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Budget 2013-14: To defend or not to defend
Published : Tuesday, 11 June 2013
Mahfuz Kabir

Budget 2013-14 has been placed in Parliament for discussion, not for debate per se. At the backdrop of less than projected GDP (gross domestic product) growth, low private investment, low private consumption and less vibration in the domestic economy, there is no hype for the Finance Minister to present something from a 'magic lamp'. The size of the budget with an outlay of Tk 2.22 trillion, although 16 per cent bigger in scale compared to the previous one, is not necessarily a big jump. Can we call this budget overambitious? Perhaps not, because the economy could reach close to the target if the unprecedented violence and shutdowns by political masterminds did not jeopardise the economic potential from the outset of this calendar year. Nevertheless, the fact that growth could cross the 6 per cent mark is no mean achievement. Now the budget's big public investment plan of Tk.722 billion can be seen as a positive instrument for economic expansion in the next fiscal year to tap the unrealised potentials for attracting more private investment.

The revenue target of Tk. 1.74 trillion, a point-to-point growth of 20 per cent, seems to be a bit unrealistic even though NBR has performed well in the recent past by well-achieving the successive targets. Nevertheless, this year the NBR went through considerable stress in attaining target because of lower economic mobility, particularly in the second half of the outgoing fiscal due mainly to political upheavals. The first half of the upcoming fiscal year will be basically election period, which may further experience uncertainty in the political sphere leading to less revenue while the next half would be a period of restoration for the new government. On the whole, attaining 21 plus per cent growth of NBR-regulated revenue, foreign grant and non-NBR tax of about Tk.380 billion would remain a big challenge for the next budget. But still the overall deficit without grant has been estimated to be Tk.550.3 billion or 4.6 per cent of projected GDP. Now, we are hovering at 6.0 per cent growth which is the most stable in the South Asian region, but if the economy does not grow at projected 7.2 per cent but say at 6.5 per cent which is more likely given the overall foreseeable macroeconomic context, the deficit would cross 5.0 per cent of GDP. The Public Money and Budget Management Act 2009 clearly provides directive for the government to limit the deficit at a 'tolerable' level by tactfully not defining what percentage of GDP is tolerable. The problem is that the size of deficit is about 75 per cent of the development budget. The ADP implementation would be in great trouble if in any case the government fails to finance the deficit. There is an apprehension of 'crowding out effect' if it is financed from borrowing aggressively from the banking sector.

Now let us discuss the expenditure pattern by major sectors. Public administration received the highest allocation of Tk.320.9 billion (14.4 per cent of total budget), which is a considerable increase from provisional and revised budget of 2012-13. Interest payment has secured the second-top position with an allocation of 11.69 per cent. Education and health are considered to be the key social sectors that provide support to develop human capital. Education sector has been criticised to receive lower proportionate budget in the last few fiscal years. The next budget, however, received higher allocation in terms of both total amount and share of total budget (11.28 per cent) with the third highest position. Conversely, even though allocation increased in absolute terms, health received lower share in total budget (4.26 per cent) compared to the revised budget of 2012-13 (4.82 per cent).

Agriculture has received increased allocation compared to the provisional budget but decreased allocation from revised budget of 2012-13. This was mainly because the Ministry of Agriculture received significantly lower allocation. The revised budget got Tk120 billion of agricultural subsidy but in the proposed budget it got reduced allocation of Tk.90 billion. As the share of total budget, agriculture sector received 7.85 percent in 2013-14 compared to 10.48 per cent of the revised budget.

Industry and allied services received only 1.44 per cent which is a little bit lower than the revised budget of 2012-13. Conversely, transport and communication received notably higher allocation (9.26 per cent) than the revised budget (6.99 per cent). It is mainly due to allocation for Padma Bridge. Energy sector also received higher allocation in absolute term but lower than that of the revised budget (5.1 per cent in budget 2013-14 but 5.28 per cent in revised budget 2012-13). In the proposed Budget, we did not observe any strong implications for establishing permanent power plants rather than depending significantly on quick rentals.

