Cover Story

A Budget in Disguise

Nader Rahman

This year the people of Bangladesh were promised a pro-poor budget, one that would finally serve the masses; with immense optimism the nation tuned in on June 7, to listen to Finance Advisor Mirza Azizul Islam deliver his budget speech. It was unspectacular to say the least with only its daunting size gathering attention. After promising so much, the budget delivered precious little as the average citizen was left out. It turned out to be anything but pro-poor and in the process left the public wondering what the real agenda was. Spiralling price hikes were mentioned if not completely dealt with, major industries were left out in the cold.

Some might say there are more questions than answers for this budget but while that is certainly the case in some instances not everything proposed by the budget can be put down either. The agriculture sector seems to have been targeted quite effectively and the scheme to rid Bangladesh of load shedding in three years is highly laudable. Other efforts seem to be well intentioned but their implementation is a different story altogether. The lifting of customs duties on crude edible oils and lentils is a step in the right direction but if the government is really to

control price hikes there must be planned implementation thereby ensuring the citizens of the nation can afford staple items. With the growth target set at an ambitious 7 percent the government will have to ensure that all three major sectors (industrial, service and agriculture) within the country chip in and that is by no means an easy task. Even then the benchmarks have been set and there are real but optimistic goals to aim for, the only thing holding the government back is revenue collection. For the budget to be adequately balanced they will need to improve on weak aggregate revenue collection but that should be tempered with what they hope will be increased income tax collection.

Qazi Kholiquzzaman Ahmad, President and Chairman of Bangladesh Economic Association and Bangladesh Unnayan Parishad respectively has mixed feelings about the budget. He says, “This budget has been put forward under new circumstances, there is a major initiative to catch corrupt people and this has had important implications for the budget prepared.” He goes on to say, “By catching the corrupt people there is a new sense of belief that the upcoming financial year will be one of increased revenue collection, which can only bode well for the economy.”

The truth of the matter is that revenue collection has been a major problem for many years, with the purging of corrupt individuals there is a renewed sense of hope that the upcoming financial year will be one of increased collection as the fear of not paying one's dues kicks in. In a very loose way one might say the interim government is using scare tactics to fund the following year, but after years of mismanagement and corruption this could be the time for real change.

While the price of oil is slated to go down and ease the pressure on the average citizen, other imports will probably flood the market and may push out local industries

On the development budget Ahmad says, “It was misappropriated and used extremely inefficiently before, inefficiency and corruption have hampered it and one hopes this year will be the exception to the rule. But if that is to happen the government must maintain strict control over exactly how and where the money is spent.” He adds, “The development budget is not very ambitious this time around as well, one can only say that we hope the money is used better than before.”

When asked if the budget was actually as pro-poor as the government claims Ahmad says, “This is a traditional sectoral allocation development budget and it does not take the bull by the horns. For real poverty reduction I argue that you must focus on increasing employment and then the longer-term vision of generating employment. Where was that in this budget? If it truly was as pro-poor as it claimed then it would have tackled this issue far more seriously and if that were the case then the traditional budget would have been scrapped. They would have set their goals and then created a budget tailor-made to achieve them, this one follows the usual way. If employment is really to be initiated and sustained then the focus of the employment must be on the downtrodden but that requires a completely different type of budget, which the government was in no position to put forward."

He adds, “They have claimed that 57 percent of the budget is for poverty alleviation, but how? It is not directly focused on the poor. If anything this is a market-focussed budget for the market system and it will only work if the government oversees it properly. The government's responsibility is to ensure the rules are followed properly. What we need is a participatory economy, the market economy focuses on investment and that will have to be greatly increased if we are to meet our targets.”

While many people have been quick to point out that Bangladesh's economic growth is 5.4 percent and has remained at a creditable rate over the past decade, what they do not look into is the distribution of wealth. The gap between the rich and the poor has increased over the same period of time leaving us to question the value of the disproportionate increases in wealth. While no one budget can and will be the quick fix, this could have been the first step of many in the right direction. If this budget was to accelerate the issue of poverty alleviation then it would have tried to create an environment for the private sector to generate jobs.

“Tackling poverty alleviation should be on a sustainable basis, that would be a pro-poor budget,” Ahmad says. There was also a need to tackle structural change within the agricultural sector. Bangladesh needs to strive for diversification in agriculture to tackle the impending effects of global warming and climate change, he adds. According to Ahmad, 30 percent of the vegetables we grow may become unfit for consumption because of climate change. For Ahmad agriculture is still a priority as it accounts for 20 percent of the GDP and 50 percent of the employment.

There are also some major steps that the government has taken in the right direction. The government has continued with their extensive

Lentils are to be tax-free while rice, another staple food, will be heavily subsidised for the following financial year

education programmes especially primary education and it has also beefed up social security. The government proposes to strengthen the ongoing social safety net programmes by increasing the number of beneficiaries and funds for them in the budget for the next fiscal year. But what the government has been praised most about is the power sector and the plan to end load shedding by 2010.

