Formulating an annual budget has never been easy in Bangladesh, given the plethora of demands and paucity of resources. But 2026-2027 fiscal is perhaps the most challenging time for balancing the two sides of the economy embedded in the annual estimate. A brief resume of the backdrop of the challenges can give some idea about the complexity of the exercise and explain why the budget proposal made for next fiscal year cannot take the task as ' business as usual'.
First of all is the lingering impact of the pandemic of 2022-2023 from which the economy is yet to fully recover. The small and medium enterprises (SME) that were battered during the period have not yet recovered and some of them may have become permanent casualties, impinging on production and employment. The economic doldrums caused by the virus catastrophe took a heavy toll on those hovering just above the poverty line. Recovery from the ravages of the pandemic required resuscitation of the SME sector and amelioration of the poverty situation after the crisis petered out but none of which can be said to have been accomplished adequately. In the midst of the uneasy transition after the tapering of the pandemic, the Bangladesh economy, once again as part of the global economic architecture, was exposed to the shocks of the Ukraine war that transmitted through the already fragile supply chains and resultant inflationary pressure. The continuance of the war has been reflected in higher prices of foodgrains, edible oil and fertiliser, making inflation intractable for the vulnerable countries that include Bangladesh. The third shock received by Bangladesh economy is home grown, the autocratic regime that ruled over 15 years, haemorrhaging the economy through kleptrocracy (looting of banks and rampant rent seeking) and its most pernicious consequence, money laundering. The mass uprising against the venal regime succeeded in getting rid of it but the process created a vacuum in lost investment and employment. The interim government that replaced the autocratic regime did not have either time or stomach to adopt a strategy for the recovery of the lost momentum of the economy. As a result, the cumulative legacy of all these setbacks and shocks has been inherited by the present government. As if this was not adverse enough, the war in Iran was unleashed on February 28, upending the trading and transportation of oil, gas and fertiliser, the brunt of which had to be borne by import dependent countries like Bangladesh. Added to these adverse factors is the growing burden of debt servicing that will claim a big chunk of the revenue income of the government during the next fiscal. This is an unenviable situation for any government and all the more so for one kept out of touch with the process of governance for over 17 years.
Guiding and managing an economy subject to one shock after another over such a long period can hardly be seen as an annual ritual of routine nature. This is nothing less than running an intractable gauntlet the like of which almost no country and government in the world has confronted before. While discussing the draft budget this harsh reality has to be kept in mind.
AN AMBITIOUS BUDGET: The overview of the economic context based on domestic and external developments and changes points to the need for an austerity budget this fiscal that reduces non- development expenditures to the minimum. As investment and employment lost during the recent past took place mostly in the private sector all possible incentives have to be given to it to recover. This is likely to take time as many of the entrepreneurs and businessmen patronised by the autocratic regime are either in jail facing criminal charges or have left the country. The government has to take up programmes for short term employment and widen the coverage of social safety net for deserving unemployed. Canal digging and enlistment of families under 'Family Card' are steps in the right direction. The latter should be integrated with the various social welfare programmes of the previous government after necessary scrutiny.
As an austerity budget requires squeezing of revenue expenditures the focus of this exercise has to be on reducing the size of the revenue budget. Except health, education and agriculture revenue expenditures in the other sectors should be reined in. Unfortunately, the draft budget does not reflect this exigency. Public administrative sector has been allocated Tk 0.85 trillion in the budget marking an annual increase of 13 per cent. Police and security have claimed Tk 0.26 trillion, an increase of 18 per cent over the previous year. On top of these annualised increase to these sectors, the budget has declared a new pay-scale for all government employees entailing a hefty public expenditure this fiscal. Granted, the fixed income group in the public sector are hard pressed to make both ends meet and needs relief. This could be met by announcing the new payscale now and giving it effect next year.
After years of mega project driven annual development programme (ADP) that saw the burden of foreign debt servicing ballooning from year to year an austerity budget required a moratorium, keeping ongoing infrastructure projects. But the proposed budget provides for Tk 3 trillion for ADP, a 43 per cent increase in allocation for public sector led development programmes. The austerity imperative has not been reflected in this part of the budget for next year.
The Tk 9.38 trillion budget proposal is highly ambitious and unrealistic because it envisages a revenue collection of Tk 6.2 trillion, an amount that cannot be justified by previous achievement that has stagnated at 8-9 per cent Tax-GDP ratio. As a result of very optimistic projection of revenue collection the budget deficit is likely to be higher than estimated at Tk 2.36 trillion. In the absence of foreign assistance forthcoming as budgetary support the more than estimated deficit will have to be financed through bank borrowing crowding out private borrowing . As the private sector contributes about 80 per cent of the GDP, this will make the target of 6.5 per cent GDP growth unattainable. The World Bank has already reduced the GDP growth performance for the current fiscal from 4.6 per cent to 3.8 per cent and its estimate for 2026-2027 is at a modest 4.6 per cent.
There is nothing wrong with an ambitious budget provided its financing is assured by the availability of resources from domestic and external sources. But neither the past experience nor the present economic environment suggests that the financing requirement will be met as expected. This appears to have been taken note of by the finance minister when he said in his budget speech that "the country's economy will need two years from where it stands now. After that, the economy will stabilise and fully turn around in the fourth and fifth years." These are words of pragmatism that take account of the prevailing reality. Their disconnect from the budget proposals in terms of taka cannot but come as a surprise.
The most encouraging and praiseworthy aspect of the proposed budget is the grand plan for employment creation. An incentive fund with Tk 6 billion has been proposed for the creation of 2.5 million jobs. Rural development programmes have been envisaged to provide employment to 0.37 million rural workers. In high tech sector 0.21 million educated youths are expected to be employed. In addition to these direct job creation, 0.55 million will be given training in different trades. The proposal to set up 'Employment Exchange' program at the district and upazila levels is in line with the importance given to employment in the budget.
Another redeeming feature of the budget is recognising the importance of SME sector and making a provision of Tk 2 billion to be given as loan to new entrepreneurs in this sector. Alongside SME, the other industries, particularly export-oriented ones, will also enjoy fiscal incentives in different forms, according to the budget proposal. This indicates that though the revenue and ADP budget has swollen, the underlying growth strategy is private sector-led.
But the most encouraging part of the proposed budget is the allocation for social safety net programmes. It has been proposed to allocate Tk 1.44 trillion, equivalent to 15.4 per cent of total budget outlay, for social safety net, protection programmes and inclusive development initiatives. The allocation marks an increase of Tk 180 billion compared to the outgoing year. This shows that helping the poor was not an election rhetoric but a firm commitment of the government to make economic development inclusive in every sense of the word.
The budget proposal for the next fiscal has been made in exceptionally difficult circumstances. In critiquing it this overriding consideration cannot be ignored. But looking at some sectoral allocations it will not be irrelevant to wonder who has played a dominant role in budget preparation, the politicians or the bureaucrats?
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