Minimum tax-free personal income has been increased to Tk 220 thousand. Our income tax structure has long been regressive, which needs further reforms to make it more pro-people.

Social safety net has remained one of the core sectors of budget. Against the listed 93, the proposed budget has 82 programmes and projects with allocation of Tk 253.7 billion. In terms of share of total budget and GDP, it shows continuous decline, from 12.2 per cent of revised budget to 11.4 per cent in the proposed budget. Allocation and coverage has increased in some of the core programmes like allowances of the elderly, widow and destitute, insolvent disabled, etc. Housing support, fund for disaster affected farmers and poultry farms, block allocation, employment generation for ultra poor, livelihood improvement for marginalised groups (dalits, harijans, snake charmers etc.), school feeding, asrayan-2, char development (phase-4) etc., received increased allocation. Eleven projects got no allocation that include maternal health voucher scheme, rural employment, road maintenance, post-literacy continuous education, national sanitation project etc. Thus, even though the overall budget has increased, many important projects received either lower or no allocation, which may have detrimental impact on the ongoing effort of poverty reduction and social development. In addition, we have been urging the government to restructure the whole social safety net sector to make it an instrument for achieving double digit growth, which has not been reflected in the proposed budget. Also, there is no commitment for introducing a national social safety net policy for the country.

Dr Mahfuz Kabir is Senior Research Fellow, Bangladesh Institute of International and Strategic Studies (BIISS).

A budget with 'ifs' and 'buts'
Published : Tuesday, 11 June 2013
Abdul Bayes

We extend warm congratulations to Finance Minister (FM) AMA Muhith MP for presentation of his fifth budget in the parliament. The proposed budget for 2013-14 is not a big one as some would claim it. There was a time when even a Tk. 800-billion budget was called a huge and unmanageable one. The present government started with a Tk. 1138-billion budget in 2009-10, and set to finish its term with a Tk. 2,224-billion budget. On an average, the size has increased presumably by 16-20 per cent per fiscal in nominal terms. The economy has grown over time and now stands at possibly the 50th in the world league of countries in terms of GDP (gross domestic product). You need to pump in more money to keep everything on an even keel through enhancing effective demand, spurring investment to boost growth rate, transferring income from the rich to the poor for equity and building a modern economic base with better infrastructural facilities with a view to creating jobs for the people.

The targeted growth rate of 7.2 per cent and an inflation rate of 7.0 per cent for 2013-14 are being seriously questioned by the critics. The reasons are quite obvious. With the current investment rate of 25 per cent, and incremental capital-output ratio (ICOR) of four you can at best look for a little over 6.0 per cent growth rate. So, unless you specify how to inject momentum in investment, the growth rate so projected would raise several questions. But one then wonders how the Finance Minister could set so high a growth rate knowing well that the investment climate in the country is not conducive to such a growth rate. There might have been various reasons but we can mention a few. One is that if a Tk 1917-billion budget as proposed originally in 2012-13 could have produced 6.3 per cent growth rate ( as perceived by the Finance Minister), then a Tk 2224-billion budget proposed by him for the next fiscal could produce a slightly over 7.0 per cent growth rate. May be, budget formulators have chosen this simple arithmetic route in setting their targets. Secondly, the chances of a higher growth rate in this region and elsewhere proxied by a turnaround in global economy, and associated fall in energy and other prices in the international market in tandem with a good harvest at home might have positively affected their morale. Thirdly, the notion that a surge in business, trade and transport activities is taking place - mostly in informal sectors - adding to GDP but, allegedly, not counted in investment for some reason or other. And finally, technological improvement could have contributed to increased output over time despite stagnant investment.

