When Students For Free Tibet- Bangladesh’s pro-Tibet movement in Dhaka was blogged in the Unheard Voice, a number of comments were posted for and against such movement. While the opponents argued that Bangladesh should mind its own business, others argued that Tibet issue is not that unrelated to Bangladesh’s interest.

I think Bangladesh can respond to Tibet issue in two ways- informal public campaigns in solidarity of international human rights, and through formal policy stance.

Though Bangladesh’s formal (foreign) policy stance can be influential to or separate from the public campaign, it needs to take into account a number of critical issues (when there are two elephants -China and India- in the room, one better be careful while dancing around them).

First, Bangladesh already had a bitter experience with One China Policy, something China insists very strictly. When Taiwan opened an unofficial Trade liaison office in Dhaka in 2004 (which in now inoperative), China’s response was furious (many argued that the discharge of Bangladesh’s Trade Minister was a result of this).

Second, Bangladesh is trying to play China-Card to counter balance India’s dominance in the South Asian regional order. Not only Bangladesh’s trade volume has shifted significantly from India to China, Bangladesh is actively supporting China’s engagement in SAARC while China supported Bangladesh’s membership in the ASEAN regional forum.

Third, China has gradually switched its foreign aid and trade focus towards Africa which is by default reducing Bangladesh’s dependence on Chinese aid. This may on the other hand help Bangladesh to take a more unqualified approach towards the Tibet issue.

Forth, Bangladesh may have to take a cohesive approach towards Tibet and Uighur. Yes, Tibet and Uighur has their respective reasons which are separate from each other. But from Bangladesh’s perspective, the historical, ethnic and religious aspects of both issues are the same only Tibet being the Buddhist majority, and Uighur being the Muslim majority within the respective regions.

We could probably have a more informed debate if Bangladesh had a clear foreign policy. Nevertheless, a citizens’ movement is not always limited by formal foreign policy (that is why citizens in USA campaigned against the war in Iraq during Bush era). At the same time, it is also not limited by self-interest (that is why George Harrison organized Concert for Bangladesh which went against USA’s formal national interest).

Unfortunately, many bloggers assume that one would have to “neglect the problems at home” to help others? But I guess they misunderstand the capacity of Bangladeshis. There are many young Bangladeshis who are spending the best of their times for the betterment of the disadvantaged people at home, while at the same time raising concerns for international human right issues. You don’t need to find a Che Guevara for that.

When it came to the sufferings of general citizen, even Bangladesh and Pakistan helped each other in spite the historical bitter bi-lateral relation. Bangladesh sent relief to the 2005 earthquake victims of Pakistan. Later on, when needed, Pakistan helped the 2007 cyclone victims in Bangladesh.

In 2005, Bangladesh offered $1 million in aid for USA’s Katrina victims (yes, you read it right, Bangladesh helped USA). When Bangladesh needed the support back, well, we all know how USA responded.

One can make a longer list of such instances which will only prove that helping others is not limited by “self-interest”; rather it is determined by one’s morale and rational stance.

Former Prime Minister Khaleda Zia’s eleventh-hour u-turn from the launching of national anti-poverty drive has once again renewed the recurrent concern – where is the opposition in Bangladesh politics?

At first instance, it may seem normal since such refusal is nothing new in Bangladesh. The incumbent leaders also boycotted many such calls for negotiation and cooperation when they were in opposition. But the real concern is elsewhere.

The less important issue here is the “way” BNP backtracked from the promised involvement. Khaleda Zia blamed the “events over the past few days” for this which includes deteriorating law and order, high prices of commodities and politicization of administration. There is no denying of her accusations. But the perplexing thing is that the situation was the same when her Chief Whip Zainul Abdin Farroque confirmed her presence even two days earlier (on 16 Oct). Have the alleged politicization or the worsening of law and order just started “over the past few days”?

She also argued that “the process for creating national consensus on various issues can begin only after the government creates a congenial environment”. Seems like a chicken-egg dilemma. Does consensus create ‘congenial environment’, or congenial environment creates consensus? We know that AL used to argue the same.

Maybe something really happened “over the past few days” that has changed her decision. Or, maybe it’s the triumph of the erroneous believe that (except during military programs) stage-sharing is harmful for opposition. But couldn’t the Former Prime Minister fry the fish (AL) with its oil (the stage)? Couldn’t she use the stage to openly criticize the current Prime Minister for failing to address the poverty issue correctly? Wouldn’t that be a better show than the unexplained u-turn?

