THE budget for the fiscal year 2013-14 was submitted in the Parliament on June 6 by our octogenarian Finance Minister Abul Mal Abdul Muhit. Since then, numerous comments have been pouring down in the media, and those who have been following these comments carefully are bound to have become thoroughly confused because of their mutually contradictory nature.
Let me substantiate this point first before I try to clear/add some more confusion to the stock.
The main opposition party met the press after the budget speech and immediately asserted that the budget size was too large in order to be implemented successfully and this “huge” size reflects the popular imperatives of the future national election.
In other words, according to them it is a populist budget.
On the other hand the various spokesmen from the ruling party has been claiming that the budget size has grown normally along with the growth of the size of the economy as reflected in the steadily growing GDP (6% rate) in the past years. If anybody wants to take a reasonable standpoint on this issue, one will have to check first the relevant figures for the last four fiscal years related to our GDP growth and the growth of the Budget Size. (The relevant data is available in Table 9 at page 171 of the budget speech of our finance minister.)
From there we find that in the year 2008-09 the budget size had been Tk.89,194 crore which is only 14.5% of that year’s GDP. And, this year, the proposed budget size is Tk.222,491 crore (i.e. almost 150% more!) and it is estimated that if the real GDP grows in this year as projected (i.e. 7.5%) then this budget size will be about 18.5% of the estimated GDP of 2013 FY.
If the growth projection fails then the proportion will be higher. But one may always argue that in a transitional developing economy like ours, promising to become a medium developed country by 2020, the proportion of government expenditure can easily be boosted up to a level somewhere between 20 to 40%; depending upon whether the state money is really used for productive purposes by the state.
One can also draw attention to last year’s figure which shows that the figures have remained roughly same (18.4% of GDP in 2012-13 and 18.7% in the current fiscal year).
Thus we can certainly say that the budget size is not the main issue. Nor is it a question of popular election imperatives or so called ambitious nature of the budget. All these claims and counter claims hinge upon what is actually going to be the realised rate of GDP growth in this politically tumultuous year — whether the money can be properly used by the State or not.
The main issue is the growth projection of the current budget and here one should probe into the underlying assumptions to find out how realistic those assumptions are? Growth rate of the GDP will directly depend upon two things: The amount of investment forthcoming and the productivity of the investment or more technically the marginal capital — output ratio that could be achieved or at least maintained.
To have a 7.5% growth of real GDP the required investment will have to be raised from the current 24% of GDP to a level of 30%, if and only if the incremental capital-output ratio remains at least as before.
CPD and some donor agencies have indirectly suggested that the present government has been clearly failing in the sphere of mobilising productive investment from the private entrepreneurs due to various governance problems.
Furthermore, because of lack of physical infrastructural facilities, the new entrepreneurs, local or foreign, are also not interested to invest. Some big players and/or owners of black money (According to our FM the black money is to the tune of 40 to 80% of our GDP!) are also diverting investible fund to foreign countries too.
The financial sector corruptions, popularly named or associated with a few rich houses supposed to be in the good book of the government has diverted a huge amount of money and no trace of that money could be found till now.
Moreover, banks are generously lending money to the loosing corporations of the state without ensuring proper monitoring of them and all these above mentioned negative tendencies together have raised the interest rate of the loans for private investors to a level of 20 to 22%. Thus the final conclusion is that a 7.5% growth will not be possible to achieve because of the lack of requisite investment.
Let us now see the counter arguments against these dark predictions. In the concluding chapter of his budget speech our octogenarian FM claims that “Bangladesh now has a strong economic footing” (P.116). According to him, poverty has declined considerably and he also claims that even inequality has decreased during the tenure of his government!
About “inequality” we cannot be sure, but it is true that there has been achieved significant progress in the agricultural sector as well as in the field of education; health, remittance earning and garments sector export.
Six percent steady growth achievement for the last few years despite the world wide recession is not a small thing. But what are these achievements actually showing? I think they only show that what a bright future we are missing by not addressing effectively our governance and corruption problems mentioned above.
And let me end this brief commentary on budget-2013 with a last cautionary warning about the huge opportunity cost we may endanger if in this critical transitional period two of our main political parties get engaged in a hopeless self-destructive politics of conflict and corruption.
Source: The Daily Star
Dept. of Business Administration