The proposed budget for fiscal 2000-2001
is conservatively pro-active that
aims to keep the status quo, said
economist Dr Debapriya Bhattacharya.
However, he said the future projection
is missing in the budget. Instead,
it analysed the past more. Bhattacharya,
executive director Centre For Policy
Dialogue (CPD), an independent,
think-tank, was talking to the Daily
Star yesterday on the proposed national
budget and the revised budget of
the outgoing fiscal. He ana1ysed
the new budget and the revised one
according to new national accounting
series. He thanked the finance minister
for showing in his budget proposal
how the government is going to finance
the deficit but expressed concern
at the overall budget deficit that
surpassed the safe limit of 6 per
cent of GDP. He also contradicted
the overall budget deficit figures
shown in the budget. According to
Dr Bhattacharya, the budget deficit
is 6.9 per cent of the GDP for the
current fiscal (1999-2000). However,
the budget document shows it at
5.8 per cent of the GDP. He also
said the budget deficit would be
6.97 per cent of the GDP In the
next fiscal. But, the budget document
says it will be 5.9 per cent. "I
am a bit confused. I just don't
know how they calculated it. Whether
they interchangeably used budget
and fiscal deficit is something
to talk about," said Bhattacharya,
who is also a member of the macroeconomic
advisory committee of the Finance
ministry. "If the deficit is more
than 6 per cent, then there is reason
to be concerned. Any deviation from
the current fiscal targets may lead
to serious problems. He said 3.52
per cent of the deficit financing
would be met from foreign source
and 3.45 per cent from domestic
source, of which 1.31 per cent through
bank borrowing.
ADP
Dr, Bhattacharya contradicted the
figures given in the proposed budget
about the domestic financing of
the Annual Development Programme
(ADP). He said it was shown in the
budget that the domestic financing
of ADP for the next fiscal will
be 50.2 per cent and funding from
foreign source will be 49.8 per
cent. "But in -fact it will be the
other way round." He said the funds
from foreign source would be 50.2
per cent and from domestic source
49.8 per cent. "I like the spirit
to finance major portion of the
development expenditure from domestic
source, but I think people involved
in the budget making process have
mixed up with the figures. He also
said domestic financing of the ADP
also includes bank loan, which will
account for 20 per cent. He raised
question as to why the government
is not trying to utilise the foreign
aid worth US$ 6 billion waiting
in the pipeline. He apprehended
that foreign loan part in the ADP
would be increased instead of aid.
In the revised budget (1999-2000),
the portion of foreign aid in the
total available resource was 10
percent and foreign loan 14.5 per
cent. But in the coming financial
year foreign loan will account for
16.2 per cent and aid 8.3 per cent.
On the pattern of ADP expenditure,
Dr Bhattacharya sounded concerned.
He said 1.07 per cent of ADP has
been kept for non-ADP projects and
this is almost double than the usual
allocation in the last four years.
He said the highest 2.56 per cent
was kept for this reason in 1995-96,
the last year of office of BNP government.
Dr Bhattacharya congratulated the
government for increasing the allocation
in the social sector despite a tight
fiscal situation. This year (1999-2000)
allocation for the social sector
was 22.7 per cent and for the next
fiscal the allocation rose to 24.65
per cent. The growth is more than
15 per cent. "This is a great effort,
which won't have been possible without
a strong political commitment."
He also said the allocation in education
sector has increased by 13.7 per
cent, which is good.
Revenue
However, Dr Bhattacharya expressed
concern over the declining trend
of Tax-GDP ratio for the last three
years. In 1997-98, the tax-GDP ratio
was 7.5 per cent, in 1998-99 7.2
per cent and this year (1999-2000)
it is going to be 7.1 per cent.
In the proposed budget the tax-GDP
ratio will be 7.2 per cent, which
is very nominal. But he said there
is a positive structural change
in the revenue sector this year,
which means the share of direct
tax has increased. Earlier, the
share of direct tax was tend to
11 per cent, but this year it has
increased to 14 pet cent. In the
next fiscal, the share of direct
taxes will increase to 15.7 per
cent and, at the same time, dependence
on import duty will decline from
usual 25 per cent to 20 per cent,
if revenue target could be realised,
he said, terming it a very positive
development in tax-revenue sector.
Shedding light on the revenue expenditure
in the revised budget through a
sectoral analysis, Bhattacharya
said the three major recipients
are public administration with 25.3
per cent ff total expenditure, health
with 14.4 per cent and power and
energy 14.3 per cent. But agriculture,
fisheries and livestock got only
three per cent and in real terms
it would be even less. He also said
31 percent of the total revenue
expenditure will be spent for salary
and bonus, 19.3 percent for interest
payment while 5 per cent was earmarked
as lump sump expenditure in the
revised budget. In the proposed
budget, the share of salary and
bonus is 29.63 percent and for interest
payment it is 19.1 per cent. But
the most interesting thing in the
proposed budget is that, the earmarked
9.2 per cent as lump sum allocation.
"People may say the government did
it with the upcoming election in
the back of its mind. But I can't
get a logical answer and I don't
understand it. The only rational
analysis can be that the government
may have to give dearness allowance
to the low income government servants
at the year-end and that's why it
kept this amount of money in the
form of lump sum allocation, " he
said. Sixty per cent of total expenditure
will go for these three heads (salary
for government servants, interest
payment and lump sum allocation)
and it is absolutely not possible
to meet the other revenue expenditures
with the rest 40 per cent, Bhattacharya
said. Explaining the situation,
he said that there would be doctors
and probably medical equipment in
the hospital, but not adequate medicine
for the people. He also said the
total government expenditure (development
and revenue) in this fiscal is more
than 14.5 per cent of GDP and this
has happened in a year when there
is huge deficit in revenue earnings.
He also said in the proposed budget
the government to some extent tried
to squeeze expenditure. But it is
trying to cut down on development
expenditure; not revenue expenditure.
A Creeping de-industrialisation
process
Bhattacharya said the trend shows
a creeping de-industrialisation
process. He said the share of manufacturing
sector in the GDP has declil1ed
to 15.4 per cent in 1999-2000 from
15.9 per cent in 1997 -98. However,
he said, the measures in the proposed
budget for the industrial sector
are in the right direction. But
he was against the proposal for
whitening the black money. This
is totally immoral and goes against
the very policy of government, he
said. "I don't think it will work".
"When the marginal tax is 25 per
cent, why the tax-dodgers and smugglers
will be given the chance to whiten
their money by paying only 10 per
cent in tax "he wondered. He also
said the proposal to waive tax on
the institutions giving microcredit
is not understandable. He asked
whether it has been done keeping
in mind the framework being formulated
by Bangladesh Bank to bring the
microcredit organisations that are
involved in business activities
under tax-net.