But the more important concern here is the absence of an active opposition which is essential for checks and balance in democracy. BNP is neither in the parliament nor outside which is giving AL a ride without checks. AL has passed and bypassed a series of issues without facing a strong opposition. So far the noticeable oppositions to AL are coming from within AL – either from the Prime Minister Sheikh Hasina herself or from other AL leaders.  Or, at best, from non-political groups.

Yes, we understand that BNP need some time, first to get revived after the two-years’ of political ordeal; and second, to rebuild its morale after the landslide election loss. We also understand the difficulty it is facing in balancing its anti and pro-reform leaders, and in keeping a strong voice in the parliament with so few members.

But absence of a strong BNP at this point in time is very dangerous for several reasons—

First, vital and controversial decisions are usually taken during the first years of a government. So a rejuvenated BNP after few years will not compensate the loss Bangladesh is experiencing for not having a strong opposition now.

Second, if the past regime of BNP is any indication, incumbency not necessarily makes a strong political party. If BNP fails to emerge stronger now being in the opposition, it will be in jeopardy next time it comes to power (that is, when people will put it back in power not for its strength, but for AL’s weakness).

Third, the absence of a strong “right of center” (essentially anti-AL) opposition may bring the “extreme-right” into limelight. If the extremists steal the show from BNP (being embedded in BNP or replacing BNP) and emerge as the alternative opposition, it will be a real trouble for our development. It may sound unlikely now, but AL has witnessed dramatic change in its opposition over the last decades which ranged from far-right to far-left. Bangladesh cannot endure a return of non-moderate opposition force now.

Under these circumstances, any political discourse should address—

1. (If BNP is perceived as the only opposition) how a right-of-center, moderate BNP can be rejuvenated and kept protected from extreme-right?
2. (If one is bored with repetition of the same parties) how an alternative political force can be created without falling into the same post 1/11-saga?
3. (In the absence of any of the above in the short-run) how the current regime of AL can be brought under constructive criticism and meaningful political checks?

Cross-posted at Unheard Voice

Blue night blue as I can be- 1, originally uploaded by Syeed’s Photo.

Today, I went to the St Kilda beach (Melbourne) to photograph the rise of the full moon. By the time I got to the beach, cloud was all over the sky and moon was nowhere to be seen. While I was roaming around the dark beach, disappointed, the sky turned blue (probably to make it up for me). Didn’t have to use any filter or digital post-processing for the color.

I know, the thumb-rule says, I shouldn’t have put the horizon in the middle of the picture…. but for some unknown reason, I chose to ignore the rule

Published in the Daily Star (4 Sep 2009)

GRADUALLY we are getting used to the initial covering up and subsequent disclosure of criminal cases. Under one government, we learn how an apparent killing or a bomb blast is either just an accident or deep-rooted political conspiracy. And then after the change of government, we learn how the criminal cases were distorted during the previous regime to cover up the truth. From “media created” Bangla bhai to the attack on Humayun Azad, or from the Ramna bombing of 2001 to 21st August 2004 grenade attacks — it’s the same story.

The propagated stories, often hilarious, raise concerns over the law enforcing agencies. But all the more astonishing is how the investigators, after the series of exposures of such case-distortions, continue to twist new cases and spin new tales, and still expect us to believe them!

Distortion of a criminal case at the hand of the investigators may emanate from political pressure or from incompetence in probing the act. In both cases, the investigators try their best to convince everyone that either an apparent murder case was just an accident, or they find an innocent person to “confess” in an effort to hide the actual culprits. The investigators believe that their incompetence or politically motivated wrong doings should be kept secret at any cost. Hence, this cover up process, as we have seen in recent George Miah case, can be very ruthless.

There is, however, a huge difference between politically motivated distortions and distortions out of incompetence.

In the case of politically motivated distortions, there is always a hope that a new government will come to power and bring the culprits to justice. The criminals also remain in fear that one day their incumbent protectors will be voted out from power and the new government will reinvestigate the cases to prosecute the actual criminals. The families of the victims can also keep this faith.

For cover-ups that arise from the incompetence of the law enforcing agencies to solve any particular case, the end result is rather severe. While the families of the victims remain hopeless, the criminals remain at large. As the criminals become more confident and spread their criminal activities, others get encouraged too.

