Budget fatigue

If and when Mr. A M A Muhith presents the next budget, he would be doing so for the eighth consecutive year, an unmatched record in the history of this country, and will most likely remain unmatched for many years. During this period he has overseen the budget size balloon from less than Taka 1.0 trillion in fiscal year (FY) 2008-09 to nearly Taka 3.0 trillion in FY 2014-15. He is fond of mentioning these figures and reminding people of the paltry budget size of the country during its early years (Tk 5.0 billion in FY 1972-73 with actual spending of only Tk2.2 billion).    
There is of course always a gap between the budgets ratified by the parliament and their eventual implementation.  Even with this proviso there has been undoubtedly a substantial increase in the government spending on revenue and development budgets. As Table 1 shows, the last budget Mr. Muhith presented to the Parliament was 195 per cent greater than the budget he inherited from the previous government, i.e., an average annual growth rate of 16.7 per cent in the nominal budget size. This would be viewed by many as remarkable.
The actual amount spent and revenue earned by the government are not the same as that envisaged in the budgets presented to the parliament or the revised budgets. The actual amount spent during FY 2008-09 was much less than not only the original budget, but also less than the much reduced revised budget. This was true of the budgets of all subsequent fiscal years. In FY 2008-09, the actual implementation was 89 per cent of the original budget and remained the same in the next year although the growth rate of the budget was reduced by about a percentage point. The next year the budget growth was raised by more than 2.0 per cent; and yet the implementation rate shot up to 97 per cent, a praiseworthy achievement!
Perhaps encouraged by this excellent implementation record the Minister had raised the budget growth from 16.1 per cent to 23.8 per cent. Not surprisingly, the actual implementation rate fell (to 93 per cent). The budget growth was further reduced, but implementation became even poorer. Indeed, when the budget growth rate was reduced to its lowest level of 12.6 per cent (FY 2014-15), the implementation record was surprisingly the worst (81 per cent) during his entire tenure. One would normally expect the budget implementation rate to go up with a smaller budget, but paradoxically the reverse had happened.
The implementation rate was worse in the case of the development budget (Table 2). It was only 73.4 per cent in FY 2008-09. Mr. Muhith managed to raise it to a commendable 88.4 per cent. But since then it fell off sharply and stood at only 72.8 per cent in FY 2014-15, which is less than what he had started out with. One of the reasons for the poor implementation record could be the very ambitious targets of the development budgets that included several mega projects. The size of the development budget increased by an average annual rate of 19.6 per cent during the period 2008-09 to 2014-15.  This was perhaps beyond the capacity of the government machinery to implement even with the leakages.
The national budget comprises two parts: revenue budget and development budget. The revenue budget consists of mostly salary and wage payments, routine maintenance expenditure, subsidies, interest payments on debt etc. These are mostly regular payments that do not tax much the implementation capacity of the government administration.  But the implementation of the development budget requires knowledge, imagination and willingness to put in necessary effort as well as negotiations with the contractors and lenders. The capacity of the government administration is limited in these regards, and consequently any ambitious development budget is likely to prove difficult to implement satisfactorily. The magnitude of wastages and leakages is consequently likely to be higher. Therefore, it is not surprising that the implementation rate of the development budget is lower than the revenue budget.
Nominal numbers usually do not mean much to economists (except for inflation), they look for real changes in the variables of interest. The nominal value of a variable such as budget spending may increase without any real change. Hence, to see if there has been any real change in the budget or its components it is necessary to express the figures in real terms. This could be done by deflating the budget values by the gross domestic product (GDP) deflator.  Table 1 and 2 also show the budgets in real terms. It is immediately obvious that a large part of the increases in the budgets are illusory caused by increases in the prices. While the actual budget spending in nominal term increased by 128 per cent during the period from FY 2008-09 to FY 2014-15, the actual real spending increased by only 52 per cent. This translates into an average annual growth rate of 7.3 per cent - a much more modest figure than the nominal growth rate of 14.7 per cent.
What comes out quite clearly from the tables is that the years - FY 2009-10 to 2012-13 -- roughly coinciding with the first term of the (post-Fakhruddin) Awami League (AL)-led Government, were very satisfactory for Mr. Muhith in terms of budget allocation and implementation. The implementation rates were quite high reaching the nineties. Not only that the allocation for the development budget in nominal terms increased markedly, the rate of increase in the real development budget (actual spending) was also very high, reflecting in part the high costs of mega projects. Tax and other revenue collection also increased very considerably (Table 3). These years could be regarded as a golden period of Mr. Muhith as the principal architect of the government budget.

But surprisingly the next two years present a very different scenario. The budget implementation rate fell off very sharply. It stood at 83 per cent of the announced budget in FY 2013-14 and fell further to 81 per cent in FY 2014-15. This is far below the rate inherited from the previous government (89 per cent). The situation with the development budget was worse. The implementation rate fell to 75.7 per cent in FY 2013-14 and then to 72.8 per cent in the following year. The same picture also obtained in the case of actual revenue collection, which was as high as 100 per cent of the budget forecast in FY 2010-11. The actual collection as a proportion of the budget forecast fell to 90 per cent in FY 2013-14 and then fell sharply to only 80 per cent in FY 2014-15. The outlook for the current fiscal year is also not very encouraging.
The growth rate of the real budget spending, which was fairly robust during the earlier period, fell off very sharply in FY 2013-14. There was virtually no growth in the actual budget spending in this fiscal year, and only a small growth in FY 2014-15. In real terms, the budget spending appears to have virtually stalled after FY 2012-13 despite the fact that the economy, according to Bangladesh Bureau of Statistics (BBS), was growing strongly. These figures seem to suggest a fatigue in budget implementation.  The government would probably blame the political turmoil of the time as the main reason for low implementation rate. While this might be arguably a plausible hypothesis for FY 2013-14, it holds little water for the next year, which was free of any political disturbance.
Mr. Muhith has served the nation for a long time in some very important positions. The nation cannot honestly ask for more from this venerable octogenarian. A series of multi-billion dollar financial scams perpetrated under his watch, of which the Bangladesh Bank reserve heist is the latest, have tainted his image and raised questions about his ability to guide the economy. An aging minister with a voracious administration does not inspire great confidence in the economy he oversees in an increasingly complex domestic, global and cyber environment.
The information presented above suggests that budget implementation has lost steam since the installation of the AL-led government after the 2014 flawed election. The mega scams must have also tarnished its image, reduced efficiency and tested its credibility. Despite the political calm, achieved largely through repressing the opposition forces, the budget performance of the government has visibly worsened. Perhaps the public's revealed wisdom in denying two consecutive terms to any political party in the past had a sound empirical logic!
(The writer is Professor, Department of Economics, University of Dhaka. Email: [email protected])