CPD on Proposed Budget 08/09
Budget investment friendly, populist
Courtesy Daily Star 11/6/08
Any instability in the political climate and disturbances in
transition to democracy will bring in major challenges for
implementation of the proposed budget, the Centre for Policy Dialogue
(CPD) observed in a post budget analysis yesterday.
The private policy research think-tank said according to its
expenditure allocation the budget may be called a 'pro-people welfare
budget', but implementation of it will be difficult with the existing
poor capacities of the government.
"Budget implementation will be difficult without proper transition to
democracy," CPD Executive Director Prof Mustafizur Rahman said during
a post budget analysis news briefing at Brac Inn Centre in the
capital, which was telecast live on private TV Channel i.
"Maintaining macroeconomic stability for smooth transition of power
to a newly elected government during the first six months of the next
fiscal will be a major challenge," he said.
CPD also suggested middle of the course review of the policies to
ensure proper implementation of the budget.
The major budgetary challenges CPD identified for the next fiscal
are, implementation of the electoral roadmap, implementation of a
large part of the budget by an elected government, and maintaining
adherence to the second phase of poverty reduction strategy.
The present caretaker government which placed national budgets for
two consecutive fiscal, is likely to hand over power after the
upcoming national election scheduled to be held in the third week of
December this year. So the second half of the next fiscal is supposed
see a newly elected government at the helm of the state.
Analysing the proposed budget, the civil society think-tank however
termed it 'investment friendly' and also 'populist'.
Commenting on the Tk 99,962 crore annual expenditure, announced on
Monday by the finance adviser, CPD observed that the budget is not
too large compared to the current budget's spending allocation for
development interventions, and increases in pays, allowances, and
subsidies, specially taking inflation into account.
On expansion of the social safety net, Prof Mustafiz said the budget
reflects the government's poverty reduction strategy.
However, he said no target has been set in the budget regarding
employment generation. He also questioned its implementation with the
existing poor state of the local government system.
"This is public money that needs to be spent targeting the right
people, no misuse will be acceptable," Prof Mustafiz warned.
He said decreases in import duty slabs from 5 percent to 3 percent,
from 10 percent to 7 percent, and from 20 percent to 15 percent will
contribute to the development of local industries, and help stabilise
price spiral, while increases in customs duties on some items will
protect local industries.
The CPD executive director also believe that continuation of tax
holidays will be helpful for employment and income generation. He
hailed the government for giving tax breaks to women and elderly
citizens.
"Recognition in the budget of growing inequalities is another
distinguishing feature," he added.
The think-tank also said the government proposed measures for
stabilising soaring prices of essentials, like withdrawal of duties
on edible oil, lowering of duties on import of food grains, enactment
of consumers' rights protection law, procurement of 32 lakh tonnes of
food grains, reduction of tariff on agricultural inputs and
machinery, and introduction of a climate change fund.
Responding to a query, Prof Mustafiz said there is no reason for
prices of essentials to go up following the announcement of the
proposed budget.
CPD also thinks the revenue target of Tk 69,382 crore is achievable
considering the growth in the current fiscal. Provision for
legalising undisclosed money might again contribute towards the
growth, it observed.
Prof Mustafiz observed that the proposed budget aims to widen the tax
net, but he also pointed to the lack of details on how that will be
achieved.
Financing the huge deficit proposed in the budget will be another
major challenge for the caretaker government, he said.
The deficit has been estimated at Tk 30,580 crore or 5 percent of GDP
for the fiscal 2008-'09.
"Attention must be paid so that private sector financing is not
hampered by the government's increased borrowing from banks," Prof
Mustafiz added.
CPD observed that reduction in the annual development programme size
is not desirable rather improvement is needed in its implementation.
"Proposed GDP growth rate of 6.5 percent is quite achievable, but for
that to happen investments must increase," Prof Mustafiz said.
He said his organisation in pre-budget discussions with the caretaker
government had mentioned nine challenges, which they believe the
government paid attention to in formulating the budget.
Uttam Kumar Deb, Anisatul Fatema Yousuf, Fahmida Khatun and other CPD
officials were present at the briefing.
--- In alochona@yahoogroups.com, "Ezajur Rahman" <ezajur.rahman@...>
wrote:
>
> Economy tuned to social charity
>
> Lofty revenue target, untamed inflation, hugely expanded social
safety
> net get major attention in proposed budget
>
> Courtesy Daily Star 10/6/08 Inam Ahmed
>
>
>
>
>
>
>
> More than a budget document that addresses three key areas for any
> economy inflation, growth and employment the finance adviser
yesterday
> unveiled a plan that smacks of social charity.
>
> It is a short-term full-hearted programme to cast the social safety
net
> wide, which was necessary for the present day crisis. In non-
development
> expenditure, the adviser plans Tk 16,932 crore for social safety
net, Tk
> 13,648 crore for subsidies and Tk 10,253 crore for salaries of
teachers
> and doctors. But in doing so he misses many other exigencies and
leaves
> unexplained areas like how to feed the furnace of such a high
spending
> budget. Even why and how this social safety net amount will be
spent is
> not clear although he has mentioned many new programmes. The largest
> outlay, as it seems, is Tk 2,000 crore for a new programme called
100
> Days' Employment Generation.
>
> In the end, the crucial issue that would determine the success of
this
> 'social charter' is the capability of the revenue departments to
> generate money. What has been lacking in the budget is any clear
> direction that the efficiency of the public administration would be
> enhanced for both making the social goals achievable and the revenue
> target achieved. It is indeed a big question in terms of
implementing
> the piffling development expenditure.
