IN a levell ig loulltry U ke Biutgladeah iik|m obj ectivea of Harai policy include economic growth, equity elBciencv and altevta lion ol povrrlv These ob) erilves however, are not always in harmony and are not a< hieved in desired degrees Fulfilment ot thrae objective* depends not only on fiscal policy but also on monetary policy, industrial policy. trade policy, and "institutional pol

Institution*! Condition*

Effectiveness ot fiscal policy in achieving the objectives mentioned above depends on several institutional condiUona. First. In Bangladesh the process of consultation Involving the government and various sectors and regions is not institutionally well developed during the preparation ol the budget Interaction between the government and the private sector is infroquenl and usually involves a few organized traders and manufacturers The government should hold frequent dialogues with all interested groups Including labour unions, representatives of srnail-sc ale Industries, farm sea. and academic experts, not only in Dhaka but also in major regional centres This process Is likely to Improve credibility of the go vernment and thereby enhance efficiency of tax collection. quality of government expenditure, and consistency in fiscal and industrial policies. The government should adopt a consensual approach and need not hide from the public broad fiscal objectives and methods until the day when the budget rt presented by the finance minister White some secrecy concerning taxes and duties on commodities is Inevitable, the government can minimize uncertainty and speculation by making tax rates as uniform, stable and simple, as possible.

Second, many developing countries including Bangladesh are characterised by Institutional diaequillbria — for Instance. experiments with de

rentrxluation and devolu lion ol power change* in the constitution reforms tn the legal system and changed in the degree of ataie ownership and control In the economy These phenomena affect the efficiency and structure of government taxes and expenditure* The economic situation of state enterprises and n* Hon allied banks provides a good example In 1992 93 for instance, state enterprises tn curred losses which totalled more than Tk 13.5> billion. Privatisation of unprofitable state enterprise* is now an important government jjoltey to Improve the fiscal position However In a rent-seeking environment privatisation I* likely io favour the rentier class without any significant long-run positive effect on economic growth and effi cieney

Finally, the source 'W gov ernment borrowing can have significant Implications for fi* cal policy The govemr.rent can borrow from (a) forelgyi countries. (b) the public. Icl finan ctal institutions, anti (hl the central bank Currently, the government of Bangladesh relies mainly on the first two sources Because of various string* attached - to foreign grant* and loans the multi plter effect of government expenditure* financed by external borrowing is often much les* than presumed Fiscal deficits financed by borrowing from the public through, for instance, sate of saving certificates are likely to be least ex panatonary.

The Finance Minister has claimed that the present government has taken major step* toward economic self-reliance by stating that in the 1994-95 budget domestic resources will contribute 35.8 per cent to the Annual Development Programme IADFI Other figures, however. confirm that Bangladesh is still addicted to

get for 1993-94 58 7 per cent of the overall budget deficit was financed by foreign grants and loans — the rest was by domestic sources In the proposed budget for 1994 95, the proportion of the budget deficit to be financed by foreign grants and loans is 74.2 per cent Furthermore, the ratio of external debt (disbursed and undisbursed) to GDP has been steadily increasing for Bangladesh. from les* than 10 per cent tn 1972 to about 88 per cent in 1993.

Methodological Imum

Every year the Finance Ministry of Bangladesh present* a lot of figures in document* relating to" the budget. Still, the figures do not provide a complete and clear picture of activities of the gov ernment sector The Ministry of Finance provide* data on various categories of revenues and expenditures In detail but doe* not publish good anaiytl cal reports Nor does It clarify methodological issues concerning the definition of the government sector, accounting methods, and alternative measure* of the government deficit

Information given In budget document* should be exam Ined with other related information not shown In the bud-,get. For Instance, proceeds from the sate of government asset* constitute capital revenue and form part of non-tax revenue The magnitude of this type of revenue In a particular year depends on the speed and the magnitude of privatisation carried out by the government. In order to provide a more complete picture, the government slHSuld present a balance sheet (with asset* and liabili tie*) of the government sector

The Ministry ®f Finance should compute different mea-

sures ot budget deficit* for the benefit of analyst* The ministry now presents both the revenue budget balance and the combined budget balanced (revenue and development) However, several additional measures of the budget balance need also to be computed: for instance the primary budget balance which excludes interest payments on public debt, the structural or permanent budget balance (the balance that would prevail if the economy were operating at the trend level given the structures of taxes and expenditures). the budget balance ac cording to the national Income account basis, and the budget balances for the central government a* well as for the government sector as a whole (Including all levels of government departments. Institution*. and enterprises!

