On Thursday last, finance minister AMA Muhith, MP placed the proposed national budget 2018/19 in Parliament. The budget outlay has been proposed to be Tk. 4.64 trillion which is 25 per cent higher than the revised one of the outgoing (current) fiscal. It is the 47th national budget and 10th of Mr. Muhith in a row. Kudos to him.
Successive budgets presented by the finance minister (FM) over the years carried both good and bad news. The good news is that the budget got larger and larger in size that is possibly required for a country like Bangladesh embracing 160 million people and vying to march towards middle-income country status. A budgetary outlay that is roughly one-fifth of the gross domestic product (GDP) may not appear to be overtly ambitious. But the harsh reality is that none of the budgets of recent years could be adequately implemented. To take the case of the last budget (2017-18), the implementation rate is reported to be so poor that the FM himself fumed saying, "It is indeed a very bad signal…This is totally a bureaucratic failure".
Nevertheless, he continues, as is his wont, to be optimistic about achieving the targets in the proposed budget. "The budget (for fiscal 2018-19) is achievable…Even though this is an election year, implementation will not be bad", he said without giving any hint as to how the targets are going to be met.
However, given the less than expected performance in budget implementation in relatively politically stable years, implementation rate of the projects in the likely upcoming unstable year could turn out to be far worse. Besides, politically motivated projects in the run-up to the general election could cost both in terms of implementation rate and quality. The brow-raising news is that 70 per cent of the annual development programme (ADP) projects are waiting to be completed within the last two months of the current fiscal.
The most strident criticism of the budgetary proposals of the FM is the reduction in corporate tax for banks in the face of financial scams, laundering and loan defaults. The government seems to take the side with 'sick' banks in two ways, first, by making provisions for bailout by injecting taxpayers' money and second, by providing incentive through reducing corporate tax. What is more worrying is the fact that the reduction in corporate tax is neither going to help reduce interest rates nor heal the liquidity crunch of banks. In other words, the surplus might get pocketed as profit by the bank directors.
As for the brighter aspect of the proposed budget, social safety coverage has been expanded. Hopefully, this will help inclusiveness in growth through short-term measures. But Mr Muhith remained silent on the question of rising inequality in the country where income of the bottom 5.0 per cent of the population dropped by 60 per cent and that of the top 5.0 per cent rose by a similar magnitude between 2010 and 2016. Nor adequate attention has been given in his budget speech on the twin macroeconomic imbalance - credit-deposit gap and pressure on balance of payments. Imports have been rising at an unexpected rate, not related to the industrial progress in the country. Allegedly, there could be capital flight through over-invoicing. The people of this country expected that the FM, at the fag end of his political career, would propose some drastic measures to get back the laundered money or curb its flow.
The farmers of the country should be happy as subsidy to farms is to continue and import duty on rice has been imposed to help farmers fetch good price of their harvest. In fact, the duty should have been imposed much earlier, immediately after amon harvest, as the market is already swelled with imported rice and most of the small farmers have already sold their boro crop at low price. The proposed budget also incorporates some tax measures to protect local industries.
The middle-income group would feel the pinch of imposition of value-added tax (VAT) on sales of flats up to 1100-square feet, furniture, surcharge on home owners, online shopping, tax on middle class-dominated transports 'uber', 'pathao' etc. While real income is going down, income slab for income tax has not been raised. The development of physical capital has been duly emphasised, but that of human capital has apparently been neglected. The allocation for health and education as share of the GDP, would not rise to the desired mark. The country's elevation to middle-income status would require quality health and education for the people and unless the share of health and education totals 6.0 per cent or more of GDP, both quality and quantity of human capital could be adversely affected.
Two very important pre-budget commitments were missing in the budget speech: (a) proposal for establishment of a Bank Commission to dig into the anomalies in the financial sector; (b) reduction of dependence on high-cost borrowing from domestic source such as savings certificate with about 12 per cent interest rate.
The proposed budget is a business as usual exercise and is likely to face the fate of the past budgets - big spending but poor implementation of development projects and so on.
Abdul Bayes is a former Professor of Economics at Jahangirnagar University.
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