Looking for a quality growth: Comforts and discomforts of upcoming budget
Published : Thursday, 21 March, 2019 at 12:00 AM Count : 212
Budget-20 is coming. It is deemed, all preparations to this end are in full swing. It will be the maiden presentation by the incumbent new finance minister. But will it focus something anew or having a breakthrough? Or how much scopes a budget could trail upon which long run edifice of the economy is to be thought out.
Academically speaking a budget is not the only numerically expressed government's income and expenditure. It is also the pronouncement of political stance on long run economic issues of the incumbent. So, though a budget is framed for one financial year, but long run variables of economic and social issues must have their presence in one year framing. Albeit coming budget-20 will not be an exception to review otherwise.
Our destination is politically determined. Ours' dual transition via graduation to World Bank's lower middle-income status and upcoming graduation from the least developed country (LDC) group must have their foot print in the runoff budget framing.
Then what kind of budget we need to have? Do we keep us limit into the total debate on growth discourse? Definitely ongoing financial year will see the cross of 8 percent threshold. Though the Asian Development Bank (ADB) forecasted that Bangladesh economy is likely to grow at a rate of 7.5 percent in the ongoing fiscal 2018-19 and the ongoing US-china trade war will be main reason behind this slower growth. This multilateral development financier thinks it so.
The newly forecasted GDP growth rate is much lower than the 7.9 percent growth which ADB forecasted in the previous FY, 2017-18. Bangladesh achieved a 7.86 percent growth in the last fiscal. Whatever might be there. We are not captivated to growth munching or debate on it. Since we are achieving a splendid growth and for it passing through complicated trajectories.
Now not numerically expressed growth, but quality of growth must come forefront first as a matter of focus for debate. Though the size of the cake is not losing its space. What we need now not a jobless growth which we had before - a job oriented growth. High growth has not increased the pace of job creation and poverty reduction. According to Bangladesh's Labour Force Survey 2016-17, though the national unemployment rate is steady at only 4.2 percent, youth unemployment sat at 10.6 percent in 2017.
Despite a positive demographic composition, with a large share of the country still young , Bangladesh has not been able to benefit from its "demographic dividend." More worrying is that the youth unemployment rate is rising steadily. A significant segment of the youth population-29.8 percent in 2017 was not engaged in education, employment or training. Unfortunately the existing education system is not providing young people with the required skills to be employable in the job market. We want the coming budget will see it to be addressed. Jobless growth is not sustainable. Relevant technological upgrading and innovation are to be harnessed accordingly.
The impressive growth also has not generated adequate income for all. Stark income, consumption and wealth inequalities remain a scar on the economy. Official statistics show that in 2016, the top 5 percent of households possessed 28.9 percent of the national income while the bottom 5 percent possessed only 0.2 percent (The Daily Star). These challenges should be addressed through higher investment in both physical and social infrastructure. Our sharp disparity with attractive growth occupies a big space in academic discussion also. A redressal approach in response to the writings on the walls is expected to be of presence in the coming budget with a new boss.
New finance minister inherits a sound macro economy from his predecessor. But he is to wade in discomforts also not so small. Persistent climbing up economic growth and moderate inflation are quite visible now. Regarding growth I told before. Annual average inflation rate was 5.78 percent in FY18 which came down to 5.54percent by the end of the first half of the current fiscal or end-December,2018. But major discomfort lies in Bangladesh's graduation with having its implications in terms of a higher cost of borrowing for financing development and more difficult conditions for market access. In view of the formidable financing requirement to achieve the ambitious Sustainable Development Goals (SDGs), the issue of domestic resource mobilization has emerged with greater urgency. The ratio of revenue and gross domestic product (GDP) was 10.2 percent In FY2016-17, which was 9.2 percent in FY 2008-09.
While it showed signs of improvement between FY 2014-15 and FY2016-17, it is still below the level attained in FY2011-12, when the corresponding share was 10.9 percent. No significant progress has been made in this connection during the timeframe under consideration. Tax-GDP ratio was 9 percent in FY2016-17, compared to the ratio of 7.5 percent in FY 2008-09.
This is considerably lower compared to other developing countries, where the average tax-GDP ratio is about 15 percent. The Seventh five Year plan (7FYP) had proposed to raise the revenue-GDP ratio to 16.1 percent and tax-GDP ratio to 14.1 percent by FY2019-20. The performance record indicates that Bangladesh is not only lagging behind comparator countries, but also its own programmatic targets. Revenue collected through NBR increased by only 6.36 percent and stood at TK.980.27 billion during the first half (July-December) of the current fiscal. The collection was 20.17 percent higher during the same period of FY17. Thus in the second half of the current fiscal, a big push is necessary to reach close to the budget target of TK 2962.01billion revenue collection by NBR. Impact of slower revenue growth is partially reflected in the slow implementation of Annual Development Progeamme (ADP).
The rate of ADP implementation reached 34.43 percent in July-January period of the current fiscal. Financial sector, especially the banking sector is facing serious pressure of bad loans mainly due to bad governance. Finance ministry is so lenient towards willful defaulters that raise so many questions. Very recently they got another concession of rescheduling where provision of giving a certain percentage of debt as down payment is made relaxed. Defaulted loan as of December last year stood at TK.93,911 crore and number of defaulters reached over 2.66 lakhs.
Ratio of default loans touched 10.30 percent at the end of December. Private sector investment is hovering around 23 percent of GDP. Foreign direct investment is not impressive either. The main driver of growth has been consumption. As a result, national savings declined in 2018 compared to the previous fiscal year. Trade deficit also widened to 6.1 percent of GDP due to higher imports of food, fuel and capital goods.
Though breath taking is happened in export and remittance. The high value of the Bangladeshi taka against the US dollar, put exporters at a disadvantage when it came to some of Bangladesh's competitors in the global markets.
China, India, Sri Lanka and Vietnam saw a depreciation of their currencies against the US dollar. We are touching discomforts in a short way, not unknown to the concerned any and particularly to new finance minister for his long awakening with all these from his different relevant positions. Particularly, governance and institutional deficit in banking sector are posing threat to macro - economic stability is being worried about. Finding ways out of firm commitment to correct such discomforts would not be out of our expectations in the coming budget.
Writer is a freelance contributor