The Achilles' heel of the budget

Next to gross domestic product (GDP) growth, employment generation has become crucial because of the growing army of young unemployed. Particularly worrying is the incidence of unemployment among educated youth. It is estimated that two million youth with education at tertiary level and above will join the labour market next year. The finance minister hinted in his speech that most of them will not be absorbed in appropriate jobs because of technological reasons and decline in manufacturing industries compared to service sector which is not labour-intensive.

In the budget proposal for 2018-19 mention has been made for expansion of the real economy and for development of skills that are in high demand. The gestation period for these steps will not allow solving the problem in the short term. Moreover, high corporate tax at 35 per cent (for non-listed units) will continue to discourage the manufacturing sector. Of particular concern is the incidence of high corporate tax (35 per cent) on small and medium-scale industries that are labour-intensive. It is incongruous that these backward linkage industries that cater to garment industries have to pay higher tax than the later.

Though the budget for 2018-19 has mentioned about employment, no concrete measure has been proposed on a priority basis. A plan for employment generation and strategy for the same as integral part of the budget is conspicuous by its absence. This is the Achilles' heel of the budget 2018-19, in so far as a priority policy objective is concerned.

The objective of containing inflation has been articulated by fixing it at 5.50 per cent during the next fiscal. But the IMF update has forecast an inflation rate of 6.0 per cent which appears credible. Bank borrowing on a large scale by the government to meet budget deficit, rising import bill impacting on balance of payments and resultant depreciation of Taka have already created inflationary pressure in the economy. Non-food inflation is already on the rise with the prospect of food-inflation looming large in the horizon because of shortage in the supply of rice that has led to import.

Reducing growing inequality in income as an objective in the fiscal policy has been given lip service but actually the preponderance of indirect taxes like VAT and import tax will affect the middle and lower class adversely. The rich will remain unscathed by the tax proposals by and large. In the next year's budget the prospect of reducing inequality thus appears to be dim. It appears that the issue has not gone beyond the rhetoric of the policy makers most probably because the problem has not spilled over into public discontent and remained, more or less, confined to academia and think-tanks.

The social safety net programme for the poor and disadvantaged class has received attention in the proposed budget but the coverage of only 5.2 million beneficiaries under different programmes appears to be just a drop in the ocean. This will neither meet the needs of all who deserve assistance nor make a dent in the burgeoning number of the jetsam and flotsam. This problem is also a fallout of the inequality in the economy and the failure to redistribute income either through direct transfer of funds or help in kind cannot but be seen as a serious lapse to realise one of the sensitive policy objectives of budget.

The most serious failure of the proposed budget has been to ignore the priority objective of restoring the health in the financial sector whose sickness is festering for a quite some time like a malignant wound. Rampant corruption at high levels in bank management resulting in mindboggling figures of non-performing loans has not been responded with adequate punitive measures nor have steps been taken to prevent such blatant cases of malfeasance. Much to the shock of observers and analysts errant banks have been rewarded with generous recapitalisation to keep them going and reducing the mandatory cash-reserve ratio which reined in the free-style lending by boards of directors of banks that are now on life-support system. It is significant that all the corporate bodies that have been granted reduction in corporate tax are the banks. Nothing could be more cynical than this attitude by authorities to turn not only a blind eye to venal bank management but also to hasten to their rescue.

To finance a record-breaking budget of Taka 4.63 trillion an ambitious strategy for resource mobilisation has been laid out in the budget. Apart from tax, non-tax revenue and fees, huge borrowing from domestic and foreign sources have been proposed to be made. Out of estimated resource mobilisation the budget has proposed Tk. 2,96,2010 million as National Board of Revenue (NBR) tax which will comprise 37.3 per cent in VAT and 34 per cent as income tax. Import duty and revenue from other heads will contribute 28.7 per cent of total mobilisation while non-NBR earnings will count for Tk. 43,07,90 million. Bank borrowing, mostly from the central bank, will amount to Tk. 42,02,90 million and non-banking borrowing will be to the tune of Tk. 29,19,70 million while borrowing from foreign sources has been estimated at Tk. 50,01,60 million. The total deficit in resource mobilisation other than from tax, fees, etc. will be 4.9 per cent of GDP which being less than 5.0 per cent is permissible even though it piles on the debt servicing liability. It is the composition of public debt from banks that is particularly worrying because of its inevitable impact on inflationary situation and crowding out of the private sector from the credit market.

The next area of concern that has become a chronic one is the implementation capacity of the budget for resource mobilisation and timely completion. As seen in previous years there has always been a shortfall between targets and achievements in both the areas. It would be nothing short of a miracle if a major turnaround is made in these crucial areas during the next fiscal. No radical departures have been made in either case to improve the past performance even though targets for both have been set at record high in the budget for the next fiscal.

Finally, the budget has to be judged by the allocation of resources made among various sectors. In the proposed budget the preponderance of non-development expenditures run counter to the policy objectives mentioned above. Non-development expenditures is necessary to provide the administrative backstopping to development programmes but when it eats up more than 50 per cent of total resource it becomes a cause for concern. As against this, almost token allocation made to social sectors like education (2.5 per cent), health (6.00 per cent) cannot promote the objectives of either accelerating growth or reducing inequality. Allocation to social sectors have double role of meeting administrative costs of salary, allowances etc and meeting the expenses of delivery of services (education, health etc). How far the delivery is made efficiently and how many are benefitted by them are important questions of governance which have never been discussed in the corridor of power nor mentioned in the budget. Fiscal measures are not only meant for meeting stated policy objectives mentioned earlier but also to address the issue of governance in terms of delivery of services from ministries/departments/agencies under revenue budget. This has been missing so long in budget document and needs to be incorporated now. A realistic appraisal of budget proposal with reference to policy objectives cannot be complete without this information.

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