Budget in rear-view mirror

By Jyoti Rahman.

Published in the Daily Star on 1 June 2010.

This piece considers the implementation of 2009-10 Budget in light of the 6-monthly review published in March 2010.

THE announcement of the budget is an important event in a country’s political and economic calendar. In Bangladesh, public focus on the budget is still confined to a few weeks in June. The incumbent politicians and allied pundits hail the document as visionary and pro-people, the opposition denounces it as anti-poor and anti-people, and then, after a few weeks, nothing more is heard of it.This is not conducive to democratic policymaking. With little review of the previous year’s budget, there is little accountability for the government if it fails to implement what was announced, or change course if announced policies produce undesirable outcomes. By requiring the finance minister to regularly update the parliament on budget implementation, the Public Moneys and Budget Management Act, 2009 should improve both the economic policy and our democratic culture.

As mandated by the act, the finance minister presented a six-month review of the budget, covering July to December 2009, before the parliament on March 16, 2010. Whereas a deficit of 5% of GDP was estimated for the 2009-10 budget, the review revised the deficit to 4.5% of GDP. The revised deficit is a function of slightly higher revenue and lower expenditure. Table 1 summarises the revisions.

 

The budget was premised on the economy growing by 5.5% to 6% in 2009-10. The review is predicated on a growth rate of 6%. In the event, provisional estimate for GDP growth in 2009-10 turned out to be 5.5% — similar to forecasts by the Asian Development Bank, the IMF, and major market forecasters.There is a general agreement among economists that Bangladesh escaped the ravages of global recession relatively unscathed. Other than the global recession, an analysis of the budget considered energy shortage to be a major risk to the economic outlook.1

The budget explicitly assumed “increased private sector investment in response to measures to eliminate power and gas shortages.” And the review notes that the government is taking actions to develop electricity and gas transmission. It seems that energy shortages have, indeed, affected economic growth adversely.

Turning from macroeconomic to fiscal outlook, in the first six-months of the financial year, 44.7% of the annual target revenue was mobilised. The government expects the budget target for revenue to be largely met. And calculations by a World Bank economist suggest that the government’s assessment might be cautiously justified.2

That said, much work remains to be done on the tax collection front. Tax-to-GDP ratio in Bangladesh is about 8.5%, full 4 percentage points lower than our neighbours. To boost tax-GDP ratio, the government has promised policy measures including widening tax collection and coverage by conducting identification and monitoring at the upazilla level. Unfortunately, the government’s record of economic and political devolution has been discouraging to say the least.3

On the expenditure side of the ledger, things are not quite as bright as they appear initially. Over the review period, only 30.4% of the allocated sum was spent. Compared with the budget, expenditure over the whole year is now expected to be Tk.3,296 crore (or 0.6% of GDP) lower. It is this reduced expenditure, not any major change in revenue, that reduces the deficit.

 This may seem positive, until one realises the fact that the reduced expenditure is driven by a Tk.2,000 crore (6.6%, or about 0.4% of GDP) mark down in the development budget (ADP). In the first half of the financial year, only 29% of the allotted ADP budget was utilised. While this was higher than 21-25% utilisation over the similar periods in the previous three years, the downward revision suggests that the recent trend of underutilisation of ADP budget is likely to continue.

 An analysis exploring the ADP underutilisation problem provides some insight.4 Whereas a decade ago, delay in fund release and lack of human resources were the most important constraints, delays in tender process, land acquisition, and project amendments are the major bottlenecks today. That is, it’s no longer availability of resources, but actual implementation of development projects, that bedevils us. The devil is in implementation noted in an early analysis of the budget.5

 While financing a deficit is a perennial risk, thus far this year, financing needs have been met adequately. And a smaller deficit can only help in this regard. But, given that the smaller deficit is a function of underutilised ADP, it’s a decidedly mixed outcome. An unequivocally better outcome would have been more development expenditure, paid for by higher revenue collection.

 One key feature — and a major “unknown” according to analysts — of the 2009-10 Budget was private public partnership (PPP).6 In the review, the finance minister conceded that the government had “not yet achieved the desired level of progress under PPP project.” Indeed, there has been little progress on the PPP front. This issue deserves a lot more scrutiny than is possible in the current piece.

 In the final analysis, the government deserves credit for mandating regular review of the budget. It is time the opposition and independent analysts hold the government to account on its promises and policies.

—- 

 1Ahamed S and Rahman J (2009), Review of Bangladesh’s National Budget 2009-10, Drishtipat Writers’ Collective, page 25.

 2Basher A (2010), Fiscal Story of Bangladesh: Not There Yet, But Can Get There?, End poverty in South Asia blog

 3Alamgir J in Ahamed S and Rahman J, Ibid, page 45-46..

 4 Bhattacharya B, Iqbal MA, and Khan TI (2009), Delivering on Budget FY2009-10: a set of implementation issues, Centre for Policy Dialogue, page 22-13.

 5Saleh A in Ahamed S and Rahman J, Ibid, page 35-36.

 6 Ahamed S and Rahman J, Ibid, page 33, 41-42.

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