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Press Briefing on the National Budget 2006-07

June 9, 2006

The proposed budget for fiscal 2006-07 is a 'swan song' of the finance minister -- long on claims, short on delivery and lacking vision -- instead of having a comprehensive assessment of economic performance of the government nearing the end of its tenure, the Centre for Policy Dialogue (CPD) has observed.

"There is no courageous or creative fiscal and institutional initiative in the proposed budget for the next financial year (FY) but it has symbolic allocation in disparate areas. It is a budget for everybody, but for nobody," said Dr Debapriya Bhattacharya, executive director of the CPD, while giving an analysis of the budget at a press briefing at Cirdap auditorium in the capital yesterday.

The renowned economist noted, "There is an impossible spending target underwritten by an improbable financing scheme. Computability of monetary and fiscal policy is questionable."

For all practical purposes, one may expect a slowdown in the economy during FY07, Debapriya said. The assumed inflation rate for the year is six per cent. Given the improbable projection for foreign financing, it is quite obvious that the government will have to lean heavily on domestic bank borrowing.

Reduction of tariffs on certain food items will have a marginal effect on the market, as global price of rice continues to rise, he said. With the added pressure from fuel price hike, there will possibly be no respite on the inflation front.

It appears that the budget preparation process took the public expenditure outlay as the point of departure and then made acquisition revenue projections with the shortfall covered by foreign financing and domestic borrowing, the CPD analysis said.

Moreover, it is evident that the poverty reduction strategy (PRS) in the very first year of its implementation got scuttled and that the finance minister has made no effort to assess the outcomes of FY06 based on the policy matrix contained in the PRS document.

"The growth rate will take the hit as indicated by the recent trend in credit flow to private sector, import performance, growth in letter of credit (L/C) opening etc," mentioned Debapriya. "The issue is to pre-empt any serious destabilisation in terms of inflation rate, import rate and exchange rate in the coming months."

There has been no attempt to explain how the incremental growth has benefited the poor. "Our assessment indicates that the pro-poor dimension element of the growth had been rather weak, particularly in case of wage employment," he went on.

Other than some initiatives in the tax administration, the budget neither recognises the poor state of policy management in the government. The budget, having mentioned in three places the adverse consequences of corruption, does not even mention the Anti-Corruption Commission or any other initiatives to check wastage, leakage and outright theft of public resources, the CPD analysis said.

"It is highly unlikely that the sound will be able to speed much in the next three months."

The proposed fiscal measures in general indicate an attempt to liberalise the trade regime further and to make inputs available at globally acceptable price, Debapriya said. "Some discrete attempts to provide protection to emerging domestic industries are also visible. However, current tariff structure continues to protect specific interest group as it is in the case of newsprint."

Notwithstanding reference to a conceptual framework at the beginning of the budget speech of the finance minister, the macroeconomic framework has not been applied to explain the future fiscal and monetary stance of the government in achieving the growth target, fiscal and external balance and assumed inflation rate, the CPD analysis said.

Indeed, the next caretaker government is expected to take measures to settle the economy at a low equilibrium till the new political government prepares its economic policies and programmes to bring the PRS in line, it said.

According to the new target of revenue earnings, the government will have to collect 17.1 per cent more revenue in FY07 and the National Board of Revenue (NBR) will have to record a 19.15 percent growth, Debapriya said. "Given the past record of revenue collection, this is just an unachievable target."

Bangladesh economy posted 6.71 percent GDP growth in FY06 and this preliminary estimate was made on the basis of six to seven months' data, when the economy was going through a momentum of high credit expansion, export, import, industrial production and high inflation, he observed.

The CPD executive director pointed out that to ease the pressure on fiscal and external balance, the government took a number of measures such as increasing the lending rate, controlling import and subsequently the economy was slowed down during the last quarter of FY06 and the initial growth estimate may be revised downward when data for the full FY becomes available.

He said it is becoming a practice that an outgoing government shows the highest GDP performance in its last year but with the change of government such estimates are revised downward.

"FY07 may very well be over. Thus, one should be prepared to see phased downtrend revision of the proposed budget as the regime changes," he observed.

The analysis said the slack left behind by public investment was however somewhat picked up by private investment and 'Bangladesh continues to remain an under-invested country'.

Although the proposed budget made the highest allocation in education sector, it miserably failed to design proper institutional mechanism to ensure quality education, the analysis mentioned.

Block allocation in the proposed budget has been Tk 6,100 crore, which is around nine per cent of the budget size, Debapriya said, questioning the motive behind this.

It is an allocation for which there is no accountability and it is against the spirit of financial discipline, he said, adding a major portion of this amount will be spent on road construction and repairing. "It will be very difficult to pinpoint the logic if there is any allegation."