Bangladesh needs to come out of a 'paradox' where, on the one hand, the economy suffers from under-investment but, on the other, investible surplus remains unutilised.
The Centre for Policy Dialogue (CPD) said this Friday in its reaction to the proposed budget for 2004-05 fiscal.
"Our country is living between twin crises. On the one hand, she needs a bigger budget for achieving higher GDP growth and meeting the Millennium Development Goals (MDG) and, on the other, she fails to implement even a much smaller budget from that perspective, encouraging snides from the skeptics," CPD's Executive Director Debapriya Bhattacharya told newsmen at the city office of the civil society think-tank.
He further said the new budget reflects the 'election wave' of the government but the problem remains if there is wastage of state fund, exerting pressure on national economy.
Citing the poor implementation of the budgetary measures, he said only 21.5 per cent of the budgeted amount in fiscal 2003-2004 was spent until January of 2004.
"So, it is not clear whether the targets of distribution as stipulated in this year's proposed budget would also be achieved at all," Debapriya noted.
He said it is the question of delivery - rather effective and quality delivery of public resources - to the disadvantaged groups. Magnitude of allocation acquires secondary importance, he added.
Commenting on the proposed tariff reform, the CPD top executive, also a noted economist, said the proposed highest tariff slab (25 per cent) will raise controversy from several angles including possible revenue loss.
Firstly, many import substituting industries will be adversely affected due to increased competition from imported products which will come with lower duties.
"Local manufacturing and backward linkage industries, particularly textile, ceramic, footwear, electronics, toiletries, agro-based and food-processing industries will suffer from this decision," the CPD said. Importers of some 2,400 finished products now pay 30 per cent duty.
Major finished products that fall under the highest duty slab include girls' and women's suits, readymade dresses, boys' and men's shirts, women's petticoats, nightdress, babies' garments, sports outfit, undergarments, handkerchiefs, footwear, sports footwear, umbrella, tiles, flooring blocks and tableware.
Secondly, the autonomous liberalisation through budgetary measures will reduce bargaining opportunity in the bilateral and multilateral negotiations of tariff reductions in which Bangladesh is involved.
The average tariff in Bangladesh is 21.9 per cent (2002), which is lower than that in India by 9.1 per cent.
Thirdly, the pressure for reducing tariffs by the international financial institutions is completely unacceptable and is creating disadvantageous situation for LDCs like Bangladesh. The government, therefore, should reconsider the proposal of fixing the highest slab at 25 per cent and keep it at the promised level of 30 per cent.
"When Bangladesh is fighting for compensation for revenue loss in SAFTA and BIMST-EC, it is not clear why the government is creating such a situation through autonomous initiative.
He said there is no introspection into the proposed budget about the causes which have led to significant shortfall in ADP implementation in successive years.
"There is nothing on public administration reform, local government strengthening, means to improve utilisation of foreign aid, improving the quality of services of public health and education facilities etc," Debapriya pointed out.
He said the full delivery of the resource package as well as faithful delivery of the development outlay will be the yardstick for judging the success of this year's budget.
"In the absence of successful delivery of the development package envisaged by the government, it will be difficult to anticipate the gearing up of the private investment," the CPD top executive said.
He warned that if the government failed to ensure supply of quality electricity in adequate quantity, to protect life and property of its citizens, much more than implementation of budgetary measures would be at stake.
Reviewing the various variables of the mid-term macro-economic framework (MTMF), the CPD analysis said a number of key indicators are performing below targets, which include domestic savings, both public and private investments and revenue-GDP and public expenditure-GDP ratio.
Inflation rate has gone beyond the target rate and, on the other hand, GDP growth rate along with export-import growth rate remains as per target.
Accordingly, in the coming months, protecting the integrity of the macro framework may emerge as an issue.
"With impending external shocks such as MFA phaseout and possible escalation of internal conflict such as political confrontation, the delicate balance between development and stagnation may be broken. However, safeguards against such situations remain beyond the scope of a national budget.
He said 15 principles as mentioned in the proposed budget for developing pro-poor strategies have been well articulated but there is no mention about reduction of malgovernance (including corruption) or strengthening of local government, which are well established pro-poor policies.
Apart from the promised new programme for the hardcore poor, all other principles are traditional ones with a clear bias towards micro-credit programmes.
Debapriya was happy with the reduction of finance minister's budget speech. "Moreover, the quotes of big bosses of multilateral bodies have been dropped from the budget speech giving us a great relief," he added.