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ADP revised twice

Minister happy, economists not

Sajjadur Rahman
The government's decision to revise the outlay for the Annual Development Programme at Tk 60,000 crore might have pleased the planning minister. But it has given rise to concerns among economists about a wastage of public funds.
The economists have said this spending spree, especially in the face of a shortfall in revenue collection, might lead to larger-than-predicted government borrowing from the banks and create a crowd-out effect on the private sector.
The Daily Star talked to leading economists Prof Wahiduddin
Mahmud, Dr Debapriya Bhattacharya and Dr Salehuddin Ahmed, a former central bank governor, on the recent war of words between the finance and planning ministers on the revised outlay for the ADP, its implementation, funding challenges and impact on the economy.
"The inevitable consequence will be much wastage and leakage of funds and a distortion of spending priorities," observed Prof Wahiduddin Mahmud.
The economist said funds would be allocated not on the basis of economic priority but on which government agencies could spend more quickly. Even worse, projects that
were more speedily implemented were those that created opportunities for rent-seeking and patronage politics, he added.
According to planning ministry statistics, the government has implemented only Tk 25,218 crore or 38 percent of the original allocation and 42 percent of the revised figure during the first eight months of the current fiscal year. This means nearly 60 percent orTk 35,000 crore will have to be spent in just four months.
Finance Minister AMA Muhith wanted to revise the ADP size at Tk 55,000 crore instead of Tk 60,000 crore in the wake of a shortfall in revenue income and the implementation rate of the allocation so far.
Dr Debapriya Bhattacharya terms the government move a "last quarter syndrome" when attempts are made to spend about 50 percent of the ADP as against another 50 percent in the previous three quarters.
"This indicates a high possibility of deterioration of the quality of public expenditure. This apprehension is further aggravated by an absence of effective prioritisation of ADP projects, including those slated for completion," said Debapriya.
Dr Salehuddin Ahmed, former governor of the central bank, said the spending spree would encourage the government to undertake politically-motivated projects, which might not benefit the people.
"His [Muhith] figure was rational taking into consideration the present ADP implementation rate," Salehuddin observed.
According to officials of the National Board of Revenue, revenue income did not reach the expected level, achieving in the first seven months onlyTk 59,545 crore or 43.8 percent of the target set at Tk 136,000 crore.
They said the NBR revenue could face a shortfall of around Tk 10,000 crore this fiscal year, posing a threat to the financing of development programmes.
Prof Wahiduddin said the speeding up of development spending, particularly in the face of a shortfall in revenue collection, would perhaps lead to larger-than-predicted government borrowing from domestic sources. The government might need to borrow around Tk 34,000 crore, of which Tk 26,000 crore would come from the banking sector.
"This may not, however, create any immediate problem given the continued sluggishness in the private sector's credit demand. But, if and when there is a turnaround in private investment activities, the arithmetic of monetary and credit expansion will need to be recalcu-
lated," he added.
Debapriya Bhattacharya said the government needed to cut back expenditure in line with the shortfall in revenue income to keep the programmed budget deficit figure unchanged. He added that since the ADP had already been slashed by more than Tk 5,000 crore from the original allocation, another unspent Tk 5,0000 crore might be allocated under the Padma bridge, recapitalisation of state owned entities, etc.
"Yet the borrowing from the banking sector may increase if the net flow of foreign aid turns out to be lower than the target," he observed.
Prof Mahmud also shed light on the size of the budget for the coming year.
He said the government was reportedly in favour of an ambitious big budget for the coming fiscal. For this, there might be two kinds of underlying political incentives.
First, according to him, there are many first-time ministers and lawmakers who may try to prove their worth by bringing in new projects for their respective ministries and constituencies. Second, given the lack of a proper popular mandate for the current government, it may try to compensate this by going for new high-profile large projects, thereby demonstrating a strong developmental commitment. While there is no harm in going for such projects of high visibility, this should involve a due process of evaluation of resource constraints and spending priorities.
The economist noted that limiting the growth of revenue expenditure would also be a challenge for the coming budget, more so if a new government pay scale was to be implemented during the year as hinted by the prime minister.
"Moreover, there has been a promotion spree at various levels of the administration, which may keep everyone happy, but only at the cost of distorting the administrative structure and putting extra pressure on the revenue budget," Prof Wahiduddin added.