This makes it all the more essential to reinvestigate the mysterious deaths of Ganatantri Party President Nurul Islam and his son. The initial investigative reports, which concluded that it was a case of electric short-circuit from the fridge, soon came under question when the compressor of the fridge was found intact and the electric cable unplugged. As was seen on TV footage, the mysterious explosion — which melted down the ceiling fan, shattered the front door of the fridge — left the back of the fridge intact.

According to some eyewitness accounts, the explosion was too mysterious for the law enforcing agencies to solve because they do not have enough equipments and know-how to scrutinise the case. As for the government, maybe there are too many things on its plate. Hence, though sympathetic to the cause, it’s unlikely that it will increase the capacity of the investigators to solve this case. But this is very unlikely to be just another unresolved case.

The criminals have already got the signal that the government is simply incapable of probing their criminal acts. They now know that when it comes to the death of an honest leader like Nurul Islam, they can get away. One unsolved murder, by proving the incompetence of the state, can invoke further criminal activities. This is how the killings of national leaders have increased over the years. This is how the criminals have established the fact that anarchy prevails instead of justice.

Such social disorder contradicts the whole purpose of having a national government. Citizens elect a group of persons among themselves as the government of the country so that law and order is maintained. It is perceived as a “social contract” between the people and the government, implying that the people give up some rights to the government in order to receive social order. Most historical accounts suggest this as the reason of establishing states and affirm that the principal task of the government is to maintain law and order. Issues such as taxation, budget, development works, and poverty reduction came much later as other government duties. Hence, it is against the “social contract” to argue that the government cannot spend on investigating a murder case because it has other tasks at hand.

Capacity building of the law enforcing agencies to solve this particular case is essential to protect the nation from similar instances. It is also essential to establish the supremacy of the state power over the criminal minds by solving the case. After all, that’s what the government was all about at the first place.

অতটুকু চায়নি বালিকা!
অত শোভা, অত স্বাধীনতা!
চেয়েছিল আরো কিছু কম,

আয়নার দাঁড়ে দেহ মেলে দিয়ে
বসে থাকা সবটা দুপুর, চেয়েছিল
মা বকুক, বাবা তার বেদনা দেখুক!

অতটুকু চায়নি বালিকা!
অত হৈ রৈ লোক, অত ভীড়, অত সমাগম!
চেয়েছিল আরো কিছু কম!

একটি জলের খনি
তাকে দিক তৃষ্ণা এখনি, চেয়েছিল
একটি পুরুষ তাকে বলুক রমণী!

Published in the Forum (July 2009)

The budget for the fiscal year 2009-10 (FY2010) has attracted a mixed response and has been termed as bold as well as exaggerated, conservative as well as ambitious, and challenging as well as full of rhetoric by different quarters. While pro-poor allocations and taxation has been appreciated, controversial proposals such as the black money recycling scheme invited widespread criticism. While the budget has taken some traditional stances such as block allocations and high government borrowing, it has also introduced some new approaches such as the public private partnership and economic decentralisation.

This article will analyse some good, bad and unknown issues of this year’s budget by exploring different budget proposals and post-budget discussions.

The good growth recovery
Bangladesh’s GDP growth slowed down by 0.31 of a percentage point during FY2009 (from 6.19 percent achieved during FY2008) owing to multiple disruptions, political uncertainties and consequential low public investment, as well as the global recession. While the global recession seems to be bottoming out, its delayed impact may continue to hurt Bangladesh’s growth prospects during the coming quarters. Keeping in mind the slowing down of demand in our exporting markets, performance of neighbouring economies, and projections of ADB-IMF, any growth figure over 5.5 percent in FY2010 would suggest a resistance to further slip and a 6 percent growth would mean a good resurgence. Hence, while the growth target for FY2010 — set at 5.5 to 6 percent — may appear unadventurous, attaining this target will be quite an adventure itself.

To achieve this growth target, the government’s forecast of investment efficiency, measured by incremental capital-output ratio (ICOR), may seem odd. It is predicted that the ICOR will increase in 2010, meaning more investment will be required to achieve a similar level of production. There are possibly two explanations behind this projected drop in investment efficiency — the recession-recovery dynamics, and the lagged response of rural investment.

During a recession, private sector is typically reluctant to invest and government often adopts expansionary fiscal stance to revive GDP growth. As a result, the ‘projected’ ICOR appears low in the context of a modest GDP target. Once the proposed stimulus package and public investment programmes are put into effect, the private sector will recover and the actual investment efficiency will look better in the backdrop of a moderate growth attainment and revised (downward) public investment figures.

