Budget FY2019-20: Smile for a while?

Prime Minister Sheikh Hasina herself presented the proposed budget this year! While it was completely a new phenomenon in the history of any country, she was praised for extending her affectionate hands to take on the finance minister's budget speech when it seemed very difficult for him to read it out. He often smiled despite his blurred vision and extremely weak physical condition, and the prime minister also smiled when her name appeared as the recipient of gratitude for many initiatives.

The budget cannot be termed as an "ambitious" one merely because of its size; it is 18.13 per cent of nominal Gross Domestic Product (GDP) projected for fiscal year 2019-20. An expenditure target which is up to one-fifth of GDP is considered to be less than ambitious for a developing economy that aims to accelerate the growth of real GDP and achieve rapid rate of poverty reduction consistently by adopting expansionary fiscal policy. However, my own calculation shows that Bangladesh can achieve minimum 8.45 and maximum 10.3 percent growth of real GDP in the next fiscal year with the same level of public spending. It implies that the Finance Division could either cut the size of the planned spending or set a higher target of GDP growth to do justice o the taxpayers through efficient use of public resources. Efficient use of resources necessarily implies optimum productivity of per unit of resource. Needless to say, wastage of money through leakages and investment in projects with very low return are among the major impediments to achieve higher productivity. Even though the Finance Division has been striving towards placing output-oriented budgeting at the centre of public expenditure management for nearly one and a half decades, it still remains a far cry.

Mounting inequality has been a major concern for which the redistributive measures, especially spending on direct poverty reduction and social safety net programmes, should have been increased more, since these seemed to have alarmingly failed to arrest rising economic disparity.

The budget was expected to pronounce more on addressing at least four major macroeconomic and developmental concerns, which seems to have maintained a rather low key. First, it could delve more to achieve a rapid growth in private investment from a prolonged period of stagnation. Indeed, the growth of GDP seems to have been blessed with massive public investment, especially considerable spending for infrastructure and mega projects, and aided by political stability and absence of major natural disasters. The investment of public sector, nevertheless, cannot generate large-scale employment and sustain the motion of economic growth. A startup fund of Tk 1 billion is definitely a positive initiative to encourage young and creative people who want to emerge as entrepreneurs rather than job-seekers. But the main impediment for private investment is high cost of doing business including corruption as perceived by the business community. A specific work plan to improve business environment along with roadmap to make the special economic zones (SEZs) operational was imperative in the budget speech.

Second, mounting inequality has been a major concern for which the redistributive measures, especially spending on direct poverty reduction and social safety net programmes (SSNPs) should have been increased more, since these seemed to have alarmingly failed to arrest rising economic disparity. The 2010 Household Income and Expenditure (HIES) data revealed that there is a "Kuznets curve" for Bangladesh's income distribution, while it suddenly disappeared in HIES 2016 even though the country has been performing quite well in terms of reducing poverty and social development. High inequality is the worst case of development, where the economy perpetuates to produce "super-rich" individuals with an abnormal concentration of income in their hands, while the overwhelming majority of the population are left with a modest share of national prosperity. Although the finance minister, at the outset of his deliberation, mentioned that the proposed budget would benefit everyone and the resources will go everywhere of the land including chars, haors and hills, an explicit mentioning and workplan on reversing the direction of inequality is missing in the budget speech. Traditionalism could be avoided in the SSNPs to generate higher and lasting impacts on poor, marginalised and backward communities.

Third, agriculture has received considerable attention including subsidy, research and development, and proposed piloting of the long-pronounced crop insurance. Conversely, the so-called "cobweb phenomenon" has appeared to be the biggest curse on millions of rice-cultivating small and marginal farmers. Extreme paucity of the government's storage facility during harvesting period, as well as lack of alternative track of the paddy-to-rice value chain, have led the ill-fated farmers to a never-ending spiral of misery. The proposed budget could have provided a clear direction to lessen their suffering and help them realise the essence of the country's magnificent economic development.

Fourth, effectively discouraging demerit goods, especially tobacco use was one of the most prominent demand from various civic groups including PROGGA and Anti-Tobacco Media Alliance, due to significant erosion of national welfare and physical wellbeing of the citizens. Increasing price of medium, high and premium brand cigarettes as well as introducing "minimum retail price" for smokeless tobacco products are praiseworthy. However, about three-quarters of smokers use low segment cigarettes and bidi but their prices have slightly increased. In addition to four price tiers of cigarettes and absence of specific tax on the top of ad valorem, the proposed tax and price measures would hardly help discourage tobacco use in the next fiscal year and achieve the prime minister's commitment to eliminate tobacco use by 2040. Rather, tobacco companies will benefit and get more breathing space to prosper and accumulate strength to survive.

Nevertheless, proper implementation of the proposed budget will determine whether the smiles of the prime minister and finance minister are one-off, or lasting till the end of the next fiscal year. It will depend on robust financing mechanism from domestic sources, despite the fact that performance of the National Board of Revenue (NBR) is dismal so far in the outgoing fiscal year. Proper execution will thus largely hinge on the implementation of the new Value Added Tax (VAT) law and increasing the number of individual taxpayers from a meagre 1.5 to 10 million in the next fiscal year. Both the targets will remain formidable challenges because the level of economy-wide automation preparedness of the NBR has not been encouraging.

I hope the smiles of our top policymakers will last long, not shine once and only for a while.

Dr Mahfuz Kabir is Research Director at Bangladesh Institute of International and Strategic Studies (BIISS).

E-mail: mahfuzkabir@yahoo.com

Follow The Daily Star Opinion on Facebook for the latest opinions, commentaries and analyses by experts and professionals.

To contribute your article or letter to The Daily Star Opinion, see our guidelines for submission.