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Long on Targets, Short on Realities

The Unnayan Onneshan (UO), an independent multidisciplinary think-tank, in its rapid assessment of the proposed national budget of the FY 2014-15 states that government’s fiscal measures may fall short to accelerate the economy to achieve the targeted growth of 7.3 percent in gross domestic product (GDP), an increase by 1.18 percentage points from the provision estimate of the current year.

“The budget speech frustratingly hardly mentions, let alone investigates into the reasons of, and suggests remedies for, the arrested growth rate of the GDP at six percent and fixes a growth rate of over seven per cent for the fourth time in a row,” says the organisation, terming the budget “long on targets, short on realities” of achieving goals espoused in the document.

The think-tank also cautions that the excessive dependence on financing the deficit of Tk. 67,552 crore through domestic borrowing of Tk. 43,277 crore, particularly Tk. 31,221 crore from banking sources may induce prices to inflate, undermining the government’s target of containment of inflation to 7.0 percent from 7.38 percent in April 2014.

The proposed budget targets to raise loans from the local banks from the 15.3 of the current outlay to 17.3 per cent in the next year and 7.2 per cent from foreign sources, up from the present 6.5 per cent of the current budget. If the government has to stick to its planned size of 250,506 crore in expenditure, in most likelihood which would not be the case, the government might have to borrow more from the domestic sources, as targeted revenue collection of 182,954 crore and projected disbursement of 18,069 crore in foreign loans might not be realised, the organisation adds.

The Unnayan Onneshan estimates that the share of investment to GDP needs to rise at 34.24 percent in FY 2014-15 in order to achieve the proposed rate of growth of 7.3 percent if the incremental capital output ratio (ICOR) remains constant at the previous fiscal year’s level of 4.69, meaning an increase in investment by 5.55 percentage points from the 28.69 percent in 2013-14.   Alternatively the government has to bring down the ICOR to 3.93, a leap in the productivity of investment. The both scenarios seem impossible, mainly due to supply side constraints such as inadequacies in infrastructure and lack of investment confidence owing to political uncertainties.

The Unnayan Onneshan also points out that continuous sliding down of private investment from 21.75 percent in FY2012-13 to 21.39 percent in FY2013-14, while increase in public investment from 6.64 percent in FY2012-13 to 7.30 percent in FY2013-14 has failed to create much needed crowding in of private investment.

Observing gap between savings and investment of 1.6 per cent in 2011-12, 2.14 per cent in FY2012-13 and 1.85 per cent in 2013-14, implying government’s inefficacious fiscal measures in converting national savings into investment, the think tank warns that such trend may induce national output to decline and further flight of capital from the country. An annual average amount of USD 1,581 million capital flew from the country during 2000-2008, reducing national capital.

The Unnayan Onneshan also notes a declining trend in allocation of resources in social sectors causing deceleration in the development of health and education sectors, slow reduction in poverty and increasing youth and educated unemployed. In education sector, the allocation comprises only 6.20 percent of total budget outlay in FY2014-15 compared to 6.64 percent in FY2013-14, whereas in health sector, the allocation comprises only 4.45 percent in FY2014-15 compared to 4.6 percent in FY2013-14.

Pointing to the underachievement of NBR tax revenue collection in recent years, the UO doubts that the target of collecting NBR tax revenue of Tk. 149,720 crore may not be feasible in FY2014-15, whereas a gap of Tk. 11,090 crore has been found between the target and actual collection of NBR tax in FY2013-14.

As regards increased expansion in government’s consumption-based expenditure, the UO records that almost one third of the total budget expenditure will be spent to pay for salary, interest payments and subsidy in FY 2014-15. Allocation in these three sectors together amounts to Tk. 82,720 crore which constitutes 33.02 percent of the total budget outlay in FY 2014-15.

Referring to the poor implementation of annual development programme (ADP) in the current fiscal year, the research organisation warns that the ADP allocation of Tk. 80,315 crore in the FY2014-15 may remain underutilised as only 55 percent of total ADP allocation of Tk. 60,000 crore in FY2013-14 has been implemented until April 2014.

The UO also highlights continuous reduction in the allocation of subsidy as percentage of total budget in agriculture. In FY 2012-13, the subsidy allocated in agriculture amounted to Tk. 12,000 crore which comprised 6.9 percent of total budget outlay, whereas the amount came down to Tk. 9000 crore in both FY 2013-14 and the FY 2014-15 comprises only 4.05 percent and 3.6 percent of total budget outlay of the respective fiscal years.

Growth in agriculture has been falling since the FY 2010-11. The rate of growth in agriculture was 4.46 percent in FY2010-11, whereas in FY2011-12 and FY2012-13 the rate was 3.01 percent and 2.46 percent respectively. In the FY 2013-14, however, rate of growth in agriculture has increased to 3.35 percent, though there remains controversy regarding the validity of this measurement of agricultural growth.

Referring to decreasing rate of growth in industry, the UO notes the lack of infrastructural facilities and consequential implications on the increased rate of unemployment. In FY2010-11, the rate of growth in manufacturing sector was 10.01 percent, the rate came down to 9.96 percent in FY2011-12 and then reach 10.31 percent in FY2012-13 and again fell to 8.68 percent in FY 2013-14 respectively. The proposal of removing supplementary import duty from industrial goods may further aggravate the declining growth in industry.

Relating to the infrastructure, the Unnayan Onneshan notes that the gap between installed generation capacity and maximum generation of power has been on increase, while the cost of power supply has increased by 163 percent during 2008-2013. In the FY 2008-09, generation of one unit power cost Tk. 2.55, whereas the cost reach Tk. 6.7 in the FY 2012-13 for generating the same amount of power. During the FY 2013-14, another rise in the power tariff by 6.96 percent has been in effect since March, 2014.

Noting the decrease in supplementary import duty on 770 commodities, the research organisation anticipates that import of these commodities will increase, which may pose serious challenge to the development of local industries.

Considering the inflow of remittance as a strong pillar of rural economic development, the think-tank finds that the growth of remittance inflow was 12.6 percent in the FY 2012-13, whereas the rate of growth has fallen by 4.8 percent until April of FY 2013-14, thereby exerting pressure on expenditure in rural households.

Calling for employment-friendly budgetary allocations in the productive sectors, the think-tank evinces that the number of unemployed population increased at an annual rate of 5.29 percent during the period of 2000-2010 and increased from 1.70 million in 2000 to 2.60 million in 2010. If the current trend continues without active actions, the UO projects that total unemployed population may increase to 3.3 million by 2015.

“The regressive tax structure is ridden with low base, avoidance and evasion. There is huge missing of distributive justice, characterized by widening income, spatial and male-female inequalities, driven by jobless growth. As a result, need for a pro-active state that would ensure social protection through innovation in social policies is pressing,” adds the Unnayan Onneshan.

Calling for prudent and farsighted fiscal management, the research organisation states that proposed actions are inadequate to bring fiscal discipline in the management of deficit, debt and subsidy one the one hand and to increase income in the absence of radical reforms in the tax system on the other.

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