The budget allocations, which shifted focus from urban-industrialisation to economic devolution and rural development, may reduce the investment efficiency in the short-run as rural development shows a delayed (but sustained) response to investment. A study on China’s economic growth between 1978 and 2000 (Journal of Asian Economics, 14, 2003) shows that in the long run, investment efficiency can be reaped through rural industrialisation and proliferation of small firms in non-state sector. The current budget seems to have addressed this stance. Hence, an annual fall in projected ICOR can be ignored if economic devolution can be ensured and a reasonable growth is achieved during the current fiscal year.

Economic devolution
The budget, in allocation and in principle, has aimed to promote ‘economic devolution’ by advancing the local bodies to set and administer their own economic goals. Development of the regulatory framework is already under preparation as the Upazila Parishad Act has been passed in the parliament, the Pourashava Act is awaiting parliamentary approval, the Union Parishad Act has secured cabinet approval, and the City Corporation Act has been tabled. The finance minister has promised to introduce a district level budget for FY2011, initially for one district in each division. Ministries and divisions have been asked to create a Budget and Planning Wing or Branch within their organisational structure for faster approval and effective monitoring of projects.

On the expenditure side, subsidy for fertiliser and agricultural inputs has been reduced by 37.7 percent from last year’s revised budget. Since the price of different fertilisers declined by 30 to 70 percent in the world market over the past several months, the proposed subsidy seems reasonable for the new fiscal year. To facilitate multiple crop production and to expand the cultivable land by improving drainage system in the haor areas, Tk 4000 crore has been allocated. In addition, Tk 280 crore and Tk 185 crore have been allocated for development of high yielding variety seeds and for agricultural research and agricultural rehabilitation assistance. The budget has recapitalised the micro credit institutions (Krishi Banks and Karmashanghstan Bank), increased the fund for housing and SME, and has allocated Tk. 3,575 crore to invest in the construction and reconstruction of roads and bridges under LGED.

While the proposed decentralisation of police administration seems pertinent, the setting up of a Public Representative Board to oversee police forces may raise concerns and should be implemented with outmost transparency to stop unwarranted politicisation.

Against the above budgetary measures and aims, there are potential worries about economic devolution. Recently, Bangladesh’s decentralisation dilemma has taken a new turn. We have moved from the traditional conflict between administrative and political representatives. Now the conflict is between central and local political representatives, i.e. MPs and upazila chairpersons. The major constitutional duty of an MP is to work on policy issues in the legislature, not handling the development programmes. However, given the socio-political context of the country, if the government wants to provide some spending power to the MPs, this should be done under transparent framework without undermining the duties of the upazila representatives.

Pro-growth, pro-poor taxation
The budget proposes to widen the tax net instead of increasing tax rates, increase tax on luxury consumptions while reducing tax on essential and production related items, and offers tax reduction to specific industries while withdrawing the largely misused tax-holiday scheme.

The tax rate for deductions of income tax at source against capital gain from the sale of land has been slashed down from 5 percent to 2 percent in urban areas, whereas a further reduction to 1 percent has been proposed for other areas. It has also reduced the income tax burden on senior citizens by lowering the age bar from 70 years to 65 years. While major food items and fertilisers will continue to enjoy the zero-rate tax, additional duty exemption has been offered for the import of phosphoric acid used for fertiliser production. Duty rate on books (including fictions, novel) has been reduced from 12 percent to 5 percent. More importantly, the budget has reduced the duty on basic raw materials from 7 percent to 5 percent, which will stimulate the local industries. The budget also increased the threshold level for VAT from Tk 24 lakh to Tk 40 lakh to encourage small and medium enterprises. The threshold level for imposing excise duty on bank deposits also increased from Tk 10,000 to Tk 20,000 to encourage small savers.

On the other hand, the budget imposed tax on personal cars and increased supplementary duty on the imports of luxury vehicles. In addition, 5 percent regulatory duty has been imposed on luxury items falling under 25 percent slab of duty. It increased the supplementary duty on air-conditioners and imposed 25 percent customs duty on mobile phone sets on an ‘ad valorem’ basis, which will increase the cost of expensive mobile phone sets. On the other hand, a reduction in corporate tax rate for mobile phone operators has been offered with a condition that they will enlist in the stock exchange as a publicly traded company.

Overall, the changes in duty rates and duty structures seem pro-poor and pro-growth.

The bad
Recycling black money
The budget has renewed the debate surrounding the definition and importance of black money in the economy. The proponents of this black money recycling scheme are now making a distinction between illegally and legally earned un-taxed money by terming them black money and undeclared money. The opponents of the scheme however disagree with such differentiation and demand cancellation of the scheme altogether.

