Don't let election influence budget

From left, Debapriya Bhattacharya, distinguished fellow of CPD; Mustafizur Rahman, executive director; and Fahmida Khatun, research director, attend a press meet to present the think-tank's budget proposals, at its office in Dhaka yesterday. Photo:Star

The government should frame a pragmatic budget for the next fiscal year as the national election will take place in the same year, a think tank said yesterday.
“The allocation for public expenditure needs to be consolidated as much as possible,” the Centre for Policy Dialogue said in its recommendations for the upcoming budget.
The finance minister will have to confront the political demand for a populist budgetary allocation in the run-up to the forthcoming national election, CPD Research Director Fahmida Khatun said.
She was briefing journalists on the CPD's budget proposals at their office in Dhaka.
Mustafizur Rahman, executive director of the think tank, made an introductory remark. The CPD said, as was anticipated at the halfway through to fiscal 2013, Bangladesh economy is settled for macroeconomic stability with moderate growth.
Even realisation of this “second best” ambition critically hinges on the possibility of overcoming the enduring political uncertainties. Continued political conflicts caused decline in domestic demand, lower investment, decelerated trade activities and escalating social cost, the CPD said.
Having recognised a number of adjustment measures already deployed by both government and non-government agents, it is felt that the effectiveness of macroeconomic policy instruments towards protecting the economy will be weak.
The target for GDP (gross domestic product) growth was set at 7.2 percent for the current fiscal year, but according to the projections available so far, the growth will be within 6 percent, CPD Distinguished Fellow Debapriya Bhattacharya said.
He said setting the growth target should be based on reality rather than political factors.
Remittance inflow, implementation of the annual development programme, and foreign exchange reserve showed good signs in the current fiscal year, and inflation is also low, Bhattacharya said.
He, however, said revenue collection and investment in the private sector have marked a fall.
There has been not much qualitative improvement in the private sector investment in the last three to four years, he added.
In the next fiscal year's budget, the expenditures on Padma Bridge project, subsidy and interest payment will increase substantially, which will push the economic management into complexity, Debapriya said. "The government should show more restraint in spending."
Fahmida said the target of revenue mobilisation should not be overambitious.
During the time of political transition, the economy faces significant illicit financial outflow in the form of transfer mispricing, trade mispricing and money laundering, which has a significant revenue implication, she said.
Fahmida said the recently established Transfer Pricing Cell under the tax administrator needs to be fully functional at the earliest.
The CPD said the upcoming budget will be particularly constrained by the implementation challenges.
Some of these challenges are structural in nature and may aggravate further over time.
The fiscal challenges include risks related to both revenue and expenditure sides.
If a gap emerges between the projected revenue envelope and the actual expenditure, it may constitute a resource risk for the country, the CPD said.
Such a risk would become real if revenue intake decelerates and foreign aid disbursement slows.
Revenue collection has already been below the target this year, while foreign inflow improved reasonably.
However, the resource risk will not be significant if the budgetary targets are not overambitious, the CPD said.
On the expenditure side, there may be risks if the revenue and ADP expenditures are too much frontloaded.
This may happen if the outgoing government resorts to profligacy during the early part of the next fiscal year in the wake of national elections.
Such a trend will also entail deterioration of expenditure effectiveness, the think tank said.
A significant part of Bangladesh economy is integrated with the global economy.
So the implementation success of the national budget also depends on the conduct of the external factors such as foreign aid, foreign direct investment, exports, commodity prices and remittances.
The CPD also said export remains conditional to global recovery, particularly that of the eurozone.
The recent slowdown in imports has resulted in low intake of import duties, the research organisation said.