The trend, tradition and culture of preparing a national budget in the present advanced but financially and economically jolted world have been shaken. Although the aims of political leaders and state policymakers are to ensure sustainable growth, enhance employment opportunities, provide better health care, guarantee safety and security of the people, some are successful and some are not. Success and failure depend greatly on qualities, dynamism and decision-making abilities of the policy-makers. Fiscal budget, as we know, is the reflection of the state policymakers' policies or guidelines on how to manage the limited resources, technology and innovation, human capital for greater benefits of the people of a country. Germany, the most successful economy in the eurozone, has achieved the most-desired goal of a national budget by introducing a 'balanced budget' after more than 40 years. "Angela Merkel's government achieves zero deficit for the first time in more than 40 years, thanks to strong tax revenues and rock-bottom interest rates", reported by Daily Telegraph.
Developing and emerging economies have been struggling hard to achieve speedy development to reach high-income economies by adopting strategic fiscal policies and frameworks. To get effective benefits from the fiscal budget, the policy-makers have to undertake planning and measures to increase efficiency and effectiveness of spending hard-earned revenues. The government's provision of public capital to the production process contributes to growth directly by adding to the existing capital stock, as well as indirectly by raising marginal productivity of privately-supplied factors of production.
More investment in unproductive sectors through the national budget has put many countries in the backyard of the developed world. Unproductive expenditures arise because of many factors, including uncertainties, lack of a well-trained civil service, inadequate checks and balances in the political and budgetary process, and blight in the fiscal policy implementation. The government expenditures often grow faster than revenues because of asymmetries in political costs and benefits associated with taxing and spending.
It's widely recognised that productive public expenditure on infrastructure, research and development and provision of high-quality education and better health care and medical services, contribute to growth of an economy. The Lisbon Strategy and its successor, the newly adopted Europe 2020 strategy, supportive of smart, sustainable and inclusive growth, acknowledge the positive potential impact of tax policy on long-term economic activities. This positive impact would result from composition of growth-friendly public expenditure and not their size nor fiscal revenue size, nor from fiscal balance.
The economists have, after research on budget, divided public expenditure into two main categories: firstly, productive expenditure include public services, national safety, education, health-care, housing, technology, research and innovation and infrastructure development. Secondly, unproductive expenditure includes culture, recreation, social welfare, subsidy, excessive administration expenditure. Productive public expenditures carry an impact on the efficiency of the private sector, generating positive peripheries to firms, and have a positive effect on the marginal productivity of capital and labour. Unproductive public spending affects the welfare of consumers, but don't change the efficiency of the private sector investment.
The types, category and nature of public expenditure in the national budget always influence the dynamics of industrial growth through its consequences for effectiveness of resource allocation and accumulation of productive resources. An increase in public expenditure on infrastructure development, education, innovation, research and development has significant influence on industrial productivity. A government could increase the public spending by a large amount but this does not mean that it would have an effective result on economic and social development; the quality of this spending also matters. This expenditure must provide good public policies that really achieve the objective to increase growth, and, hence, the living standard of the population.
The national budget has been misused by the leaders and policy-makers of many developing and underdeveloped countries as a political tool rather than an economic instrument. They provide generalised subsidies, social benefits in the name of social welfare that benefit a broad populace, including the middle class, the political hubs that illustrate the political factors underlying the growth of unproductive expenditures. These, seeking enhanced political support and brightened election prospects, are an inefficient means of increasing the standard of living of the poor, fail to generate employment and spur productive activities. Expenditures on 'white elephant' projects-prestigious projects that don't serve useful economic or social objectives, subsidies through marketing boards or investment incentives, and transfers to loss-making public enterprises often reward important political groups or benefit particular regions at the expense of the larger populace and at the cost of economic growth.
Many countries in Latin America, Africa, South-East Asia and Middle East remain in the trap of either low income or middle-income economies due to wrong, politically and economically-immature national budget and fiscal policy. These countries lack good fiscal governance, transparency and fiscal discipline. The relationship between fiscal governance, transparency and fiscal discipline extensively matter in determining the outcomes of fiscal budgets.
Former World Bank President James Wolfensohn, in his address to the Board of Governors, once said: "We have seen how corruption flourishes in the dark, how it prevents growth and social equity, and how it creates the basis for social and political instability'. Corruption in Africa, Latin America and some countries in South-East Asia has reached cancerous proportions. In fact, so pervasive is this phenomenon in the region that it has been labelled as the 'AIDS of democracy' which is destroying the future of many societies in the region, keeping the countries in the list of poor and underdeveloped economies for decades. The problem of corruption, transparency and accountability in the fiscal budgetary systems reflects now a mythical climate of unethical leadership and bad governance found throughout the continents.
The size of Bangladesh is very small in comparison with its population. It hasn't vast natural resources except natural gas and huge human capital. Natural gas is fast depleting through multifarious uses. Human capital is the best natural resource for the country which needs to be utilised in the best possible ways. A Chinese proverb says: "To plan for one year, sow seeds: to plan for 10 years, plant trees and to plan for 100 years, develop human resources". The 165 million people of Bangladesh must be used in the development process. They must not be confined as workers of apparels and textile industries only. The fiscal policy and national budget of the country should have adequate plans and programmes for education, training and health care and should invest more for human capital development.
Many studies on human capital development have shown that people with higher education and training earn much more than that of people with less education and training. This is the reality and this happens in both developed and developing economies. It's worth mentioning here that the country has huge number of illiterate and unskilled people as the literacy rate is far below the required level and skilled manpower is scarce. Long-term budget for education, training and innovation is a sine qua non for Bangladesh's development. Mega budget needs to be adopted to increase the literacy rate from present 66 per cent to 98 per cent, to make the unskilled workforce skilled by training and by providing technical education. Instead of 'hand-to-mouth budget' for human capital development, a long-term budget for 12 to 15 years may be undertaken to educate the people by introducing compulsory education and training to increase the skills of the huge population.
The writer is a Fellow Chartered Accountant and a CFO of a private group of industries