received by the ministry of the finance to it "from anyone from any corner within the country or outside" until June 16, 2008 and the promulgation of related ordinances by the President in the absence of Parliament. For the caretaker government, it will be important to accommodate all reasonable suggestions and proposals, at this stage to the proposed budget for fiscal 2008-09, in order to give the stakeholders a sense of effective participation in the budget-making process, now that its budgetary proposals are subject to no other scrutiny. It must also be careful about the socio-economic implications of the proposed budget, keeping in view the fact that the next elected government does have a reasonable operational leeway to make adjustments and readjustments in the fiscal framework in the light of its 'mandate' of the people. This is because the future elected government, if everything goes fine with the electoral road-map, will be responsible for implementation of the proposed budget in the next half of the forthcoming fiscal.