The black money recycling proposal overshadowed the post-budget discussions, not only on moral grounds, but predominantly on an economic standpoint. Earlier such schemes were never successful in attracting investment and only created new avenues for tax-dodgers who regularised more black money by paying less tax showing exaggerated investment progra-mmes. Since the penalty is only 10 percent, compared to the 25 percent regular tax, the proposed scheme will encourage the honest tax payers to ‘paint’ their white money black to get additional tax-cuts.

The FBCCI reaffirmed their position on black money and demanded that only legally earned ‘undeclared money’ should be allowed into investment. The ‘no question asked’ clause of the scheme should then be withdrawn to scrutinise the sources of the money and Central Intelligence Cell (of the National Board of Revenue) and Anti-Money Laundering Department (of the Bangladesh Bank) should be part of this inspection process.

Given the failure of previous schemes and the uncertainty of its prolonged duration, the government should rethink the proposed scheme.

However, to address the lack of investment in power and infrastructure and to stop capital flight, the government may consider specific project proposals on a case-by-case basis. In this case, a consortium could commit an amount of previously undisclosed money to invest in a specific project related to power or infrastructure. The government will then scrutinise the sources of the money and if clean, will allow the money to be invested in the project after due penalty.

Disclosed budget
If you are wondering whether the revelation of budget details before the due date was a leak or a means of ‘testing the water before swimming’, the finance minister has the answer for it — its both. While there were some unintentional leaks of budget documents at the finance ministry, the finance minister intentionally revealed much of the proposals before the budget to watch public and media response. He acknowledged that the feedback he gained through such revelation helped him formulate the financial plan.

Though one might condemn the stance as an informal means to minimise post-budget criticism, a well-organised budget consultation can reinforce democratic responsiveness too. After all, the budget of the republic is an open document and some organised revelation during pre-budget consultations can be used to better reflect public demands and expert opinions.

After the announcement of the last financial year’s stimulus package, we have seen the finance minister changing positions in response to demands from different stakeholder groups. We have witnessed how the finance minister has been readjusting on black money recycling scheme amid criticism. If it is responsiveness — not hesitance — then pre-budget revelation of proposals and following reactions are good for the budget. However, to limit future confusion, a formal approach towards pre-budget consultation and revelation should be put in place.

Unspecified allocations
Block allocation is an obscure area in Bangladesh’s budget. It is essential to have some block allocation in the budget for uncertain expenditures such as natural calamities, for proposed programmes that are still under preparation (e.g. PPP budget, salary increase). But block allocations often cause double jeopardy by allowing corruption when spent and by stagnating development expenditures when kept idle. Unwarranted expenditures are often observed in programmes where block allocations are made without proper budgeting. On the other hand, many development programmes based on block allocations remain just political rhetoric and never see any release of funds. Hence, disproportionate presence of block allocation in the national budget makes us uncomfortable.

A large amount of this year’s development and revenue budget has been kept as block allocation. Block allocation for unexpected non-development expenditure increased from Tk 800 crore in FY2009 (of which only Tk 183 crore was spent) to TK 900 crore, while a whopping TK 3,388 crore of block allocation has been kept for the new pay scale. An allocation of Tk. 5,000 crore has been kept in the budget to continue the previously announced stimulus package. The LGRD ministry also proposed to keep Tk 5,000 crore as block allocation. An amount of Tk 2,200 crore is set as block allocation to aid the much-discussed public-private partnership (PPP) endeavour. In addition, most of the social safety net and rural development programmes have been announced based on block allocations.

The cancellation of a previous plan to offer block allocations to MPs for development is a welcome decision. The government should now take immediate steps to set up modi operandi, monitoring mechanism and project specific budget for the remaining programmes, which have been proposed under block allocations.

The uncertain
Deficit financing
As the finance minister admitted, financing and implementation of the budget will be its biggest challenge. The low fiscal capacity and high fiscal need to implement the budget will create a ‘fiscal stress’ in the economy. The deficit for new budget stands at Tk 34,358 crore or 5 percent of the GDP (almost a percent of GDP higher than the previous year’s revised deficit).

If the global recession and slowing down of private investment hamper the achievement of revenue target (set at Tk 79,461 crore), the deficit scenario will turn dreadful. Since import duties constitute nearly 42 percent of the total tax revenue, a decline of duties on imports as a consequence of the fall in global commodity prices may particularly jeopardise the revenue collection effort. Provisional statistics suggest a sharp fall in trade related revenue earnings during FY2009 — the collection of import duties fell short of target by 11.9 percent.

