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The Proposed Budget for FY 2011-12:
Our hopes and fears
Syed Fattahul Alim
Photo: Rashed Shumon
The purpose of a budget is to forecast the expenditures a government plans to make and the revenues it expects to collect for the ensuing financial year. In a modern industrial economy, a budget reflects the priorities a political government sets to different sectors of the economy. Bangladesh is yet to become a fully industrial economy. So, naturally, the differences in their political ideologies are hardly reflected in the allocation priorities.
Given its size, the national budget that our finance minister AMA Muhith has proposed is the largest in the country's 40-year history. This reflects the overall growth the economy has undergone within this period. There is no question that meanwhile both our human and material resources have witnessed a phenomenal growth. The ambitious budget at around Tk. 1,630 billion is by any measure ambitious. In the beginning of his budget speech, the finance minister highlighted the measures spelt out in his financial plan in the shape of protection and incentives provided to the export sector as part of its strategy to tide over the impact of recession. That, he claimed, helped to offset the negative pressure of global recession and achieve a growth of 5.7% in 2009.The trend has been maintained resulting in a growth rate of 6.1% in 2010 and about 6.7% till date. However, the policy think tank Centre for Policy Dialogue (CPD) has differed with this growth figure of the government. The difference in the methods of calculation of the growth figure apart, what can be safely stated is that the economy has grown in this period where major contributors are still the export sector and the bumper harvest in the agriculture for three years in a row. And the robustness of the remittance sector speaks of relentless efforts our migrant workers are putting in in the face of uncertainties like job-loss they have been sustaining in the host countries including in the Middle East and Europe. So, even if the global growth in remittance had gone on a downslide in that period, our homeward flow of remittance dollars demonstrated an upward trend at 22.4%. Same is the story of export with its growth at 10.3% and import at 4.1%.
Admittedly, in the last fiscal, as part of the government's farmer-friendly policies, subsidies were provided towards reducing the prices of agricultural inputs. For example, as stated in his budget speech, the reduction of urea fertiliser prices three times has immensely helped farmers in lowering their cost of production. But this is about what the government did for farmers in the previous years. Now the question is what did prompt the finance minister to slash the allocation in agriculture by Tk. 10 billion compared to what was earmarked in the previous fiscal? Have the farmers become self-sufficient or have we achieved long-term self-sufficiency in food grains? Here the government's policy of purchasing food grains from farmers deserves further scrutiny. On the one hand, the inordinate delay the government had made before taking the decision to start purchasing rice from farmers has forced the latter to sell a large part of their harvest to the farias (middlemen) at a low price. So, in spite of the bumper harvests, the farmers could not reap the benefit of the fruit of their hard labour. The finance minister could well step in at this point to help out the farmers through enhanced budgetary allocation in FY2011-12. The farmers are badly in need of markets at their doorsteps where they may sell their products at bargain prices. So, further extension of rural communication infrastructure and creation of agricultural cooperatives and other marketing networks would immensely help peasants. And for enabling government purchase to take place in time and in adequate quantities, it has become an imperative to expand the storage capacity of the government-owned silos and other storage facilities. Increase in the public expenditures in these areas would over time translate into large dividends for farmers. And more government investment would also encourage the private sector to invest in the agriculture-related infrastructure including storage facilities for farmers. Therefore, reduction in total allocation in agriculture for FY 2011-12 may prove to be a disincentive for the farmers to grow more crops.
The credit for the continued growth of these sectors goes ultimately to the private sector especially the garment exporters, farmers and the migrant workers.
But a proposed budget for a new financial year is not about stating only the past achievements. Other than a wish list, a concrete guideline should have been there on how it would continue to retain the positive gains of the past years, while at the same time ensure further growth in all the major sectors of the economy that would add up to overall growth of the economy. For example, the government aims to achieve a Gross Domestic Product (GDP) growth target for 2011-2011 at 7% through extrapolation. It took about two decades' time for the economy to increase its GDP growth rate from 4% to 6%. Now calculations say that at the moment the economy's growth rate is 6.7%. So, why should the government not aspire to achieve another 0.3% by the FY 2011-12? And in a similar vein, what is holding it back from aspiring to achieve an 8% growth by the next two years until 2013 and by another 4% over the next five years (until 2018)? But questions still remain: what is the guarantee that the ride will be as easy and smooth as it is on paper shown by simple arithmetic?
So, the challenges facing the prospect of attaining the targets of higher GDP growth, while in the same breath containing inflation are huge.
Where are the appropriate policies to achieve the dream, if one looks at the existing ground realities of ever-increasing inflation (at the moment at 10.7%). To make things worse, as spelt out in the proposed budget, to meet its budgetary deficit of Tk. 450 billion. The amount of debt servicing due to interest will require around Tk. 180 billion. The government will have to borrow to the tune of Tk. 190 billion from the banks, thereby squeezing the space for the private sector to access bank loans. The problem will also not end there. The budget does also have a plan to arrest the rising inflationary trend and freeze it at 7%. To achieve that goal, it plans to adopt a contractionary monetary policy based on the assumption that it is the expansion of money supply in the market that has driven the inflation upwards. But does the prescription for tightening money supply not run the risk of driving up the inflation further? Has the finance minister kept something up his sleeve to fall back upon? Is he banking on the capital market as an alternative? That depends on prompt policy measures from the government to wean the spoon-fed state-owned companies off their dependency syndrome and joining the capital market as soon as possible. The silver lining is that, despite the volatility in the secondary market, investors still retain their interest in the primary shares.
Since the driver of the economy is the private sector, attainment of aspired growth requires a supportive investment climate.
The inhibitive factors in this case include low level of investment, negative export growth and low level of implementation of Annual Development Programme (ADP).
It is worthwhile to note here that the problem of declining supply of gas in the pipeline compounded by lack of sufficient power in the national grid contributed to sluggish growth in investment. The power tariff will go up in absence of any subsidy in this sector, while the prices for Condensed Natural Gas (CNG) has already been raised. The price of pipeline gas, too, is rising. Similarly, price of imported fuel oil has been raised internally, in tandem with its continuous climb in the international market. So, the path to higher growth is littered with these big and small bumps.
Photo: PALASH KHAN
The rising rate of bank interest, the general price index spiraling upwards and unrelenting depreciation of Taka against US Dollar are also affecting investment climate negatively. And as mentioned in the foregoing, increased government borrowing from banks might crowd out the private sector from accessing bank loans and related facilities. So, to meet the challenges, efficient fiscal management will be necessary.
A few other areas of concern include growing trade imbalance due to higher import costs. The prices of essentials, too, are showing respite. And it is hurting the poor as their purchasing capacity is fast shrinking as a result of the combined effect of inflation and price hike. That brings to the fore the government's poverty reduction efforts and the safety net for the ultra-poor. Allocation of around Tk. 225 billion in 2011-12 budget for creation of safety net and other support programmes will, of course, be of help for the poor. Here the food-related inflation will affect the poor severely. Addressing that will need revisiting the issues of price rise and inflation with a new look for their efficient addressing.
The government's plan to increase employment generation of more than 65 million man-months in next fiscal will require energising the private sector in manufacturing, service as well as agriculture. To meet the challenge, the attention will again have to be refocused on the issue of growth in investment. And the hurdles to that are still there. The government's success in achieving the set goals will depend on its capacity for efficiently navigating the complex interplay of forces of possibility and obstacle affecting economic growth and functioning of a result-oriented, efficient and corruption-free administration. Last, but not the least, political stability in the country is the primary prerequisite for finally reaching the sought after goals set in the proposed budget for 2011-12.
Syed Fattahul Alim is Editor, Science & Life, The Daily Star.