>
> The finance adviser has proposed a 38 percent increase in
> non-development expenditure and 21 percent increase in revenue
> expenditure. Such increases were necessary in view of the huge
subsidy
> he wants to slop around, sometimes as necessary steps and sometimes
from
> the notion of populism.
>
> Finance Adviser Mirza Azizul Islam had been however earnest in his
> efforts to boost the farm sector and the agri-industry by slopping
huge
> subsidies and duty facilities. He rightly understood the importance
of
> agriculture in stabilizing the economy. He also tried to correct the
> wrongs of the last budget that hurt the industry so badly by
reshaping
> the duty structure. His proposed steps would make capital
machinery, raw
> materials and intermediate goods cheaper, thereby giving a fillip to
> industrialization.
>
> However, the tax holiday proposal, one that the entrepreneurs had
been
> so intensely seeking, may not live up to their expectations as a new
> slab has been proposed 100 percent tax holiday for the first two
years,
> 50 percent for the next two years and 25 percent for the last one
year.
> This would take the edge off the current tax holiday mode.
>
> But the main challenge would remain whether industry will react to
the
> evolving political situation and whether industry will get enough
credit
> to keep its wheels turning. When the government envisions a 86
percent
> increase in its borrowing from banks and mind it, this contrasts
with a
> 22 percent decrease in borrowing from savings instruments one gets
> naturally worried about the probable monetary policy. It is actually
> difficult to imagine a monetary framework with such a large
borrowing
> plan.
>
> The finance adviser had kept borrowing from non-bank sources low,
which
> are high interest bearing instruments, probably with the aim of
reining
> in the budget's loan repayment obligation, which is already
projected to
> bloat to 17.3 percent of the revenue budget. But the bank loans
with all
> likelihood will lead to crowding out effects on the private sector.
> However, the adviser projects that investment in the private sector
will
> increase to 22.6 percent and acknowledges the need for private
sector
> credit expansion by 19-22 percent in medium term. How this can be
> achieved, because of such a high strung budget, is a matter of
> contemplation.
>
> And this would also lead to inflationary pressure. The proposed
budget
> in fact dwells very little on how to curb the ugly head of
inflation.
> The adviser has predicted capping of inflation at 9 percent next
year,
> but this target is still too high and the fiscal postures do not
> generate much hope regarding whether this could be maintained. This
is
> more so as he himself confessed that this year the budget deficit
has
> increased from 4.2 percent to 4.8 percent.
>
> The adviser has cursorily mentioned keeping prices of essential
items
> like rice, wheat, edible oil, lentils, onion and garlic at a normal
> level. But how much that promise will cut is still to be seen in
view of
> the present day runaway price escalation of the items mentioned.
>
> The finance adviser has however correctly targeted export by
increasing
> export subsidies to Tk 1,050 crore from this year's Tk 700 crore.
But
> with the export drive on the top gear, whether that amount is
sufficient
> is an open question.
>
> And in the labyrinths of social network and charities, it is also
easy
> to get lost where the growth is coming from next year. The finance
> adviser has set a target of 6.5 percent growth for the next fiscal
year
> and said growths would be in the range of 7-8 percent in the medium
term
> (2009-11). It means for an economy of about $60 billion we are again
> stuck in the 6 percent bracket and that is not enough to generate
enough
> employment. The economy, even if it does not move much, should
produce
> this 6 percent plus growth anyhow and with new initiatives it should
> reach 7-8 percent next year. Remember, Bangladesh is not witnessing
> those 'economy hurting' activities like frequent hartals and port
> closures for quiet some time now.
>
> The other disturbing thing in the proposed budget is its lack of
> direction in energy enhancement. It has not shown any promises in
power
> generation, and so one would expect to remain in the 'dark age' for
an
> unforeseeable future. Without power, industry will suffer, and the
SMEs,
> have not received any special attention.
>
> Mixed with all these, the employment question will loom large next
year.
> If the farm sector revamps, more importantly if the agri-industry
> revamps, employment will be generated on a wide scale. But it is not
> clear what will happen to the industrial employment scenario.
>
> The finance adviser in proposing his budget has however dwelt at
length
> on the present day realities the international and internal shocks,
the
> slackening growth scenario, and the hardship of the commoners. But
his
> smaller ADP outlay by 3.39 percent from this year's original amount
does
> not explain how he would meaningfully channel funds to the rural
areas
> and create sustainable employment. In a developing country like
> Bangladesh, ADP is important too for growth generation. When a
political
> government comes, hopefully next year, the fungibility of having a
> smaller ADP will be put to test when political exigencies will come
into
> play.
>
> He has rightly increased diesel subsidy for farmers to Tk 540 crore
from
> the existing Tk 250 crore, but questions still remain as to the
> efficiency of the subsidy distribution and the real increase in
> subsidies, given the impending diesel price enhancement. His
promise for
> Tk 272 crore for agriculture extension and research is also
heartening.
>
> However endeared the social face of the finance adviser's budget is,
> economists would certainly look at it with keen interest and
skepticism.
> They will want to see if the macroeconomic stability gets
jeopardized
> because of high borrowing.
>
> Mirza Aziz through his proposed budget has set the tone for a time
to
> wait and see how his short term measures lead to long term
benefits.
> --------------------------------------------------------
>
------------------------------------
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