The expansionary fiscal stance may also cause problems for the monetary sector if the government resorts to bank borrowing to finance its deficit. This may imperil the private sector investment either by increasing the demand for loan and thus increasing the interest rate, or by squeezing the share of private sector borrowing from the banking system. Securing foreign financing will be critical to keep the local funds available for the private sector. However, the global economic recession may turn that option all the more uncertain. Even successful financing of such a large deficit may cause long-term fiscal stress by increasing the interest payments.

Public Private Partnerships
The much-conversed public private partnership (PPP) in the national budget has created some opportunity and uncertainty at the same time. As discussed in a previous write-up (Daily Star, May 18), the scheme encourages off-budget financing by private sectors to meet the growing public debt and support the developmental need of the country. However, this opportunity is eclipsed by the lack of a legal and regulatory mechanism.

The budget proposed to administer the PPP projects under the Private Sector Infrastructure Guidelines, which was prepared by the Prime Minister’s Office in 2004. A closer look at that document suggests that the Guideline is not comprehensive enough to govern the complex mechanism of PPP projects. For instance, the Guideline suggests forfeiting the tender security in case private partners fail to execute a contract, but it does not explain how the risks and consequences of such failure will be shared between government and private partners. That’s why global experience of such scheme shows that most successful PPP projects are managed under a legal regulatory mechanism, not under executive guideline.

PPP is a synergy, not privatisation or deregulation. To ensure transparency and accountability of PPP contracts, and distribute the risks, resources and rewards among the public and private partners, setting up of an appropriate legal framework is required.

Published in the Daily Star (15 June 2009)

Incidentally when the manifestos for National Election 2008 were being prepared, the world economy was already in recession and the election promises were linked with the recovery. This must have facilitated the budget to address the recession and election promises in chorus and with success.

The budget admits the challenges ahead forecasting a 5.5% GDP growth, but it also aims to change that conservative scenario by promoting investment, decentralisation and infrastructural development. The finance minister has received a mixed (though largely positive) response for various proposals. This article however underscores few uncertainties surrounding the budget proposals.

The policy paradox

Bangladesh’s economy has been an orphan without a long-term perspective plan, more like a vessel without a compass. The poverty reduction strategy paper (PRSP) failed to fill the gap of a medium or long-term plan, without which the development promises of annual budgets can easily get off course.

The finance minister has proposed that the PRSP will be pulled out by 2011, and be replaced by a five-year midterm plan for 2010-2015 and a long-term perspective plan for 2010-2021.

The minister also announced that the five-year plan will influence the annual budget objectives, while the current PRSP will affect the budget for the intervening period. While this will surely end the disappointing “policy-paradox,” this transition period, however, may affect this year’s budget proposals. Since both the new PRSP and the FYP is under preparation, how will this budget, which has already been announced, follow those yet to come as perspective plans?

Recycling black money
The finance minister made a moral compromise by offering a three-year amnesty to “recycle” (I have reservation calling it ‘whitening’) black money into the mainstream economy without any question. The decision came as a desperate attempt to stop capital flight and promote domestic investment.

In a time of global recession, such decisions could merit some justification if it was at all an effective approach. But earlier instances were hardy successful in stopping capital flight. While this is a huge disappointment for the real tax payers, the major problem of this year’s proposal is its duration. In the past, there was an uncertainty about the duration of the scheme. But now that the scheme is surely for the next three years, regular tax payers will be encouraged to evade 25% regular income tax during the next few years, and resort to the minimum 10% penalty under this scheme.

The operations of Central Intelligence Cell (of the National Board of Revenue) and Anti-Money Laundering Department (of the Bangladesh Bank) should be strengthened to press on the tax evaders, to recycle their money instantly and discourage future tax evasion.

Are we all Keynesians now?
At a time of recession, Keynes suggested an economic policy to increase the aggregate demand (e.g. through consumption, investment, and government purchases). No wonder big economies around the world are announcing big budgets and taking unprecedented investment programs. Bangladesh’s national budget for FY2009-10 seems to have targeted the Keynesian need for investment.

Admittedly, Bangladesh is a passive victim of the global recession and cannot blindly follow the steps of developed economies. However, the Keynes model can create an opportunity for Bangladesh to finally decentralise the economy.

