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Hoping for a hands-on budget

Abdul Bayes
FINANCE Adviser Mirza Azizul Islam presented the national budget for 2008-09 (FY09). The Hon'ble adviser seems to be a lucky as well as an unlucky person. Lucky because he had the privilege of presenting two national budgets, which an adviser of a caretaker government is not supposed to have. But equally, perhaps, he is unlucky because he had to sail through very rough weather. It is true not only for him but also for all finance ministers worldwide.
The year that has just passed was one of the most critical years that our economy had to grapple with. The back-to-back natural disasters, rising energy and food prices in the international market, political instability, rampant corruption etc., seemingly posed no promise for the economy. It is, thus, not surprising that many of the commitments that were made in the previous budget could not be materialised. For example, inflation rate could not be contained, the
shaky business environment hardly healed, the power sector is still imperilled, and political instability looms large on the horizon.
Empirical evidence on perceptions appears to indicate that the economic condition of the people in general has deteriorated over the last one year. This sharply contrasts with the trend of the last two decades, when net economic change was reported to be positive. The economic growth rate is estimated to have gone down and, pari passu, poverty level has gone up.
Our own estimates (62 village survey under the aegis of Brae) show that poverty level in rural areas in 2008 is 44%, compared to 38% in 2003-04. Thus, poverty in rural areas has increased by more than one percentage point per year during the last four years, and most of that occurred in the last one year. This, again, sharply contrasts with a decline by one percentage point per year during the last one decade.
This year's budget is said to be a "mega" budget of about Taka one hundred thousand crores, or
roughly one third of GDP. Quite obviously, the size of the budget is determined by the need and availability of resources. We fully agree with the view that an expansionary fiscal policy is the best way to increase the effective demand in the economy and to keep entitlements, especially of the poor, in the right order.
Bangladesh also needs a bigger budget at this time since a sizeable chunk of the allocation will have to be devoted to erstwhile bypassed sectors. For example, subsidies on, and storage of, food grains, research and extensions for newer crop varieties and for un-favourable zones, and extension of safety nets etc.
But we should also bear in mind that management of the budgetary resources is the condition to be concerned with, and not with its size only. People rarely see the size of the budget; what they want to see is whether the budget canimprove their well-being or not. For example, allegedly, resources tend to remain unutilised in important sectors due to bureaucratic and
other barriers.
What could worry the critics is the substantial hike In the revenue expenditure in this budget. In the Finance ministry's documents, the revenue expenditures are bracketed as "unproductive” expenditures comprising, for example, pay and allowances, subsidies and grants, payment of interest etc. We can possibly give reasons for the rise in revenue expenditures: pay hike for salaried employees to compensate for the loss of real income, growing subsidies on inputs and outputs, and enhanced size of interest rate bill.
It has been observed that in recent years, government borrowings, both domestic and foreign, have been blowing up. The government had been borrowing from the banks and the public, thus crowding out private investment. But the point to note is that more than one-fifth of the revenue expenditures go to pay interest rates for the borrowed money. Why borrow money?
It is largely for feeding lossmaking state enterprises or for meeting other unproductive expenditures. By and large, a part of the revenue budget, in fact, does help productive pur suits such as subsidies and safety nets, but a larger portion appears to be counter- productive.
This year's budget stipulates relatively lower allocation for the Annual Development Programs (ADP). To be specific, the budget is about 4% lower than the previous one, and stands out to be the only budget after independence that witnessed a slash in ADP. Actually, ADP has historically been associated with productive or income generating activities.
It is true that there are certain components in the revenue budget that serve the same purpose, but ADP mostly takes account of growth augmenting sectors We also reckon that a big ADP does not mean more growth and development unless the utilisation rate remains high and unless the projects selected were economically decided, not politically.
The experience of the last ADP, with a utilisation rate of 46%, points to the perilous state of our development projects, mostly in the energy sector. It remains to be seen how, given this success rate, the upcoming ADP could grease the wheels of the economy.
Growth is likely to be constrained by other factors also. For example, transfer of power to an elected government seems to be a major determinant of politi-
cal stability in the future and, hence, of the hopes of the business community. During the last one year or so, domestic and foreign investment did not pick up to the mark On the external front, remittances flow and export earnings from garments are faced with problems. Thus, low investment, low ADP allocation and adverse international scenario might constrain our economic growth rate and. hence, the attempts at poverty reduction.
The budget speech should have highlighted one very « important philosophical question are we to continue with the market economy paradigm leaving pin to plane in the hands of the market forces, or should we invoke state interventions in some sectors or pockets? The bitter experience of the recent past clearly calls for a "hands-on” approach, particularly in the food grain sector.
The state will have to play a much more active role in ensuring food security of the people, rather than leaving it to the mercy of the markets. Serious thought should be given on to how to revive the jute sector, energise the energy sector and improve the lot of the ultra-poor, who constitute roughly onetenth of the rural households.