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Macro-economic stability may be reversed

World Bank resumes public expenditure review

By RM Titumir and Inam Ahmed
The World Bank (WB), after a break of six years, has resumed the public expenditure review (PER) against the backdrop of expansionary current expenditure which, it says, may reverse the macro-economic stability.
Underscoring the urgency of the review, the WB says that recent developments in the country has 'slowed down’ the progress in checking the current expenditure and channelling resources to poverty linked projects.
"Progress under these fronts slowed in FY 95 (last
fiscal year), the pre-elections year and have stalled further in the first quarter of FY 96 (current fiscal year)", says the Issues paper prepared by the Bank's PER mission recently.
The government's expenditure is now inching towards an upward trend and at the same time the locally funded projects have increased significantly which, according to the WB. requires a close monitoring of the capital investment programme.
"With the expansionary trends, the fiscal deficit
could rise in FY 96 to seven per cent of GDP. reversing the gains of the past few years ", the Bank says.
The proposed PER will be "forward looking" and focused on the programmes for FY 96 and 97. reinforcing the "gains' under the Bank's Public Resource Management Adjustment Credit (PRMAC) of 1992 initiated after the last PER in 1989.
Since the prospects for soft term foreign lending dims and competition in the field intensifies, the review will also frame a mediumterm "strategic vision' lor the country on sustaining fiscal deficit in the changed situation, the WB says.
Resource availability for public expenditure will also be a central point of the exercise. assessing aid flow, potential for revenue increase and the level of domestic borrowing.
As aid financing for Bangladesh Is unlikely to rise ,in the future, the Bank estimates that the overall deficit should be contained to a level of six per cent of GDP with revenues rising by 0.5 per cent of GDP each year. If the deficit can be contained with in this level, it can be financed by 4.5 per cent from foreign source while 1.5 per cent by non-bank sources, the WB says.
The rate of growth of current expenditure should not exceed the rate of growth of nominal GDP and the size . of ADP should be consistent with these macro targets.’1 the Bank says.
The Bank predicts an increasing upward pressure on ’.budget deficit because the growth in ADP outpaces tax
revenue growth. This would mean that in the absence of further structural domestic tax reforms and other tax efforts, the budget deficit might expand and exceed sustainable levels unless growth in the ADP is limited," it noted.
The PER mission will try to find out how effectively public resources can be allocated to priority areas to attain growth and poverty alleviation objectives.
Noting that the government's deficit estimate may not reflect the overall public sector deficit, the PER will also estimate the quasi-fiscal deficit and deficits of the state-owned enterprises.
The rising wage bill, now 37 per cent of the total current expenditure, will also be studied to link it to the quality of civil service and ways would be searched for eliminating or minimising deficits due to food account operations.
The PER mission will continuously feed the budget wing of the Finance Ministry its findings and suggestions to be Incorporated In the next budget.