Budget for FY'08 Appeasing both Marx and Market

The recent budget shows a unique juxtaposition of socialist-style subsidies and free-market flavour.

by S H ZAHID

Finance Adviser Dr. Mirza Azizul Islam and his team, apparently, made a grueling exercise to satisfy followers of both Marx and Market.

Under the budget for the fiscal 2007-08, social sectors, agriculture and social safety net programme for the hardcore poor and the disadvantaged have received substantial allocations of funds. In addition to subsidy on fertilizer, allocation has been made to subsidize diesel to be used by farmers in their crop fields. All these together, by design or default, have added a socialistic flavour to the budget.

On the other hand, the protectionist wall has been dismantled further much to the delight of the preachers of free market economy and globalization at home and the multinational lenders headquartered in Washington.

But in doing so, Aziz has proposed a budget that is being considered by many as ambitious. The prudence to borrow more from banks for the sake of maintaining budgetary ‘transparency’ has also come under scrutiny by some quarters.

But despite one or two irritants, Aziz’s new budget has met with applause from businesses, experts and so-called private think tanks. However, a section of economists has pointed a sort of accusing finger at the Finance Adviser for, what they said, following the conventional way of budget-making.

The Tk. 871.37 billion budget that the Finance Adviser unveiled on June 07 last aims at taming inflation and addressing immediate development priorities. The government’s worries over rising prices of essential commodities and measures to contain the same are well reflected in the budget. In addition to exempting fully the import of lentils and edible oils from duty, the government has decided to continue ‘zero’ duty on rice, wheat, onion, and matar and chhola dal. Besides, adequate allocations have been set aside for the import of food items to eliminate supply-side constraints.

Despite being a strong preacher of free market economy, Aziz, a former United Nations economist, it seems, is left with no option but to put in place a few market intervention measures with a view to offering some relief to the  common man now reeling under spiraling prices of essentials. As part of that mechanism, the members of the para-military Bangladesh Rifles (BDR) will continue to sell essentials under its ‘dhal-bhat’ programme across the country. The state-owned Trading Corporation of Bangladesh (TCB) will also be engaged in marketing of a few essentials.

In spite of all the duty-waivers and intervention by the state, Aziz during his post-budget press conference made it clear that a major change in price situation was unlikely to happen because of high commodity prices in the international market.

Though revenue growth projection in the budget for the next fiscal appears to be a bit ambitious in the context of revenue mobilization in recent years, inclusion of quasi-fiscal costs such as losses incurred by the Bangladesh Petroleum Corporation (BPC) and the Power Development Board (PDB) is, no doubt a bold step. These organizations have been incurring losses due to the government administered prices/ tariffs for fuel oils and power. Moreover, failure to repay the loans, particularly by the BPC, has created severe liquidity problems in the public sector banks.  

However, inclusion of hidden costs, according to the finance adviser, would push the budget deficit up to 5.6 per cent next fiscal, the highest in recent years, leading to increased borrowing by the government. Moreover, in the event of any shortfall in revenue mobilization, particularly by the National Board of Revenue (NBR), the government might find itself in real trouble. This may also be true in case of foreign aid flow.

Since both BPC and PDB are not given full operational freedom so far as the prices of their products are concerned, for all fairness, the government should compensate for their losses. That is what the Finance Adviser has done in the budget.

The finance adviser, however, in his budget speech in a bid to dispel fear, said that the higher budget deficit would not hinder the flow of credit to the private sector or create any negative impact on the economy to be true.

The approach proposed by the finance adviser so far as implementation of the annual development programme (ADP) for the next fiscal year is concerned also appears to be pragmatic.

According to the finance adviser, only pro-poor and growth-enhancing projects would be taken up for implementation and the process of discarding unnecessary projects has already begun. In addition the size of the block allocation that had been a subject of widespread discussion in recent years will be at a lower level in the next fiscal—only 5.0 per cent as against 16 per cent in the budget for the outgoing fiscal.

Most business bodies have hailed the budget describing it as pro-poor and welfare-oriented. But they have a few reservations against fiscal measures. They did not like the revision of the duty-slab. For, such a change would hurt the domestic industries and erode their competitive edge over imported finished goods.

However, the revision is unlikely to hurt the domestic industry much because of the withdrawal of 4.0 per cent infrastructure development surcharge and merger of two slabs of supplementary duty. 

The proposal to withdraw the zero tariff facility from textile machinery and computer accessories and parts has surprised many since such a move goes against government’s avowed policy of promoting the textile as well as information and communication technology (ICT) sector.

The finance adviser has followed the strategy that has been in place in recent years to offer help to the poor and socially disadvantaged people under the social empowerment and safety net programmes. He has proposed to expand the programme and include a pilot component to help poor mothers who were nursing infants.

The power sector, another most talked-about area of the national economy, has received due priorities in the budget. The Finance Adviser has assured that at least 600 megawatt of power would be made available by the end of the current calendar year through necessary repair and overhauling of the existing power plants. He has also spoken about the plan to generate sufficient power by 2010 ‘to reach a level where there will be no load-shedding’. However, in the past there were plenty of plans and programmes to generate adequate power, but not a single MW of electricity was actually added to the national power grid. There is no guarantee that the next elected government would not repeat the same performance. Under the circumstances, the interim government should select power projects in a transparent process and start their implementation in a war footing.

The Finance Adviser has projected a 7.0 per cent growth of the GDP in the next fiscal. For its credibility’s sake, the interim government will have to achieve that, particularly when, in the words of Aziz, the Bangladesh economy has experienced over time remarkable positive changes despite political instability and administrative snags. There should be no valid reason for not achieving the growth target in a stable political atmosphere and comfortable balance of payments (BoP) situation.