The Ministry of Finance should present information concerning public debt in detail. It should show figures for gross debt as well as net debt (gross liabilities adjusted for government financial assets). The Ministry should also present trends in the internal debt-GDP ratio and the external debt-GDP ratio. Budget documents should present a,id clarify Internal and external sources of government borrowing ®nd methods of retirement of Internal public debt

Economic Fundamentab

Before presenting tax and expenditure proposals the Finance Minister examined some basic economic Indicators: the rate of Inflation, the magnitude of international reserves. the stock market index. the GDP growth rate, the debt-service ratio, and export growth Clearly, some major economic fundamentals appear impressive for Bangladesh. Selective statistics, however. can be misleading. For to stance. increased internattonoi reserves and current account balance may toe partly attributed to problems tn implementing the ADF and stagnant private investment The savings GDP ratio — the most critical determinant of ero-notnic growth — has faffed ts increase .significantly fa Bangladesh.

The Finance Minister com pare the performance of Bangladesh with 19 other tow Income countries (without naming these) The ndntotar also highlighted the rra^t-ment of the present government to human dew topt sent The position of Bangladesh to thi* regard, however, is far from Impeesatve Aa reported in the Human Development Report 1994 the human development index is asuch worse in Bangladesh compared to Sri Lank^ Myanmar. Pakistan, and India. For instance. white the infant mortality rate (per 1000 live births) is 109 in Bon^ade^. the figures for Sri Lanka. Myanmar. Pakistan. India, and Nepal are 24. 83. 99. M. Md 100. respectively

During the preaentatian of the budget the finance mtaM-ter also mentioned several institutional reforms which art being initiated the government. Indeed, Institutional reform* are absolutely essential for achieving the broad objective* of fiscal pobey. HooMwr. the gap between rhetorics and reality can be ^normoua. During the tenure of every government, many reform commissions are set up. Unfortunately, the 'value-added' from the 'Industry' of reform commission* becomes negative because of non-tos-plementation or partial implementation of reoonunenda-tkma.

Apparently, the tax and expenditure proposals in th* budget are growth _ and ex- pori-oriented However, privatization deregulations and reform* in trade policy will not guarantee sustained economie growth and international competitiveness. In recent year*, economist* are paying greeter attention to the endogenous nature sf the growth process which esquires consistency in economic and institutional fundamentals To see whether Institutional fundamentals in Bangladesh are In tune with macro-eeonowiic fundamentals one has to examine statistics on several phenomena usually not found in budget documents tax evasion, political and bureaucratic corruption, the crime rate the default ratio concerning bank loans, capital flight, fraudulent business practice*, the quality of product* sold on domestic market*, the quality of utility service*, unemployment and underemployment among the educated youth the quality of general and vocational education. the quality and relevance of research and training, the diffusion of technological knowledge and innovation formation of new business companies and bankruptcy of business firms serving domestic and international markets

Nobody expect* the Finance Minister to provide quantlta tive information on all the above Isaues during the pre •entatlon of the , budget However, the government should have the courage to provide qualitative Information so that one can understand better the direction toward which the economy la moving. It may be easy for the govern ment to solve the problem of budget deficits by borrowing from foreign and domestic sources Will the government take credible step* to deal with other 'fundamental deficits' involving commitment. competence, and gover nance?

The writer t* Associate Proje»»or of Economics, Laurenttan UnWerttty. Ontario, Conxia