Daffodil International University

Faculties and Departments => Business Administration => Business & Entrepreneurship => MBA Discussion Forum => Topic started by: Rozina Akter on June 11, 2013, 04:29:15 PM

Title: A budget with 'ifs' and 'buts'
Post by: Rozina Akter on June 11, 2013, 04:29:15 PM
We extend warm congratulations to Finance Minister (FM) AMA Muhith MP for presentation of his fifth budget in the parliament. The proposed budget for 2013-14 is not a big one as some would claim it. There was a time when even a Tk. 800-billion budget was called a huge and unmanageable one. The present government started with a Tk. 1138-billion budget in 2009-10, and set to finish its term with a Tk. 2,224-billion budget. On an average, the size has increased presumably by 16-20 per cent per fiscal in nominal terms. The economy has grown over time and now stands at possibly the 50th in the world league of countries in terms of GDP (gross domestic product). You need to pump in more money to keep everything on an even keel through enhancing effective demand, spurring investment to boost growth rate, transferring income from the rich to the poor for equity and building a modern economic base with better infrastructural facilities with a view to creating jobs for the people.

The targeted growth rate of 7.2 per cent and an inflation rate of 7.0 per cent for 2013-14 are being seriously questioned by the critics. The reasons are quite obvious. With the current investment rate of 25 per cent, and incremental capital-output ratio (ICOR) of four you can at best look for a little over 6.0 per cent growth rate. So, unless you specify how to inject momentum in investment, the growth rate so projected would raise several questions. But one then wonders how the Finance Minister could set so high a growth rate knowing well that the investment climate in the country is not conducive to such a growth rate. There might have been various reasons but we can mention a few. One is that if a Tk 1917-billion budget as proposed originally in 2012-13 could have produced 6.3 per cent growth rate ( as perceived by the Finance Minister), then a Tk 2224-billion budget proposed by him for the next fiscal could produce a slightly over 7.0 per cent growth rate. May be, budget formulators have chosen this simple arithmetic route in setting their targets. Secondly, the chances of a higher growth rate in this region and elsewhere proxied by a turnaround in global economy, and associated fall in energy and other prices in the international market in tandem with a good harvest at home might have positively affected their morale. Thirdly, the notion that a surge in business, trade and transport activities is taking place - mostly in informal sectors - adding to GDP but, allegedly, not counted in investment for some reason or other. And finally, technological improvement could have contributed to increased output over time despite stagnant investment.

Under this state of a mindset, we presume that setting the growth target at 7.2 per cent may sound ambitious but not unachievable either. In fact, the targeted growth rate should have been around 8.0 per cent by now to materialise the dream of graduating to a middle income country by 2021. Definitely, we are far short of that target with our business as usual attitude. But it is also true that the dwindling investment has remained a challenge in reaping the harvest home. Containing inflation at 7.0 per cent appears plausible provided monetary and fiscal policies work hand in hand.

The concern of the critics pointing to the implementation of this budget through three governments does not seem to hold much water. Every budget presented at the last leg of a government's tenure so far has been implemented by two governments. If one assumes an interim or caretaker government for three months, the trend is likely to be the same. It is not expected that a change in government would usher a radical change in budgetary allocations. Continuity of policies is a must for progress. Rather, one could argue that once another elected government takes office, political stability and business and consumer confidence may produce positive outcomes. But will there be a peaceful and smooth transition of power? This is the most crucial factor to watch.

The challenge remains also on the revenue front. Current budget's achievement trails behind target, and now a 20 per cent higher target raises eyebrows. If a $2-billion and overdrive for foreign aid as projected in the proposed budget could be materialised, and if non-bank sources of revenue through sales of, say, Sanchayapatra could be raised by a big margin, dependence on banks for borrowing would fall. This would help stem the rot such as hike in interest rate and crowding out private investment. Unfortunately, the experience of the current fiscal year provides little hope in this regard. The provision for whitening of black money not only puts economics over ethics defying moral economics but also puts a question mark: why such investment be allowed only in land and building and not why in factories and machines? Attempts to help local industries through reduction of duties in inputs as well as raising import duties on some of the finished products is a welcome move.

By and large, there are two major challenges to implementation of the proposed budget for the 2013-14 fiscal year. The first one is purely political and is related to re-establishing political stability. The havoc created in the name of politics during the last few months, if continued, would make everything difficult in future, not to speak of implementation of the budget itself. The second one is purely economic. If the present government, with half of the period of the proposed budget under its control, could take some salutary steps in removing infrastructural bottlenecks including gas and electricity and also roads and highways, there would be little room for pessimism. If the ruling and opposition parties can sit together to find out a solution to the prevailing political impasse, optimism may win and pessimism may wither. Unless politics is set right, economic performance might go wrong.

Source: The Financial Express
Title: Re: A budget with 'ifs' and 'buts'
Post by: A.S. Rafi on July 23, 2013, 10:02:06 AM
good analysis.May I know the author's name?
Title: Re: A budget with 'ifs' and 'buts'
Post by: Reza S. H. on September 26, 2013, 10:41:39 AM
I just don't understand why do BD Govt cannot think without Foreign Aid from USA, China, and Japan. it doesn't really add any value
Title: Re: A budget with 'ifs' and 'buts'
Post by: Rozina Akter on January 29, 2014, 11:59:45 AM
Govt can't justify with foreign aid, that's why value addition is such negligible.
Title: Re: A budget with 'ifs' and 'buts'
Post by: Jeta Majumder on April 01, 2014, 06:27:17 PM
Inspiring statement- "Under this state of a mindset, we presume that setting the growth target at 7.2 per cent may sound ambitious but not unachievable either." if it is possible it will be good news for bangladesh..
Title: Re: A budget with 'ifs' and 'buts'
Post by: nazmus2875 on October 14, 2014, 04:16:22 PM
it surely fall in deficit.
Title: Re: A budget with 'ifs' and 'buts'
Post by: Reza S. H. on May 28, 2015, 12:09:35 PM
what's your expectation from the budget going to be announced in this year?