The Financial Express

A non-resident’s observations

Khandakar Qudrat-I Elahi | Published: June 06, 2016 20:16:04 | Updated: October 24, 2017 12:06:24

A non-resident’s observations

The projected total government expenditure in the proposed budget for fiscal year (FY) 2016-17 is Taka 3.41 trillion, 15.5 per cent larger than the current FY's initial budget and 29 per cent higher than the revised outlay. This budget represents 17.37 per cent of Bangladesh's current gross domestic product (GDP), estimated to be Tk. 19.61 trillion. Roughly, 66 per cent of the budget will be used for non-development expenditure, meaning the remaining 34 per cent will be available for development purposes. Taka 2.43 trillion or 71 per cent of the budget expenditure has been projected to be financed by revenue collection, which means 29 per cent of the budget will be deficit-financed. The deficit in the budget --- Tk 978.53 billion --- represents less than 5.0 per cent of the GDP.
I do not consider myself qualified enough to comment on the budget primarily because of the fact I do not live in the country. However, my interest in the issue has been evoked by the conflicting evaluations made by our eminent economists. Here I would like to share my observations with the FE readers, many of whom may have little knowledge about the complex fiscal policy issues of modern democracy. Yet, all these budgetary remarks have been made for public consumption.  
The major budget commentator is expectedly the Bangladesh Economic Association (BEA). It held two press conferences to make public its expectations and impressions about the new budget. The first press conference was held on May 31. At this conference, BEA proposed a budget amounting to 8.08 trillion taka, which was 2.36 times bigger than the one the government had approved, and 3.87 times bigger than the 2015-16 national budget. The estimated revenue receipts in the budget were 6.38 trillion taka, meaning the revenue receipts in the BEA's proposed budget were 2.6 times higher than in the one prepared by the government. Unveiling this proposed budget, the Association's past president, Professor Abul Barkat said that this alternative budget had been proposed "to build the country according to the spirit of the Liberation War." He further noted the requirements for achieving this target: "Political wisdom, leadership on the spirit of the Liberation War and spontaneous participation of people of all sectors are needed to achieve the country's potentiality." From the public perspective, the question then is to guess whether the current government leadership has "this political wisdom and the spirit of the Liberation War".
At a more recent press conference, Professor Barkat congratulated the government for presenting the country with a 'pro-people' budget. The Finance Minister, Professor Barkat lauds, has balanced the requirements of the economy, keeping in mind the necessities, including energy, infrastructure, safety nets, price control, and providing fallow land for the landless. A 16-page statement was also read out to explain the association's 'reactions and recommendations'. The press conference also revealed that the association had submitted 64 recommendations at a pre-budget meeting with the Parliamentary Standing Committee on the Ministry of Finance and presented 73 recommendations at a pre-budget press conference. "Many of our recommendations were adopted in the budget," Professor Barkat informed the media.
There saw another press conference on the budget organised by the BEA. This time it came from the Association's Chittagong Chapter. On June 01, the Chapter president Professor Jyoti Prokash Dutta revealed an alternative budget which was almost similar in terms of total expenditure --- Taka 8.04 trillion. The newspaper reporting this story did not say much about the reasons for proposing such an ambitious budget, nor did it say anything about the sources of revenue and the distribution of expenditure. However, it mentioned that this alternative budget was proposed in the spirit of the 1971 Liberation War.  
The BEA's budget views summarised above might confuse the public, because they are quite contradictory. The two BEA assessments presented by Professor Barkat appear rather inconsistent. How could a budget, which is only 42 per cent of the one prepared in the spirit of the Liberation War, be called 'pro-people'? The Chittagong Chapter's press conference has definitely raised this question.
BEA's routine budget exercise perhaps needs a closer look. The national budget is a technical issue. It is a financial statement of the government's planned annual expenditures and projected revenues. The planned expenditures reflect the government's priorities on sectoral allocations, which in turn mirror its vision of overall macroeconomic management. In other words, a budget is a short-term image of the government's long-term strategic socio-economic development policy. Revenues needed to finance the planned expenditures seem to be in short supply all over the world. Deficit-financing, which used to be a debatable aspect of fiscal and monetary policy, has now become a permanent feature in all countries. And the concept 'public debt' that resulted from deficit-financing, has now acquired the name of 'sovereign debt', because there is no possibility to repay this debt completely. Nor is there any sense of necessity to do so. In 2008, Japan, Italy and the US's sovereign debts were 173, 113 and 73 per cent of the GDP of the countries respectively.
These are the budget realities that need to be kept in consideration in understanding the BEA's budget assessments. First, it is very unprofessional to bring up an issue like the spirit of the Liberation War in debating the budget. Variations in the budget size or its sectoral allocations have little to do with this topic of great emotional value.
Second, the BEA's alternative budget proposal appears to be a very questionable practice. Firstly, as mentioned above, budget is a very complicated macroeconomic document, the preparation of which requires both a long time and tremendous efforts. Its alternative proposal seems to belittle the time and efforts devoted by so many government experts to the preparation of this budget. Secondly, given the nature of expertise needed to prepare a budget, questions may be raised if we, the academic economists, are really qualified to prepare this national document. We can certainly criticise expenditure allocations and nature of revenue collection. But preparing the whole document requires the expert knowledge of the various sectors of the economy as well as the government's past and future strategic plans.
Finally, the issue that has become the central focus of the proposed budget is the government's revenue projection. To meet the budget expenditure, the government expects to increase its revenue receipt by 37 per cent during the FY 2016-17. In an op-ed published in the Daily Star on the June 03, Professor M.M. Akash questioned the wisdom of this projection. Over the past several decades, the government's revenue receipts have increased between 10 to 15 per cent. Given this experience, the revenue receipt projection in the upcoming budget appears rather ambitious. And our Finance Minister,. in fact, has agreed with Professor Akash's assessment. At a press conference, the minister has admitted that the revenue collection was poor in the past years; but he sounded optimistic about the future.
This revenue projection issue brings up a very vexing question about the BEA's alternative budget. If the government's revenue projection in the budget is ambitious, then how does the association justify its own projection, which is 2.62 times higher?
As a life-time member of the BEA, I sincerely request the leadership to review its policy on budget exercise.

Dr. Khandakar Qudrat-I Elahi teaches economics and agricultural economics at the Department of Agriculture, Papua New Guinea University of Technology, Lae, Morobe.

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