Finance minister AHM Mustafa Kamal is scheduled to present the budget for the 2019-20 fiscal on 13 June in the parliament. The budget is coming at such a time when farmers are not being paid a fair price for their crops, growth in the agricultural sector has dropped, GDP has gone up but private sector investment has gone down. A deficit has emerged in revenue collection, but expenditure is on the rise.
There is a flurry of activity to complete big projects and the health and education sectors are in dire need of attention. The new MPs are sending in a deluge of applications for the road construction. Then there are the businessmen who had openly supported the ruling coterie before the elections. Their expectations are high.
While the new finance minister will be eager to fulfill everyone’s demands, the budget of high expenditure and lower income may not make that possible. This will certainly pose a challenge.
How far will the finance minister be able to meet this challenge? He will have to keep in mind that you can’t please everyone all of the time. He will have to pick and choose. He will probably stick to a routine budget, a continuity of the last decade.
Speaking to Prothom Alo about the budget, member of the General Economic Division (GED) Shamsul Alam said the government has continuity and the same development targets. It would not be correct to look for anything different in the new budget. He felt that the main challenge would be to increase the revenue in proportion with the Gross Domestic Product (GDP). The revenue sector will need extensive reforms if the GDP is to be raised to 9 per cent. The budget must have guidelines for proper implementation of the VAT law and banking sector reforms in the coming financial year, Shamsul Alam said.
Nothing new in the new budget
The economy is growing and so naturally the budget will expand too. The development budget is increasing as well. As the budget is simply continuing as before, it will be riddled with the same weaknesses in implementation.
With flaws in distribution of resources, there has been serious inequity in income. There has been economic growth, but no growth in employment. As a result, the benefits of economic growth have not been equally distributed.
The estimated size of the coming budget is around Tk 5.24 trillion. Of this, Tk 227.21 billion is for the Annual Development Programme (ADP). The revenue target may be Tk 3.78 trillion. Of this, the National Board of Revenue (NBR) will have to collect a bit over Tk 3.25 trillion.
The overall deficit in the new budget will be somewhat more than Tk 1.45 trillion. As always, the deficit will be within 5 per cent of the GDP. The main problem is the source of the deficit financing. In the new budget, Tk 600 billion will come from foreign sources to meet the deficit and around Tk 850 billion from domestic sources.
Foreign sourced funds are good for the economy as it involves less expenditure. The problem is with domestic sources. Higher borrowing from banks deprives the private sector and pushes up inflation. And creating funds by selling savings certificates creates further danger. The deficit financing target this financial year from savings certificate sales was Tk 261.97 billion, but in just nine months, a total of around Tk 400 billion was earned through savings certificates. Savings certificates have high profit rates and so, with no alternatives or safe spaces, the common people opt for this tool. That is why the bank interest rates are not decreasing and the interest repayment rates in the budget are increasing. Bank interest rates will have to be brought down to appease the businessmen, but the profits on savings certificates for the common people will not fall. It is not possible to bring about a balance between the two and so 18 per cent of the budget expenditure is channeled to interest repayment. This will go up further in the new budget.
Former finance minister AMA Muhith had presented the budget for 10 years at a stretch. His main aim was to have a big budget with quantitative increase in expenditure, not qualitative. He came up with big projects, but uncertain completion of these projects. He had nothing to do with reforms. With a lack of transparency and accountability, small problems heaped up and are now at dangerous levels. The banking sector is a glaring example.
Executive director of the non-government Policy Research Institute (PRI), Ahsan H Mansur, told Prothom Alo that there was serious discrepancy between the GDP data and the various economic indicators. Firstly, it is being said that performance of the production sector has led to increased growth. However, this should mean increased revenue, but revenue growth has only been 7 per cent.
Secondly, with the GDP at 8 per cent, the overall economy should be looking up. The bank default loans should not be increasing if economic growth is good.
Thirdly, business is the source of growth. If business increases, so should banking sector earnings. But bank earnings have fallen to half.
AHM Mustafa Kamal had previously been the planning minister and so it would be natural for him to be sceptical about the statistics. He has inherited the fragile state of the banking sector and the share market. It is nothing new for farmers not to receive their due, but that has now taken on alarming proportions. And by providing loan defaulters with huge concessions, the minister has been identified as a defaulter-friendly minister.
In this situation, the finance minister’s list of tasks is long - keeping the farmers in the fields despite their losses, restoring public confidence in the banking sector and the share market, overcoming the stagnancy in investment, preventing tax evasion, reducing income inequity and so on.
Rather than taking credit for a big budget, it is more important for the minister to bring expenditure under control, increase the qualitative aspect of the budget, create transparency, carry out necessary reforms and increase revenue channels.
* This piece appeared in the print edition of Prothom Alo and has been rewritten in English by Ayesha Kabir