According to the great philosopher Immanuel Kant, “all our knowledge begins with senses, proceeds then to understanding, and ends with reason. There is nothing higher than reason.” In my energetic preoccupation with analysing the national budget of our country—spanning more than two and a half decades—I have often tried to reason based on empirical evidence regarding the state of the economy, usually receiving little reasonable response in return. Thus, this time around, I have decided to fall back two steps (a la Kant) and explore whether appealing to our senses will generate a more productive communication.
Our five sense organs play an important role in our everyday life. They also build on one another to define our overall perception. While there is no unanimity of views about the hierarchy of our senses, SIGHT—our visual perception—is usually ranked the highest.
So what would provide a visual perception of a national budget? To me, it is its fiscal framework, designed based on the government’s incomes, expenditures and deficit. Although Bangladesh has maintained sustained macroeconomic stability over the last decade, it has systematically failed to collect tax and non-tax revenues in line with its economic growth momentum. The country’s total revenue to GDP ratio remains one of the lowest in the world. Moreover, there is a noticeable slowdown in the collection of direct taxes, which is only a quarter of the total intake. Effective introduction of the new law on Value-Added Tax (VAT) will be, of course, an added challenge in this regard.
Such a situation has highly limited the government’s ability to finance its ambitious Annual Development Programme (ADP) with its own revenue surplus. Thankfully, implementation of the ADPs has remained routinely below the target, thereby keeping the budget deficit under control. The quality and delivery of the ADP project portfolio remains a matter of concern. Currently, spending on salary and allowances within the government’s recurrent expenditures is growing faster than all other comparable items.
So how is the budget deficit being tackled? The government has regularly fallen back on domestic borrowing (largely by selling costly National Saving Certificates) and resorting to highly priced foreign loans (leaving the available overseas grants and concessional loans unutilised). There are early signs of a debt build-up. It is, thus, visible that the fiscal framework is in a less-than-a-stout form to provide a strong hand to sustained high GDP growth. Let us see what credible measures will be proposed in the upcoming budget to strengthen the fiscal framework.
The second sense I would like to apply for understanding the upcoming budget is SOUND. Through sound, in this case, we perceive noise, not music. The loudest noise in the economy is coming from the banking sector and the capital market. Both the debt market and the equity market remain in a state of atrophy. This had been one of the prime reasons for the melancholy performance of the domestic private investment. The share of private investment in GDP has been stagnating for the last four years, and foreign direct investment has also been lacklustre. Recent misplaced fiddling with the interest rate in the face of growing non-performing loans has failed to address the core problem of mal-governance in these areas. We would be keen to hear what policy measures the budget will offer, beyond certain traditional fiscal incentives, to put the banking sector and capital market back to business.
In contrast to the relative importance of sight and sound, there is less unanimity of views regarding the ordering of the remaining three senses, namely touch, taste and smell. Anyway, I take them up in the aforementioned sequence.
The sector that would need a delicate TOUCH in the upcoming budget is the external sector. In recent years, due to the high growth of imports, even the robust exports earnings and remittance flows are not being able to halt the slide in the balance-of-payments deficit. The current account is in the red, while there are early signs of mounting debt burden. Stress on the foreign exchange reserve is also becoming visible. As a result, the exchange rate of national currency is under pressure and a downward adjustment is called for. However, out of concern over inflation, the government may opt for providing for fiscal incentives to the foreign exchange earners (exporters and remitters), in lieu of making Taka cheaper. The expression of the delicate touch would, thus, be expressed through the measures addressing the developing tensions on the balance of payments situation.
The TASTE of the upcoming budget will be assessed through what it proposes for the productive sector, particularly concerning the relatively voiceless, domestic market-oriented small and medium industries and services. Two sets of issues have gathered special importance this year. First, the unsustainable condition of the state-owned enterprises expressed through the miseries of the jute sector. Will the budget offer any innovative programme in this regard, beyond further capital infusion? Second, the much-neglected agriculture, where the rice farmers are being deprived of their rightful market price. Here again, beyond the promises of larger and more effective procurement, will the budget think of any effective mechanism to reverse the terms of trade in favour of the farmers? Let us keep our palate clean.
The SMELL of the upcoming budget, whether sweet or foul, will be defined by its attempt to be inclusive, by trying to reach out to those “left behind”, if not “pushed behind.” Against the backdrop of the overall improvement in human development indicators, this concern is underpinned by the fall in employment growth, especially among the educated youth. Income and asset inequality is also rising along with sustained divergence in educational and health outcomes of the poorer population. Will the budgetary allocations for health break out from the paltry 1 percent of GDP mark—and that of education from the 2 percent of GDP limit? One would also be keen to see progress in putting in place a universal social protection scheme.
The challenges currently afflicting the country’s economy may make its smooth and sustainable transition towards a high middle-income country hazardous. Arguably, an annual budget, even if prepared with full five senses, will not be able to do the full trick. The issues emanating from our five senses clearly indicate that the country would need to embark on rigorous reforms breaking away from the influence of the entrenched beneficiaries of mal-governance. For that, we shall have to wait, as in a mystery movie, to see what “Sixth Sense” is demonstrated by the new finance minister in this regard.
Dr Debapriya Bhattacharya is Distinguished Fellow, Centre for Policy Dialogue (CPD).