In the proposed annual development program of Tk.305 billion, 22.1% has been allocated to the local government, 14% for the power-energy and 15.7% for communication (including roads, highways and waterways).

In addition, an Infrastructure Investment Fund of Tk.21 billion and an employment generation program for the hardcore poor have been announced. These programs can be used in building infrastructures at the local level, which in turn may assist decentralising the economy.

The double-trouble
The proposed budget has a twin-risk both in its earnings (i.e. deficit financing) and in its expenditure (for development program) plans.

William Vickrey, a Canadian professor of economics and Nobel Laureate, argued: “Budget deficits do not in themselves produce inflation, nor does a balanced budget assure a stable price level.” The budget aims to finance two-third of its Tk.340 billion deficits through foreign financing. Securing that money might become uncertain amid the global economic downturn. And poor management of deficit financing may endanger the whole purpose of a Keynesian budget by increasing inflation and reducing private investment.

Some expenditure programs, based on block allocations, also create uncertainties. The government should remain cautious about these allocations for social safety net programs, which often remains unused or gets wasted in corruption. In the words of Benjamin Franklin: “Beware of these little expenses; a small leak can sink a great ship.”

Published in the Daily Star (11 June 2009)

The finance minister is set to put forward the national budget for fiscal year 2009-10 today. This is the first budget of this government after the restoration of democracy and also the first budget of this finance minister under a democratically elected government.

Over the last few months numerous proposals/demands have been made to the finance minister from different stakeholder groups. At the same time, scores of speculations have been printed about the probable size and composition of the budget. Today, as the finance minister rehearses his budget speech, let’s go over some of the key issues that will be fundamental to assess the new budget once it is announced.

Legal framework of PPP
The government is announcing an off-budget financing feature for development programs in its budgetary mechanism which may account about 15 percent of total national budget. The budget speech and the budget documents should outline how the government plans to formulate the legal framework of PPP projects; how the risks, resources and rewards of the projects will be shared among the public and private partners; how the procedural delays and bureaucratic bottlenecks will be reduced; and how the preference of social responsibility over profit will be ensured in these projects. As I discussed in a previous piece on PPP (DS, May 18), the success of the PPP initiative will depend largely on how transparently and efficiently the government sets the legal mechanism.

Record high deficit
Economies, large and small, around the world are counting high budget deficits mainly due to their increasing revenue expenditures to tackle the looming economic recession. Bangladesh is most likely to follow the trend and a record high budget deficit of over 5 percent of GDP has already been anticipated. Implementation of social safety net programs; block allocation for the PPP initiatives; implementation of new salary scale; and supplementary allocation to previously announced stimulus package will add up to this record high budget deficit.

The government is likely to go or foreign sources to finance the three-fifth of its total budget deficit. However, the finance minister may also increase the duties on luxury imports, target new income tax payers, broaden the tax base for VAT, and bring an end to sectoral tax holidays to reduce the revenue earnings-expenditure gap.

Politics of rice price
Too often Bangladesh’s politics circles around the price of rice. During the run up to the last national election, rice price was a highly contested issue and even after the election, the two political parties exchanged barbs on an alleged promise to bring the rice price to Tk 10. Alas, they forgot how a farmer will survive after selling the crop at that price when the production cost was almost double! The fall in rice price in international markets and subsequent bumper crop in Bangladesh has brought down the price of rice at the end.

A series of suggestions have been made over the past couple of months including imposing duty on rice import, purchasing the grains directly from the farmers and increasing government’s storage capacity to develop buffer stock to protect the farmers. As the country awaits another good harvest of Boro, it would be interesting to see how the budget aims to safeguard the farmers from further decline in price.

Election manifestos and budget proposals
It is expected that the first budget of the newly elected government will address its election promises. While the finance minister goes over the budget speech, let’s revisit AL’s election manifestos to see if it resonates with the budget proposal. AL’s election manifestos promised that highest budgetary allocation will be given to education, science and information technology sectors; power production will be increased to 5,000 megawatt by 2011; special emphasis will be placed on expansion of facilities for research in agriculture; subsidy for agricultural inputs will be enhanced; employment guarantee scheme will gradually be made effective to provide 100 days employment to one youth per family; and a project will be undertaken for young men and women with HSC degrees for appointment in the “national service” for two years. These are some key promises taken from AL election manifestos and let’s keep the manifestos handy while we listen to the finance minister’s speech.

