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Budget brings some good news for economy, says BIDS chief

Star Economic Report
Dr Mahbub Hossain. a noted economist and Director General of the BIDS expressed hts optimism about the new Budget placed before the Parliament by the Finance Minister.
The projected growth in Industrial sector, garments exports, public investment and reduction of the deficit in the balance of payments suggest good economic progress in the '90s. he said.
Following is the extracts of the Interview with Dr Mahbub Hossain. The Interview was taken by Shahiduzzaman Khan. Special Correspondence of The Daily Star
Q: What to your general comment on the national budget proposed by Finance Minister Saifur Rahman ?
A: Personally I fell this year's budget brings with it some good news about the economy. Insptte of the Gulf crisis, disruptions caused by the anti-autocracy movement and the devastating cyclone, the income growth for 1991-92 is estimated at 3.6 - 4.0 per cent which is on the long-term trend. The Inflation is less than 10 per cent, industrial sector grew at 8 per cent reversing the trend of declaration in 1980s. and exports earnings from garments has maintained its robust growth which continues to reduce the deficit in the balance of payments. Public investment has Increased by about 10% in real terms, and the allocation in 1901-92 budget suggests a rate of Increase of 13% compared to the negative trend witnessed in late 1980s. All this makes one optimistic about economic progress in 1990s.
Q: Do you think the Finance Minister has correctly identified the problems Impeding country's growth? Do you agree with hts economic prescriptions?
A: In the budget speech the Finance and Planning Minister has rightly identified our development problems, and has explained before the nation
the economic policies the BNP government will pursue. He has talked about increasing efficiency in economic activities, removing corruption through establishing accountability and transparency in public actions, increasing self-reliance through domestic resource mobilisation so that our dependence on foreign aid is re duced to 65% by 1995 and less than 50% by year 2000. reducing rent seeking by elim inatlng bureaucratic controls and establishing financial dis clplines. and withdrawing the government from the directly productive activities, so that the scarce public resource are better spent for the development of the social and physical Infrastructure. Few can disagree with most of his economic prescriptions.
Q: Over the last few years, unproductive public expenditure increased alarmingly, but public sector investment rate showed a downtrend. Does the proposed budget show any reversal of the trend ?
fc Over the last few years we have seen that the revenue expenditure exceeded the original allocation in the budget and the deficit has been met by reducing the size of the development budget. The revised allocation in the development budget was lower than the original allocation by Tk 251 crores in 1986/87. Tk 396 crores in 1987/88 Tk 720 crores in 1988/89 and Tk 701 crores In 1989/90. As a result.
the unproductive public expenditure increased alarm ingly. while the public sector Investment rate had a down ward trend from an already low level. This budget pro poses a reversal of this undesirable trend. The revenue expenditure was kept almost at the same level proposed in the original budget, while the revised estimate of the development expenditure is higher by Tk 453 crores (8%) than the original allocation. For 1991/92 the budget proposes to freeze the revenue expenditure tn real terms. The allocation in nominal terms is about 10.6% higher than in 1990/91 which is almost the same as the rite of inflation. The allocation in the development budget in nominal terms is about 23% higher than tn the previous year. If realised, this will restore the public investment GDP ratio to the level of 1982/83 (8.5%).
Q: Foreign aid Is playing a dominant role in our budgetary allocations. Do you think rising share of foreign loans will increase oyr debt service liabil tty?
A: I think, country's positive development has been made possible because of the easy availability of foreign aid. Foreign aid already committed (US $ 2.3 billion) is about 28% higher than in last year and it might exceed 33% if Japan provides an additional US $200 million. The proposed increase in development ex-
pcnditure 1* lend than this amount. The financing of pub lie expenditure through for eign aid Is proposed at Tk 7296 crores In 1991/92 bud get compared to Tk 6103 crores in the revised budget of 1990/91. an increase of Tk 1193 crores This is about 87% of the proposed increase in development expenditure Thus, the dependence on for
eign aid for development con tlnues to remain at an alarmingly high level. I should mention our Increasing depen dence on foreign loans as opposed to grants also. The amount of grants in this year's budget is proposed at Tk 2969 crores, an increase of only Tk 61 crores over the last year. But the amount of foreign loans is proposed at Tk 4327 crores an increase of Tk 1000 crores
over the previous year's allocation The share of loans tn total foreign aid In 1991/92 is 59%. compared to 53% in 1990/91. and about 50% since independence. The rising share of foreign loans will Increase our debt service liability If we fall to use foreign aid Judiciously, as in the past, we shall impose higher compared the the previous year, lower than the rate of inflation. Thus in real terms the expenditure for the sector will In fact decline. The allocation for the education sector is only about 2.0% of our national Income.'In comparison. India spends about 3.4% of its GNP for education. Thailand 3.2% and Korea 3.0%. In view of the widespread illiteracy, we need to give a big push on education. Marginal increase in allocation for the sector will not suffice.
Q: Will the government succeed tn raising revenue from upper income groups and providing benefits to the lower Income groups? The minister has already talked out expanding the income lax base. Would you comment?
A: A major constraint to domestic resource mobilisation Is political opposition to raising taxes. The opposition may weaken if the government succeed in raising revenue from the upper Income groups and providing benefits to the lower income groups through the public expenditure programme. The government has so far earned its revenue mostly from Indirect taxes
which are shifted to consumers. while the upper income groups have been allowed to evade income taxes through collusion with the tax collection machinery. This year's budget does not suggest a reversal of this trend. While the Minister has talked about expanding the Income tax network and Increasing efficiency in tax collection, the earnings from Income tax is projected to increase by only Tk 8 crores (from Tk 1071 to 1079 crores) while the collection from Indirect taxes is expected to increase by Tk 471 crores (from Tk 4940 to 5411 crores).
A significant source of increase in government revenue In 1990/91 is the profits earned by the Bangladesh Petroleum Corporation. The profit is estimated at Tk 210 crores which Is the only source of increase in revenue from the non-sources in 1990/91. The profit is projected at Tk 175 crores for 1991/92. The source of this profit is the doubling of prices of diesel and kerosene oil in the wake of the Gulf crisis last year. Although the prices of crude petroleum has come down in the International market, the domestic prices of these petroleum products have not been revised downwards, an outcome of the government monopoly in this business. This tax is borne by agriculture, rural consumers and users of public transport.
0 It has been staled that domestic resource mobilisation will accelerate growth and aid. Do yo^think this has b^ adequately reflected tn the na tlonal budget?
k: For accelerating economic growth we must pay attention to domestic resource mobilisation. Although the Minister has brought to our notice this naked truth In his speech, the budget reflects an Inadequate effort in this regard. The surplus in the revenue budget is proposed at Tk 420 crores, compared to Tk 751 crores in last year. If the government succeeds tn
of Tk 554 crores proposed in this budget, the financing from Internal resources will Increase to Tk 974 crores, which Is about 13% of the de velopment budget.
Q: Did the Finance Minister pinpoint priority areas upon which success of poverty alle uiation rests? Do we need more thrust to education in the context of poor literacy rate is our country?
A: The Finance Minister has rightly pointed out that for poverty alleviation we must give priority to education, health, and agriculture sectors. We have seen that the revised allocation for these sectors was always lower than the original allocation. The 1990/91 fiscal year was not an exception. For example. In 1990/91 the allocation to the education sector (revenue plus development budget) was Tk 1756 crores; the allocation in the revised budget (Tk 1489 crores) is. about 15% lower. In contrast the allocation for defence. BDR and police, in the revised budget (Tk 1625 crore) has exceeded the original allocation (Tk 1526 crores).