What special we expect from the coming budget
THE twitter of Bangladeshi economists spreads every corner during the months of our national budget, particularly June. Unfortunately, the finance ministry cannot make any major changes at that point because of the time constraint. All they do is little twists of some minor figures to calm down the twitter and the anti-budget music. By the months of July and August, when the monsoon rainfall hits the country, the budget discussion dissipates, the economists rest in peace, and the government does what it had intended to do. Thus, the mundane cycle of the budget culture continues…...
Even speaking now about the budget does let the government make any substantial change, but the authority can pinpoint its focus without altering its math or accounting. Since the political cycle dominates Bangladesh's growth dynamics, people expect to see some special features in the coming budget from the new regime. This budget should be annual in nature but 5 yearly in vision. It should reflect a healthy blend of planning, finance, and political will – much needed in the first year of any regime.
Economic growth is of course required to ensure social wellbeing, but boosting investment remains the prime challenge for the economy. Any growth model will suggest that investment must come before growth, but we are often confused by the heated talk on growth that ignores the vital issues of investment. Putting the cart before the horse does not work.
The main focus of China's and India's budget is investment. Growth comes as a result of it. Our budget craves for the result without accomplishing the right karma, investment. Instead of bubbling with complacency, the coming budget should be aware of investment stagnation. The level of private investment, the major component of total investment, is not expanding steadily mainly for infrastructural bottlenecks and partly for political dilemma. The budget must be articulate about how it will improve infrastructure to shepherd private investors thrive.
Private businesses are like a game of kids in a school field. The school authority, however, has to come first to buy a piece of land and make a playground for its students. Herein lies the role of the government which has no alternative even in the so-called paradises of capitalism. The coming budget must be precise about the government's giant projects like the Padma Bridge, the 4-lane lifelines, electricity, seaports, monorails, flyovers, highways, and other mega ventures. Of crucial importance are the definite deadlines of progress for each of the projects. Otherwise people will not be convinced and the budget speech will sound like a pre-election party manifesto.
If the government can finish most of its megaprojects, at least the highways, private investment will automatically jump up and businesses will mushroom, because the enterprises will have their 'playground' to grow competitively in a market economy. The next door neighbors, East Asian economies, left a lesson of this developmental pattern for us. Our current investment as a percentage of total national output is only 26%. Given the level of labor productivity, there is no shortcut to achieving 8% growth without ensuring better infrastructure. We cannot expect a 20-mile speed from a cow-cart. And foundational improvement is primarily the government's responsibility although private financiers can be engaged later on to share the mammoth tasks. We want the budget be transparent in this regard.
Since the country is entering another higher phase of investment, it is impossible for the rulers to gear up without expanding the revenue base. Only increasing tax rates may not help. Rather, the government must hook newer products and activities to be taxed. Modernizing the tax payment system and bringing more wage earners into the network every year must be exercised by educating the staff and updating the apparatus in the bureaucracy.
We expect that the budget must be committed to ensuring a moderate rate of inflation, say, 5%. Although Bangladesh Bank is primarily responsible for controlling money supply, in a country like ours where central bank independence is a fairy tale the government should bridle its deficit spending and reduce indirect pressures on the central bank to print notes beyond the safe limit that can comfortably generate 5% inflation.
Last but not least, the budget speech must be short and sweet. With the virtue of the internet, the budget speech is available from all corners of the world and we do not want that the global readers should find us a talkative, verbose nation. If India, being more than 10 times bigger than us in the size of the economy, can manage their speech within 35 pages, we are not sure of why we must drag for more than 100 pages. The dull descriptions of the tax rates and the intruding political rhetoric can go to the appendix. The budget must budget on both money and words in describing the economic goals and the feasible paths of a nation.
The writer is Associate Professor of economics at the State University of New York at Cortland.