The first cut is the deepest

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.


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