Mirza Azizul Islam in his budget speech said, “We have set a target to generate sufficient electricity by the year 2010 to reach a level where there will be no load shedding.” The government has decided to do so by increasing the allocation to the Annual Development Programme (ADP) by 31 percent, the same fund from which the power and energy allocation comes from. While the budget has said to have formulated a plan to buy electricity from the private sector until the wheels get moving on that deal, the public will still be sceptical.

Dr Anu Mohammad of Jahangirnagar University has some interesting views on this year's budget as well. He says, “This year is nothing out of the ordinary, more then 50 percent of the budget has been for poverty alleviation many years in a row, so has this one. What is so special about it?”

This year the government hopes to increase the revenue collected, in an effort to sustain the budget

He goes on to say, “Productive sector expansion is important for poverty alleviation; that has not happened this time. Then what has happened? How is this any more pro-poor than previous budgets? For me, I see the main problem in the philosophy of the system. The government must tackle the reasons behind the poverty not merely assign money out of a budget for them.”

Dr Muhammad also criticises another aspect of the budget: “It (the budget) seems highly import orientated and hostile towards the manufacturing sector initiatives.”

If the budget is to prove a real success then the government must also increase the tax service ratio. The citizens of the nation must see exactly where their tax money is going and how it will help them out in the future.

He goes on to say, “To me Mirza Azizul Islam's speech seemed nothing more than a World Bank or Asian Development Bank speech. It was either given from their point of view or it was addressed to them. Because many things mentioned there are seemingly not in the best interest of our country but would greatly please those two international agencies.”

Food security and energy security are two other topics of notice, this budget seemingly tries to guarantee them but at the end of the day it is up to the implementation. If the budget proposals are not implemented properly then it would again count as yet more rhetoric from the government.

Dr Muhammad also says, “For this government's budget to be effective they must also look closely into the situation regarding oil prices, if things get out of hand then we may even reach the stage where a Tk 1 increase in oil prices is met with a Tk 10 increase in production and that could be disastrous.”

Some doctors will even be required to pay VAT.

He also adds, “I cannot see how it (the budget) could benefit the production sector in Bangladesh. In fact, it does exactly the opposite; it will probably create a slowdown in the sector. But all things said and done there are some positives to take out of it. The power sector plan seems headed in the right direction and there is hope that it may pave the way for the future.”

Dr Muhammad also takes the matter of corruption to task by saying, “The government has taken laudable steps to curb corruption within the country, but if they are to prove that they are really serious then they should take to task the companies that caused the Tengratila and Magurchhara blowouts. The damages of those fires are currently up to 12,980 crores and that massive amount of money could lead to our power security. If they are really eager to root out corruption, they should challenge the foreign companies to pay back the money they have caused in damages. By not paying it is a form of corruption and it should not be allowed. The amount of money owed is enormous and could do the country and the budget a lot of good.” Finally he says, “This could have been a pro-poor budget, this was the ideal opportunity but at the end of the day it was not to be.”

Other elements of the budget have come under immense scrutiny, namely the taxes that are to be levied upon computers, computer accessories and most importantly the prices of textile industry machinery. There can be no argument strong enough to back these cases up. The economics of it is simple, the garments industry accounts for roughly 70 percent of our meagre export earnings, taxing the machinery used in that industry is ridiculous to say the least. The official line is that in doing so we are streamlining our industry and preparing it for harder times, but that begs the question with our currency losing value at an alarming rate, is reducing our foreign reserves the right thing to do. More importantly is it ever the right thing to do? Some have claimed this was done purposely to slow down the garments industry in Bangladesh, while helping India consolidate itself in the same industry. While they may for the time being be conspiracy theories it still does not bode well for our already flagging export industries.

Along with textile machinery there was the announcement of an as of yet to be specified tax on computers and their accessories. While the tax on textiles hurts the foreign exchange reserves the inane tax on computers serves only to cripple the nation intellectually. After trying to push Information Technology as a fast growing export to tax computers lacks common sense. For an underdeveloped country one feels taxing computers only serves to keep us in our place. If the few glimmers of hope we harbour of leaving our current situation are extinguished then the budget had gone wrong somewhere, it has gone horribly wrong then. Along with these the changes in customs duties could severely hamper domestic industries.

The Centre for Policy Dialogue report on the budget says, “There is a high possibility that the proposed restructuring of tariff, not withstanding being progressive in nature, may create anti-domestic industry bias.”

The new budget proposes to tax computers and their accessories.	The price of reconditioned cars is set to fall, as the sellers' commission will be raised.

There were also glaring omissions from the budget showing a serious lack of foresight as the Chittagong, Mongla and Deep Sea Ports were not mentioned and thereby no allocation was made.

All in all, the budget promised a lot and delivered little and its spectacular size overshadowed the massive gaps between policies. There are some good moves: education, power and agriculture were all dealt with effectively, even though the power generation scheme lacks a time table at least there has been some degree of foresight. Other sectors such as textiles are let down badly and there seems to be an over reliance on importing goods, including agricultural goods which does not bode well for us. The alleged pro-poor budget is to be a wolf in sheep's clothing and in the end the promise of poverty alleviation seems a far-fetched one.

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