A new budget is coming: Only growth is not enough
Published : Sunday, 6 May, 2018 at 12:00 AM Count : 247
Once Chinese President, Deng Xiaoping, told the cat is white or black, why it is asked for. The question is to see whether it could kill the mouse. Six percent or seven percent growth debate is meaningless unless it is presupposed by ensured good governance in economic and social issues. Our victory remains in our achievement of breaking six percent growth trap, no doubt. But it is not enough. It is to be seen the size of the cake ensures the reaching of it at every door step as a legal rights, not as trickle down.
The fact is that whether growth ensures salutary effects on employment, on financial sectors, on redistribution of income and on fighting inequality or not. It is to be seen the inclusiveness of growth and surety of good governance. As the Asian Development Bank (ADB) itself has estimated, around 88 per cent of employment in the country depends on domestic final demand and only 8 per cent on final demand from advanced economies. What remains is subjected to demand from the rest of the World.
While increasing export is important to stabilise our balance of payment and so is diversifying exports to mitigate risks, isn't it time to focus more on domestic consumption? If so, the best way of doing that is by increasing disposable income of people across the board. For that we need apt way of fiscal measures and reduction of corruption because it is ordinary people who are usually victims of graft while its beneficiaries are almost always special interest groups. This and similar other measures, may also help to reduce the growing income disparity, which too is essential for sustainable high growth and may, in fact, be more important than debating over what the GDP growth rate may be. Because it is only then that Bangladesh's GDP growth, whatever it may be, will, in reality, benefit all the people and thus the nation in the long run.
We are going to have a new budget of 4 lakh 60 thousand crore taka for 2018-19 as per media report. We have to wait some days to comment on the aptness of this amount of budget. Growth target has been fixed at 7.8 per cent. We will come later on this point. But now economy faces a sharp rise in current account deficit which is aggravating the country's "twin deficit" phenomenon that surfaced after many years. An economy is said to have a twin deficit, if it has a current account deficit along with a fiscal deficit.
Many international think tanks earlier predicted the situation for Bangladesh's economy this year. The country has both fiscal or budget deficit and current account deficit amounting to over USD 6.3 billion, more than 300 per cent higher in a year. The government has a deficit target of 5.0 percent of GDP to meet the budget funding. Traditional macro-economists predict that persistent double deficit in a country leads to currency devaluation or depreciation that can be severe and sudden.
The nominal exchange rate, after keeping an upward trend over the past one year, is now standing at TK 83 in inter-bank BDT-US dollar exchange (average) rate. This exchange rate was TK 79.85 on April, 18, 2017, according to central bank. On the other hand, the average price of the US dollar in the city's kerb market is around TK 85 (The Financial Express). Economists view that Bangladesh's fiscal deficit may not be a matter of big trouble, as the government agencies cannot spend their allocated budgets.
But they view, that current account balance may be a matter of concern for the country, as its deficit is widening every month. Such big deficit in the current account balance may even hit the foreign exchange reserve significantly. Fiscal deficit will also widen this year following low level of resource mobilization by the tax authority. NBR chairman recently told the media that the resource mobilization may fall up to TK 300 billion this financial year (Financial Express).
One data shows, the country's overall trade deficit widened further in the first eight months of the current fiscal year, 2017-18 mainly due to higher import payments against lower export receipts. The deficit rose by nearly 93 percent or USD 5.64 billion to USD 11.73 billion in the July-February period of FY 18 from USD 6.09 billion during the same period of the previous fiscal. Higher import payment obligations, particularly for the rise in fuel oils and industrial raw materials, pushed up the overall trade deficit significantly during the period under review.
But it gives another story of discomfort. Informative sources apprehend, behind the showing up of rising imports, huge money laundering is going on due to election year. A recent survey by Bangladesh institute of Bank Management (BIBM) apprehends, trade-based money laundering is a growing concern for the banking industry amid rapid expansion of foreign trade. Bangladesh's external trade stood at about USD 80 billion in 2016-17 and it has been growing thanks to the steady growth over the past decade.
Among the trade-based money laundering techniques, over and under-invoicing of goods and services and misdeclaration of goods are commonly used in Bangladesh, the survey on trade services operations of banks found. Money laundering is facilitated by collusion between importers and exporters and bank officials are sometimes forced to get involved in the illegal transactions. A lack of proper price assessment is responsible for money laundering through foreign trade activities.
One media report on 25th April quoted a customs Intelligence and Investigation Directorate case involving several fake firms that were attempting to release restricted items imported in 12 containers through the Chittagong port by declaring them as capital machinery. Informative circles suspect such a thing in many ways is happening behind the rising scenario of capital goods imports.
So, running after growth alone without addressing governance issues will leave the entire things to questioning. We have an attractive growth but it is not reflecting in visible job creation, in tackling inequality, in removing chaos in banking sectors and it also fails to remove other economic and social imbalances. Will the coming budget show an exception?
The writer is a freelance contributor