Finance Minister AMA Muhith is going to place his consecutive sixth budget in the parliament on June 5 for the 2014-15 financial year. The finance division will seek approval for a proposal that may range between Tk250,000cr to Tk255,000cr.
Deficit will range between Tk67,000cr to Tk68,000cr, and efforts will be there to keep the deficit under 5% of the projected GDP as usual.
The initial size of the budget for the ongoing fiscal was Tk222,491cr which was later trimmed to Tk211,220cr.
The finance minister, in most of the pre-budget discussions, said the government would look for incorporating two of its major political pledges in the upcoming budget – creating more jobs, and encouraging foreign and local investments.
But an analysis of the outgoing budget gives us a different picture. We see that the poverty situation didn’t improve and the joblessness is also on the rise as there was no investment spree. Despite the very poor status of implementation, the Annual Development Program (ADP) for the coming fiscal year is once again a huge Tk86,000cr.
“The next budget will be big because our economy has expanded over the years. Moreover, we need a big budget in order to recover from the political destruction suffered during hartals and blockades last year,” Muhith recently told business journalists.
The budget every year gives a number of promises. But the rate of savings and investment to the GDP has remained stagnant over the years, and the gap between savings and investment has assumed an increasing trend lately, suggesting that the government’s macroeconomic strategies fall short of converting the savings into investments and holding back the possibility of capital flight.
Whatever the size of the budget may be, it surely will raise the question of whether it is realistic or not. Meeting the expenditure needs of the budget for the next fiscal will require the acceleration of the growth rate of the GDP. Otherwise, revenue collection efforts will suffer a setback as it faced in the outgoing fiscal year.
The government has revised down the revenue target for the current fiscal by 8.09% to Tk125,000cr due to a collection shortfall in the first seven months that went through political volatility ahead of the national election held on January 5. The target was revised from Tk136,090cr as set out at the budget for FY2013-14.
For the next fiscal year, the growth rate of this GDP – that represents the aggregate value of goods and services produced in an economy – is likely to be once again projected at 7% as said earlier. Given the likely state of the politics, law and order, and the shattered confidence in business and economy, the achievement of the projected GDP growth target in the next fiscal will really be a daunting task.
There are some valid reasons for these worries. The seven murders in Narayanganj, the gruesome murder in Feni, the continued killing in the greater Noakhali belt, and the pace of enforced disappearances across the country do not give the people the sense that business is running as usual.
Investors are in a quandary about whether they should invest or wait for a better time. Political violence is not apparent right now. But people, particularly businesses, want to see that the parties reach a broad political consensus on the major issues.
Besides external support in the form of grants and loans, the government will be required to borrow heavily to meet the gap between its overall expenditure and revenue receipts. This amount of fund, to be collected through net borrowings from the banking system and saving instrument, will be a major portion of the budget deficit.
The domestic borrowings of the government every year – particularly from the banking system – results in crowding out the effect on private investments. It is apprehended that the borrowings will rise in the coming fiscal too.
The private sector credit growth has faced a declining trend in the beginning of the second half of FY2013-14, reflecting a worrying investment climate. The coming budget for the next fiscal will thus face its main challenge in areas of ensuring the availability of financial assets. We don’t want to consider a budget by its size only. It is the operational management of the government to ensure both the quality and direction of public-sector spending.
Without a strong political commitment, proper implementation of the budget is unlikely. The economy moves if the law and order works smoothly. A sound economic rationale also largely depends on a prompt policy decision process.
Such decisions are needed to make the budget an effective tool to bring the desired changes to the existing state of fiscal management and broader areas of economic governance. The coming budget will hopefully give us a strategy that will generate increments in productive capacity, and will provide avenues for the regular people to obtain their due shares.