BUDGET FY2018-19
Populist pursuit before elections?
The Finance Minister has placed the national budget for fiscal year 2018-19 before parliament for "discussion" and "approval" by the house. Undoubtedly, national budget is the most important instrument of the country to influence economic and social life through resource allocation, revenue generation and fiscal innovations. The size of the 2018-19 budget is 16.12 percent higher than the proposed budget—and 25.2 percent higher than the revised budget—of the outgoing fiscal year 2017-18. The budget deficit is estimated to be 4.9 percent of the Gross Domestic Product (GDP), which is consistent with the Public Money and Budget Management Act 2009. Public administration received the highest allocation (18 percent) followed by education and technology (14.6 percent), transport and communication (12.2 percent) and interest payment (11.1 percent), which maintain the tradition of the recent years. GDP growth target is 7.8 which can be easily achieved. Rather, the growth target could have been 8 percent for such a gigantic budget since the government would try to spend a significant amount of resources before election, which would have a multiplier effect on the economy.
The rate of execution of the budget was about 93 percent as per the revised budget. It is an overestimation compared to the actual spending because budget execution was 79 percent in FY2016-17 and about 81 percent in 2015-16. Thus, around one-fifth of the proposed budget is being underspent quite regularly without any explanation given by the government, and there were no courtesy words in the budget speech to beg apology to the taxpayers for not being able to implement the budget properly. Downward revision in the revenue target in the outgoing fiscal year (90.7 percent of the proposed revenue target) is believed to be associated with underspending of the proposed budget. The track record demonstrates that around 20 percent revenue growth target of the National Board of Revenue (NBR) can be achieved while the FY2018-19 budget proposed its growth by about 31.5 percent compared to the revised target of the NBR revenue. Repeatedly setting unachievable targets raises the question of credibility of the budget-makers.
The proposed budget is an ambitionist approach of a heavily expansionary fiscal policy before the elections with the focus on mega projects. True, Padma Bridge, Metro Rail, improving Dhaka-Chittagong highway, constructing flyovers, coal-fired and atomic power plants, LNG, etc. have important implications for economic growth and Vision 2041, despite alleged cost escalations and environmental detriment. Thus, the massive expansion of physical infrastructure gives a sense to the public that the government is doing something extraordinary, which can be marked as the first-degree populism. Granting ad hoc incentives for the banking and RMG sectors is also an effort to please the business community—and is an indication of second-degree populism.
Corporate tax rate for banks, insurance and financial institutions has been reduced by 2.5 percent without any pragmatic measure to revive the financial sector from the ongoing crisis and uncertainty. The biggest manufacturing sector is readymade garments (RMGs) for which the corporate tax rate is already low, only 15 percent. In the 2018-19 budget, it is only 12 percent for companies with green factory and 12.5 percent for public-limited RMG companies. However, they are unlikely to come to capital market significantly because of extreme uncertainty. In addition, gradual transformation of the sector by replacing labour with capital has been fading its human shape where the income and assets are being explosively concentrated. Introducing new piecemeal projects and additional allocation in the existing projects as well as expanding social safety net programmes (SSNPs) for the rest of society is the third-degree populism, so that none is excluded from the fiscal blessing before the elections. The proposed allocation for SSNPs is 2.55 percent of GDP, and 13.92 percent of the total budget.
There is no special low-interest scheme with soft terms in the proposed budget that could benefit the large chunk of educated unemployed youth who want to become entrepreneurs rather than look for jobs. Currently, about 33.37 million people who are mostly illiterate and poor women took loan from microfinance institutions and emerged as successful entrepreneurs. Access to soft credit could convert a large portion of these educated jobless youth into promising entrepreneurs who can change the face of the private sector dramatically. The Fourth Industrial Revolution can be well addressed through access to soft capital to prepare them to successfully embrace the revolution in which the IT sector and artificial intelligence (AI) will rule the global production and consumption systems.
The rate of implementation of ADP is still dismal. In the first ten months of the outgoing fiscal year (July-April), the rate of implementation was 52.42 percent of the revised ADP of 2017-18. The rate of implementation was better—54.56 percent—during the same period in FY2016-17. However, some officials try to argue that physical progress takes place in due course but the bills are cleared in the last two months. There is ample evidence that constructions and other activities get the highest pace in the last quarter. Many recent in-depth monitoring reports of the Implementation Monitoring and Evaluation Division (IMED) also expressed dissatisfaction regarding the quality of implementation of the projects of various ministries. In the proposed budget, there is no direction about improving the quality and rate of implementation of ADP.
Performance of capital market is one of the worst in the recent time despite recent demutualisation. However, the proposed budget does not have any policy measures or even a plan to revive it. Rather, the budget speech tries to overlook the problem by stating that the government has already addressed the liquidity imbalance in the banking sector as well as the "management problems of one or two banks" that created "temporary" tension in the sector. There is hardly any initiative for the banking sector to address the liquidity crisis and uncertainty or establish good governance in this sector.
Significant expansion has been proposed in SSNPs, which includes a special allocation and new allowances for freedom fighters and their family members; increasing coverage of elderly widowed and destitute women, and insolvent persons with disability, increasing sub-stipends for disabled and other disadvantaged students; increasing maternal allowance and VGD card for Teknaf and Ukhia upazilas. While these initiatives are praiseworthy, there is no specific allocation for implementing the universal pension scheme which was pledged in the outgoing fiscal year's budget. Rather, the Finance Minister has "wished" to pilot it in some selected areas. It implies that this long-expected scheme is not going to be implemented in the next fiscal year and the intent of the government to secure the financial future of millions of workers in the private sector has become questionable.
Finally, the proposed budget could have been pursued with some real innovations, such as creating new schemes for long-term (15-20 years) big-investment projects for the private sector with a significant grace period, which is currently not available in the banks and financial institutions. Due to the absence of this kind of investment, the share of investment in GDP is showing a sluggish development. Traditional piecemeal allocations and blessings would leave a message that we forgot fiscal innovations to amaze the citizens and global friends who want to believe that Bangladesh is set to emerge as the next giant.
Dr Mahfuz Kabir is Research Director at Bangladesh Institute of International and Strategic Studies (BIISS), Dhaka. E-mail: mahfuzkabir@yahoo.com