The presentation of national budgets in parliament traditionally starts with praise for the gross domestic product (GDP) growth rate, which crossed seven per cent or so during the last couple of years. This positive performance was overshadowed by rising inequality, unemployment (at least among the educated section of the population), low implementation rate of budget etc.
The upcoming national budget is going to be placed against the backdrop of a few 'disorders' in the macro-economic setting. First, the fragile financial sector, exacerbated by serious ailments of new banks (such as Farmers' Bank), would demand an allocation, reportedly between Taka 200 billion and 400 billion (2.0-4.0 thousand crores), as life-support for these institutions. This has been an 'unethical' and immoral financial exercise for the last successive years, as tax payers' money has been used to heal the wounds, inflicted by the financial criminals. This would give the signal that the government would recapitalize if banks' money is looted by any quarter. However, the signal from the Finance Minister (FM) about setting up of a Banking Reforms Commission sounds soothing.
Second, capital flight has a general tendency to increase during the election years. Drawing upon empirical evidences, a document of Centre for Policy Dialogue (CPD), a leading private sector think-tank in the country, shows that this situation arises as individuals respond to a possible deterioration of political and macro-economic stability amid the looming challenges of adverse fiscal measures. There are illustrative instances of soaring capital flight before a number of Latin American elections - mostly as a reaction to possible post-election changes in government policies. Similar phenomena were also observed in the case of Ecuador. Analysing data for thirty-six African countries, one researcher has revealed that capital flight remains relatively high during election years as opposed to other years.
Bangladesh is no exception to this trend. This particular issue of capital flight finds a berth in the discourse on budget every year; but despite repeated clarion calls from economists and civil society, no effective steps have so far been taken to arrest the outflow. Capital flight means, among other things, absence of proper investment climate in the country, thus posing a positive correlation between capital flight and bad governance. It is a sordid reality that we could hardly expect strong steps in this regard in the upcoming budget speech of the FM.
Third, the external trade deficit 'widened to more than $7.5 billion in the first five months of fiscal 2017-18, contributing to a current account deficit of $4.4 billion over the same period, compared to less than $0.7 billion recorded in the same period a year earlier'. In July-March period, the overall current account balance turned out to be a negative $7.0 billion. 'The widening imbalance in trade and current account will weaken the taka against other currencies. This will thus fuel import-induced inflation, creating pressure on wages that lead to a spiral in interest rate', so the CPD considers. This has mostly been adduced to spiralling imports. While spiralling imports could be counted as blessing - in the form of imports of capital goods and raw materials for industrialisation - unfortunately for Bangladesh spiralling imports translates into spiralling capital flight. The fourth factor that is exacerbating the situation, observes a noted economist, is an emerging wide gap in the credit and the deposit growth rates in the banking system, contributing to a liquidity crunch.
Expectedly, allocations for social safety net, education, and healthcare are likely to rise in the upcoming budget, but as a share of GDP the picture can be frustrating as past experiences show that the social sectors were deprived of their due shares.
Reduction of corporate tax - an important source of revenue that contributes to about two-thirds of income tax collection - captured the attention in the pre-budget parleys. There are two points to ponder. First, in a declining situation about revenue regime, a cut in corporate tax could reduce the kitty. Second, the past experience indicates that reduction in tax or interest rate is a necessary but not a sufficient condition for increasing private investment. What is more important in this context is the reduction in the cost of doing business that entails provision for better infrastructure facilities.
The upcoming budget may not see any commitment to reforms, because the party in power would not prefer painful paths of carrying out those in the election year. But without drastic reforms for generating additional revenues, the government may have to grapple with shortage of resources.
Budget gets bigger every year, but the implementation rate has been falling consistently during the last few fiscals. This indicates a mismatch between planning and execution. As one report says, only one-fourth of the budgetary outlay could be utilized during July-December period. None other than the FM fumed by saying, "It is a very bad signal for the capacity of the government". It is, perhaps, needless to mention here that the 'poor show' on the utilization front is led by weak performance of the Annual Development Programme (ADP). Notwithstanding the quality of projects, implementation has been hampered by a host of factors including release of funds, procurement etc. The FM's earlier wish for appointing competent Project Directors to help expedite the process of project implementation has fallen flat in the face of hidden interests of bureaucracy in overseeing the projects. Second, it seems that time has come to revisit the time-period of the country's fiscal year, in the light of the limitations mentioned before.
By and large, the upcoming big budget is likely to face the fate of earlier ones in the absence of drastic reforms in the financial sector and also on its implementation side. But such needs are not likely to receive proper attention in the budget speech of the FM. Money matters, but it is not all:
Money can buy a House............But not a Home
Money can buy a Bed..............But not Sleep
Money can buy a Clock............But not Time
Money can buy you a Book.........But not Knowledge
Money can buy you Medicine.......But not Health
Money can buy you Sex............But not Love
Abdul Bayes is a former Professor of Economics at Jahangirnagar University.
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