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As the new fiscal year is approaching, preparation for the annual national budget is also underway. It will be the debut budget for the incumbent finance minister. The exercise of budget is not a new thing for him as he had earlier served as Member of Public Accounts Committee, Chairman of the Parliamentary Standing Committee on Finance Ministry and finally as Planning Minister in the immediate past tenure of Awamil League government.
The finance minister has also inherited a sound macroeconomic environment from his predecessor. Persistent upward economic growth and moderate inflation are quite visible now. After posting 7.84 per cent growth in the past fiscal year (FY18), the country is expecting to cross 8.0 per cent gross domestic product (GDP) growth in the current fiscal (FY19). Annual average inflation rate was 5.78 per cent in FY18 which came down to 5.54 per cent by the end of the first half of the current fiscal or end-December, 2018.
DOMESTIC DISCOMFORT: Though major macroeconomic indicators appear sound, discomfort still persists in the domestic front. Slow growth in revenue collection is a cause for unease and discomfort. Revenue collected through the National Board of Revenue (NBR) increased by only 6.36 per cent and stood at Tk 980.27 billion during the first half (July-December) of the current fiscal. The collection was 20.17 per cent higher during the same period of FY17. Thus, in the second half of the current fiscal, a big push is necessary to reach close to the budget target of Tk 2962.01 billion revenue collection by NBR. A series of tax reliefs to different sectors, especially ready-made garment (RMG), during the first half of the current fiscal coupled with the slowdown in business activities ahead of the national election are believed to be the main reasons for less than expected revenue collection. Impact of slower revenue growth is partially reflected in the slow implementation of the Annual Development Programme (ADP). The rate of ADP implementation reached 34.43 per cent in July-January period of the current fiscal. Financial sector, especially the banking industry, is facing serious pressure of bad loans mainly due to bad governance. Ratio of default loans stood at 10.30 per cent at the end of December and the total number of default borrowers at 266,118.
EXTERNAL PRESSURE GROWING: On the external sector, the half-yearly balance of payments (BoP) position appears comfortable with lower trade and current account deficits compared with that in the same period of the previous fiscal. Nevertheless, uneasiness regarding BoP is not hidden as evidenced by incremental pressure on exchange rate. Bangladesh taka has depreciated by 0.30 per cent against US dollar at the end of January 2019 from the level of end-June 2018, according to Bangladesh Bank. Price of US dollar is slowly rising in the money market and state-owned banks are facing trouble to settle bills of import. They are even declining to open fresh letters of credit in some cases. Moreover, global economy is slowing down mainly due to trade frictions. According to the International Monetary Fund (IMF), global economy is set to grow at 3.50 per cent in 2019 and 3.60 per cent in 2020. The IMF observed that world economy would face some slowdown in the current year. Mentioning that the global economic expansion has weakened, the IMF pointed out that escalating trade tensions remain a key cause of risk for global economic outlook. The latest World Trade Outlook Indicator (WTOI), released by the World Trade Organisation (WTO) last month, also echoed the same concern. It mentioned that 'trade weakness is likely to extend into the first quarter of 2019.' The latest WTOI reading of 96.3 is the weakest since March 2010 and below the baseline value of 100 for the index. Weakness in the overall index was driven by sharp declines in some critical component indices like export orders (95.3), international air freight (96.8), automobile production and sales (92.5), electronic components (88.7) and agricultural raw materials (94.3). WTO observed these as an outcome of 'pressure from heightened trade tensions'. Global commodity market is also soaring up. The latest commodity report of the World Bank showed that 'commodity prices mostly rose in January with energy commodities rebounding 1.60 per cent from December's 11.30 per cent plunge and non-energy commodities gaining 0.60 per cent.' The report also added that agriculture index rose 1.20 per cent. Thus global economic situation is changing slowly and moving towards a less comfortable zone.
BUDGET IN CONTEXT: Budget for the next fiscal year thus has to be designed in the context of the aforementioned domestic discomfort and external pressure. One major work in this regard would be setting the budgetary assumptions for growth, inflation and investment reasonably. Another important work is to set the budget structure by doing the budget math right. The size of the national budget for the current fiscal is Tk 4.64 trillion which is 16.0 per cent more than the previous year's original outlay. The amount is also 25 per cent more than the revised budget of the previous fiscal (FY17). Again, annual average rate of original budget hike is around 17 per cent in the last 10 years. Taking cue from this estimate, it may be presumed that the outlay of national budget for FY20 is set to cross Tk 5.0 trillion. At the same time, it is also true that implementation of budget in recent times was below 90 per cent of the original outlay. Average rate of implementation of budget is around 87 per cent on average in the last eight years since FY10.
Setting the expenditure priorities and earning sources to finance the spending is the key thing to derive from budget math. The finance minister has to work in details in this regard. Continuation of Awami League in power for the third consecutive tenure is the biggest advantage for the finance minister to get on with the work. A number of mega projects and infrastructure works are already underway. In the upcoming budget, he needs to ensure rational allocations for better implementation of the projects. Moreover, he needs to align the development works with all the rational demands within the given context.