Jun 20, 2015

Dream budget's potential nightmarish consequences

The finance minister has presented a 'dream budget' with a proposed outlay of Tk. 2,95,100 crore for FY 2015-16, of which the size of the ADP is Tk. 97,000 crore. The estimated revenue earnings to finance this largest-ever budget is projected to be Tk. 2,08,770 crore.  This will result in a deficit of Tk. 86,330 crore, which is equivalent to 5 percent of our GDP. The potential sources of financing such a huge deficit are: bank borrowing -- Tk. 38,380 crore, foreign sources -- Tk. 30,450 crore, and non-bank-borrowing -- Tk. 17,500 crore.
Some experts have been calling the budget too ambitious – even the finance minister called it 'truly ambitious' – questioning the ability of the government to implement it. Others are concerned about the realism of the revenue estimate. There are obvious reasons for such concerns.  
Our finance ministers have always been ambitious in the past and downsizing the original budget, especially the ADP has become a routine exercise in our country. For example, the past year's record budget of Tk. 2, 50,506 crore is now being revised downward by Tk. 10,838 crore.
One reason for this mega budget is that the government wants to increase its spending, especially investment spending to compensate for stagnation in private investment, which is the lifeblood of a dynamic economy. Private investment has indeed been stagnant due to political instability and other bottlenecks. But government spending is an imperfect substitute for private spending for several reasons.
Much of government spending is in unproductive activities. As a result, unlike private investment, they have a limited impact on the nation's productive potential. This concern is more relevant for the coming year as the proposed budget provides for substantial increases in the salaries and benefits for public servants.
There is widespread corruption in the public sector and horror stories of such corruption abound. Looting of publicly owned banks has now become almost a routine thing and part of the mega budget will be used to make up for their capital inadequacies. Thus, significant precious resources are misused and wasted through public sector spending. Even in the cases of government investment, the quality of work and output is generally poor, thus restraining us from getting the 'biggest bang for our buck.'
Some of the government investment - supported by the mega budget - may not, in the long-term, serve the best interest of the country. For example, some of the power sector projects, while meeting the power needs of the country, will pose serious dangers to our ecology and public safety. Science tells us that the Rampal Project will destroy the Sundarbans. The proposed coal-based power project in Maheshkhali will pose serious threats to our environment. The Ruppur nuclear power plant can be a potential deathtrap for a large number of people living in North Bengal. Although these projects are to be largely financed by foreign sources, our government will also make significant investments in them.
Finally, we have an entrenched patronage system based on nepotism and favouritism rather than merit and competence in our country. Many projects implemented in the public sector are for private gains rather than public benefits. Many large projects also have frequent cost overruns and such cost overruns often serve the interests of vested interest groups. Thus, there is serious lack of transparency and accountability - that is governance deficit - in the adoption and implementation of public sector projects, leading to serious misallocation and misuse of resources.
Such a patronage-based system has serious long-term implications. An unhindered patronage system over the years has made many individuals, especially those with muscle power, fabulously rich. In the last few decades, this class of 'new rich' with muscle power has also been increasingly 'capturing' our elected offices at local and national levels. As a result, we have now many godfathers around the country who simultaneously control muscle, money and political powers. Thanks to the blessings of the ruling party, these godfathers also enjoy absolute impunity from any wrongdoing. They are also increasingly engaged in moving money out of the country. In fact, according to various estimates, capital flight from Bangladesh over the years has been more than double the amount of foreign investment in the country.
This patronage culture, leading to the creation of 'godfathers', has serious implications for our nation's future. With the present trend continuing, supported by increased allocations available for patronage distribution, our politics in the future may be taken over by the 'godfathers' who are only interested in making money and expanding their sphere of influence without having much of an idea about how a modern state runs.
The budgetary outlays, despite their meteoric rises, are not unlimited in magnitude. However, patronage-based politics attracts more patronage seekers to the ruling party, and hence continuously increases the demand for patronage. It is also usual for the existing patronage receivers to seek absolute control over the patronage chain to obtain a greater share of the benefits. Such a continuous increase in demand and also competition for control for a greater share can lead to violent confrontations within the ruling party.
Although the mega budget is designed to make up for the stagnant private sector investment by boosting public investment, it may in reality further depress private sector activities. When public investment is financed by government's borrowing from the market, it 'crowds' the private sector out of the market. Such 'crowding-out' takes place by increasing the demand for investible funds, which consequently increases the interest rate. Reduced investment in the social sector in the budget may also accentuate our existing capability deficiency, further depressing private investment.

তথ্যসূত্র: ডেইলি স্টার, June 21, 2015

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