Under this state of a mindset, we presume that setting the growth target at 7.2 per cent may sound ambitious but not unachievable either. In fact, the targeted growth rate should have been around 8.0 per cent by now to materialise the dream of graduating to a middle income country by 2021. Definitely, we are far short of that target with our business as usual attitude. But it is also true that the dwindling investment has remained a challenge in reaping the harvest home. Containing inflation at 7.0 per cent appears plausible provided monetary and fiscal policies work hand in hand.

The concern of the critics pointing to the implementation of this budget through three governments does not seem to hold much water. Every budget presented at the last leg of a government's tenure so far has been implemented by two governments. If one assumes an interim or caretaker government for three months, the trend is likely to be the same. It is not expected that a change in government would usher a radical change in budgetary allocations. Continuity of policies is a must for progress. Rather, one could argue that once another elected government takes office, political stability and business and consumer confidence may produce positive outcomes. But will there be a peaceful and smooth transition of power? This is the most crucial factor to watch.

The challenge remains also on the revenue front. Current budget's achievement trails behind target, and now a 20 per cent higher target raises eyebrows. If a $2-billion and overdrive for foreign aid as projected in the proposed budget could be materialised, and if non-bank sources of revenue through sales of, say, Sanchayapatra could be raised by a big margin, dependence on banks for borrowing would fall. This would help stem the rot such as hike in interest rate and crowding out private investment. Unfortunately, the experience of the current fiscal year provides little hope in this regard. The provision for whitening of black money not only puts economics over ethics defying moral economics but also puts a question mark: why such investment be allowed only in land and building and not why in factories and machines? Attempts to help local industries through reduction of duties in inputs as well as raising import duties on some of the finished products is a welcome move.

By and large, there are two major challenges to implementation of the proposed budget for the 2013-14 fiscal year. The first one is purely political and is related to re-establishing political stability. The havoc created in the name of politics during the last few months, if continued, would make everything difficult in future, not to speak of implementation of the budget itself. The second one is purely economic. If the present government, with half of the period of the proposed budget under its control, could take some salutary steps in removing infrastructural bottlenecks including gas and electricity and also roads and highways, there would be little room for pessimism. If the ruling and opposition parties can sit together to find out a solution to the prevailing political impasse, optimism may win and pessimism may wither. Unless politics is set right, economic performance might go wrong.

The writer is a Professor of Economics at Jahangirnagar University. abdulbayes@yahoo.com

Budget not ‘Digital BD’ friendly, says BASIS
Published : Thursday, 13 June 2013
FE Report

Bangladesh Association of Software and Information Services (BASIS) Wednesday said the proposed budget is not friendly for formation of the Digital Bangladesh.

BASIS did not see any reflection of their opinions in the proposed budget for fiscal year 2013-14. The government fully ignored their proposals, given for development of the information and communication (ICT) sector.

The organisation leaders said these at a post-budget reaction, and urged the government to reconsider their proposals for rapid development of the sector.

BASIS will send its reactions to the finance minister, the NBR chairman and members of the parliament.

BASIS president Fahim Mashroor said his organisation gave some proposals to the finance minister before announcement of the budget. But those were not considered in the proposed budget.

The trade body proposed to bring down Value Added Tax (VAT) on Information Technology Enabled Services (ITES) to zero per cent from the existing 4.5 per cent.

It also suggested withdrawal of 15 per cent VAT on internet use and sought three to five years VAT-free transaction on e-commerce.

He said BASIS was disappointed for not getting any fund for development of IT industry. It suggested allocation of 10 per cent of the Tk 7.0 billion ICT Development Fund in the proposed budget.

Even the proposal of inclusion of large taxpayers under VAT automation for ensuring a significant amount of revenue was ignored in the budget, said Mr Mashroor.

He, however, praised the fact that the government has increased the allocation for ICT ministry three times, but there is no clear roadmap for implementation of the budget.

BASIS senior vice presidents Shamim Ahsan and Syed Almas Kabir and other office bearers were present in the press conference.

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