Traditionally, major reforms are initiated during the initial years of an incumbent government, since the political government become reluctant to take drastic approaches towards the end of its tenure, especially before the next election. The first budget of this government is being announced at a desperate time when our exports and employments are threatened by the global economic recession and worsening power shortage. Desperate time calls for desperate measures and what better time than now for finance minister to take bold steps to revive the financial sector! The first cut should be the deepest.

Published in the Daily Star (18 May 2009)

THERE have been some strong media speculations that the coming budget will introduce Public Private Partnership (PPP) to Bangladesh. This will have lasting implications for our development.

Off-budget financing of development programs is not a new phenomenon. Over the past few decades, many governments encouraged off-budget financing by private sectors to meet the growing public debt. In 1992, the Conservative government of John Major first introduced a systematic PPP program in the UK, which was later continued by the subsequent Labour governments.

The PPP initiatives may include a variety of joint ventures, including part-ownership of state-owned enterprises by the private sector, private financing in government projects, and contracting out of particular services (including construction and maintenance of infrastructures).

For instance, the government may hire a consortium of private entrepreneurs to establish a power plant and in return offer the consortium a percentage of its revenue earnings. This way, the efficiency of private capital can create a synergy with the credibility of public service.

However, balancing the public sector’s goal to provide quality services and the private sector’s interest to withdraw return on investment is very difficult. As the new government is approaching its first national budget, it is important to highlight some of the prerequisites of a PPP budget.

Proactive regulatory framework
It is essential to have a well-defined legal framework for the regulation and transparency of PPP enterprises. The PPP budget will require a proactive regulatory framework, with appropriate checks and balances, to prevent corruption.

Countries such as UK, Canada, India and Singapore instituted rigorous regulatory frameworks and responsible public bureaucracies before initiating their PPP budgets.

Bangladesh, in contrast, has a reactive legal structure, which fails to prevent corruption and aims to penalise the dishonest after a felony is committed. Since the government aims to initiate PPP projects in the next fiscal year, prompt action will be required to establish a comprehensive policy and regulatory framework for competitive and transparent bidding, sharing risks and rewards, and dispute settlements.

Synergy, not deregulation
Bangladesh’s experience with deregulation and foreign investment has not always been very encouraging — having witnessed privatisation scandals of the 1980s or treaties like GATCO. Therefore, ensuring transparency and accountability of the PPP contracts will be vital. The objective of public private partnership is to produce an outcome greater than the sum of its individual parts. Hence, the focus should be on synergy, not deregulation.

Sharing risks and rewards
It is essential to identify the risks associated with a PPP project, and to use an appropriate legal framework to distribute the risks, resources and rewards (3Rs) among the public and private partners.

According to a 2008 OECD report, legal and political risks are most efficiently borne by the government while the demand and supply related risks are well handled by private partners.

However, if the risks are not legally allocated at the commencement, a private entrepreneur (anticipating a loss) may quit a PPP project leaving the entire burden on the government.

Procedural delay
In a 2004 Report, the US Department of Transportation noted that the government faces “an initial sharp increase in workload” in adapting and preparing the procedures for PPP projects.

Since the government aims to initiate PPP projects in priority areas such as in power and health, with a goal to speed up the outcomes, the procedural delays of PPP may jeopardise the government’s goal.

Therefore, establishing a comprehensive and transparent legal framework in the quickest possible time will be the major challenge for the PPP budget.

Value for money, not deficit and profit
During the early 1990s, when the prime focus of PPP was to reduce budget deficit, many PPP projects resulted in poor but expensive services for the citizen. Later, focus of PPP budgets shifted to efficiency in the delivery of public services.

Termed as “value for money” (VfM), this new focus aims to offer the most efficient and effective public service by combining the respective expertise of private and public sectors.

Regulatory vigilance will be required to prohibit PPP initiatives from becoming the public sector’s cost cutting and the private sector’s profit maximising ventures.

Social responsibility
Education and health are two critical areas where the government’s responsibility to provide quality services must take precedence over the profitability of the services. If rural areas fail to attract private investment, the government may consider offering capital grants to make PPP projects commercially viable in these areas.

Bangladesh can take lessons from other countries where health and education related projects are implemented under public/social/private partnership (PSPP).

Public Private Partnership is a generic model, which can yield both positive and negative outcomes based on its usage. If the public sector’s corruption and the private sector’s greed create an evil twin (witnessed during some episodes of privatisation), then development will be imperilled. But if the respective expertises of public and private sectors create a synergy, it will hasten development.

The choice is ours.