Needed: A stimulus to move to higher growth trajectory

A budget is not a simple number sheet with figures of income and expenditure of government. It is the only economic tool to translate the political viewpoints of a government into economic actions. The political ideology of a government is bound to have bearing on its budget. It happens everywhere. It is the political ideology that determines whether a government will allocate more money in building bridges or buying submarines. It is not unusual that the political party in power will pursue its political ideology. There is no logical ground as such to criticise the government for this.

However, there is a legitimate ground to assess actions and policies in the light of a government's declared economic vision and paradigm which are integral part of its political ideology. The present government of Bangladesh has vowed so many times that even a common person, who does not pay any attention to what a government otherwise also does, now knows about its economic vision to make Bangladesh a middle-income country by 2021. In terms of economic paradigm, the government has adopted a private sector-led approach to foster inclusive growth. In this context, it is important to see whether the recently-proposed budget is well-aligned with the government's economic vision and paradigm.

The size of the FY16 budget is about Tk 2,951 billion, out of which development spending is about Tk 1,026 billion. To foster private sector- led growth, the government has to provide essential backbone services to propel the wheel of private investment. In plain words, the country still needs huge public investment. So, the planned development spending of Tk 1,026 billion is in no way too big from the viewpoint of the country's need. But there is a doubt whether the country can really manage to spend this amount within the financial year.  

Development spending faces two constraints in Bangladesh. One is the lack of adequate resources and the other is the ability to spend it in time without compromising with the quality and ensuring transparency and efficiency. The first problem is highly emphasised in this country. The economic law implies that as long as the rate of economic return from any investment is higher than the cost of fund, the government should finance this investment by borrowing. So the first problem can be solved by borrowing from home and abroad.  

However, public investment is constrained more by the lack of technical and administrative ability of the country. The actual development spending in fiscal year 2013-14 was about Tk 592 billion. The original target for development spending in fiscal year 2014-15 was Tk 864 billion, which has been downsized to about Tk 805 billion. These numbers are a clear pointer to our perennial problem of poor ability to implement big development budget.

The government failed to implement the development budget of Tk 864 billion in FY15, whereas it is now aspiring to implement a development budget of Tk 1,026 billion. Even in terms of inflation-adjusted number, the planned development spending in FY16 registers an increase by about Tk 208 billion in real terms compared to the revised development budget of FY15. This is tantamount to an increase by about 20 per cent in real terms.

It simply means that the government needs a 20 per cent enhancement of capacity to implement the development budget of this year. In his budget speech, the finance minister provided some indications about how the required resources to finance this augmented development budget would be collected, but the same speech lacked a clear plan on how the additional technical and administrative capacity would be generated. This dims out the prospect of full implementation of the development budget at the end.

It was mentioned in the budget speech that in case of allocating the development budget, both social and physical infrastructures were provided high priority. The physical infrastructure projects in the country have a history of missing the milestones as outlined in the original plans. As a result, their actual cost exceeds the estimates. The government seems to take this in its cognisance as the negative effects of delayed implementation of projects are cited in the budget speech.

The finance minister admitted in his budget speech that correct prioritisation of projects and regular monitoring of progress are crucially important requirements for timely implementation. In this regard, the government is emphasising on creating a pool of experienced and efficient government officials, who will be entrusted with the responsibility of development project implementation.

This may induce some momentum in project implementation. But at the same time, the activities from where they would be withdrawn are likely to suffer. Therefore, although this action apparently seems to be a good initiative, in the final consideration this is a zero-sum game. Instead of rationing the limited capacity, the government should build additional capacity for timely implementation of development activities.

Economic growth in Bangladesh has been hovering at around 6.0 per cent for quite some time now - almost for ten years. The country needs a new stimulus to move to higher growth trajectory. The government identified eight large projects as 'fast track projects' for faster implementation. They are expected to bring quantitative and qualitative changes in the  country's growth statistics. As mentioned in the budget speech of the finance minister, these projects are: (i) Construction of Padma Bridge Project, (ii) Rooppur Nuclear Electricity Project, (iii) Rampal Coal-Based Electricity Project, (iv) Deep Sea Port Project, (v) Dhaka Metro Rail Transit (MRT-6) Project, (vi) LNG Terminal Project, (vii) Matarbari Power Plant, and (viii) Paira Sea Port.

The implementation of these projects faces different types of bumps. It is not clear what will be done to implement these fast track projects. The only thing mentioned in the budget speech was that these projects have been brought under the vigilance of the prime minister's office. Whether it would suffice in absence of any initiative to rectify current inefficient and complex environment to implement these projects is a big question.

The Bangladesh economy is nicely poised at a crossroads. The future direction of the economy depends on what the government does today. The country still requires a large amount of public investment to improve the delivery of backbone services for the private sector. From that point of view, the government needs a big budget. Although the proposed budget seems to be too big to many economic commentators, the fact is the development spending accounts for slightly more than one-third of the total amount. Therefore, it is not as big as it seems.

Given the infrastructural deficits and lacklustre situation of overall economic capacity of the country, the proposed increase in the development spending is a welcome step. However, the increase in the development budget is just the first step. The success of this step would depend on whether they can be implemented timely with quality. Bangladesh has been struggling in the recent years to effectively implement the development spending. The most key ingredient to get the intended benefit of the 'big' budget is the augmented technical and administrative capacity to fully implement it. The current budget scores poorly in this context. Hence the economic intention of this budget in the end may not be fully realised.    

Abul Basher, PhD is a researcher at the Bangladesh Institute of Development Studies (BIDS), former economist, World Bank, and former faculty, Willamette University, USA. [email protected]