Budget 07-08

Eyes locked on immediate prioritiesTackling inflation, improving power generation, expanding social safety net get major attention in proposed budgetInam AhmedFinance Adviser Mirza Azizul Islam yesterday proposed a budget for the next fiscal year setting his eyes on the current development priorities--tackling inflation, spending on power and infrastructure, expanding the social safety net programme and supporting the agriculture.
He has prioritised power generation as a thrust action for the next three years and has sequenced the generation as 345MW in the first year, 900MW in the second year and 1,050MW in 2010 by when he aims to bring load shedding to nil.
However, industrialists will not find much to cheer about, except for retaining and increasing the current export subsidy to Tk 1,100 crore. Entrepreneurs will need to go through a more detailed work to understand whether the new harmonisation of duty slabs and supplementary duty and withdrawal of infrastructure development surcharge will gnaw away their protection and competitiveness. The textiles sector, which acts as the backward linkage for the main export sector readymade garment, will face a jolt as zero duty facility for textiles machinery import will be abolished.
Aziz has tried to be transparent in a number of areas. He has clearly shown, for the first time, what the nation buys with the resources mobilised--34.4 percent to be spent on physical infrastructure, 34.3 percent on social infrastructure and 19.3 percent on public administration. He has also internalised Tk 7,523 crore of the liabilities of Bangladesh Petroleum Corporation, which from a macroeconomic point of view was the right thing to do to relieve the nationalised commercial banks from losses.
However, in meeting all these goals, Aziz had to go for an expanded budget for the next fiscal year with the expenditure increasing by 19 percent from the revised expenditure of the current fiscal year. The current year's budget was only 14 percent bigger than the previous year's revised budget.
Such huge expenditure crucially needs bigger revenue collection target and effort too. He plans a 15.82 percent higher revenue collection for the next fiscal year from this year's revised figure. This looks higher if one compares it with the poor revenue collection of this fiscal year, which until now clocked a piffling 9 percent growth. Especially, many would view with scepticism the tax revenue collection increase of 17 percent. But then compared to this year's growth projection--19 percent over the previous year's revised figure--one would tend to say that Aziz was more closer to reality in proposing his revenue collection target.
Sensing the enormity of facing the revenue collection challenge, Aziz has talked about expanding the tax base, strengthening tax collection procedures, transparency and accountability of tax administration and quality management in tax regime.
But a bulk of his financing the budget will come from borrowing--both domestic and foreign. He plans to borrow Tk 19,276 crore from domestic sources, up from Tk 10,031 crore of the current year's revised budget, and Tk 6,305 crore from foreign sources, again up from Tk 5,183 crore of the current revised budget. Such huge domestic borrowing, 2.2 percent of GDP, may pose the risk of crowding out effect on the private sector. The risk would even spike if the revenue collection effort falters, leading to more borrowing.
But the impact of the past borrowing was evident in the proposed non-development expenditure analysis as interest payment is projected to account for 20.5 percent of the outlay from the current year's 17.7 percent.
And his budget deficit target--4.8 percent of GDP--is quite high from this year's 3.3 percent. He may have the feeling that a lack of ADP implementation will automatically bring down the deficit. But if his vow to firm up ADP implementation process works, the macro indicator will remain bloated.
But the other good thing the budget proposes is the cut down on block allocation from 16 percent of this year's total development allocation to 5 percent.
Aziz has set a higher GDP growth of 7 percent for the next year, which will depend on the government's spending capacity, growth of the agriculture and industry. He also hopes his measures will bring down inflation to 6.5 percent next fiscal year.
As part of his anti-inflation measures, Aziz proposes strengthening sales of essentials through BDR-operated markets and import of commodities by the government to stabilise the market. He also plans a more productive agriculture through increased allocation for research.
Aziz has proposed setting up of an SME Foundation with an allocation of Tk 100 crore and another Tk 23 crore for a Trust Fund under Bangladesh Small and Cottage Industries Corporation to give a fillip to the small industrial sector.
The finance adviser has gone quite a way to establish equality in the society. He has increased ADP outlay by 35 percent in Rajshahi, Khulna and Barisal divisions--areas that witness the worst income distribution. Education has received a big boost in his proposed budget with 15.2 percent of development allocation going in that direction with the idea that a better education mass will have better income. A huge number of teachers--15,000--will be recruited to better the teacher-student ratio, 55 lakh primary students will get stipend at the rate of Tk 100 each, classrooms will be built and income generating training will be given to the literate.
In his bid to heavily support the agriculture, Aziz has proposed 23 percent of total allocation to the sector. A Tk 350 crore endowment will help agriculture research and development. More than that, he proposes a Tk 750 crore allocation for diesel subsidy for farmers and Tk 1,500 crore as fertiliser subsidy.
The proposed budget sees an extended form of the current social safety net programmes like VGD, and allowances for the destitute women and a Tk 550 crore employment generation programme for the rural poor.