Another national budget is set to be announced. The finance minister AMA Muhith will place the budget for the fiscal year (FY) 2018-19 in Parliament on June 7. Trade bodies have submitted their demands and are now busy with last minute lobbying to incorporate their stakes in the budget. Civil society organisations have also placed their requirements. Political leaders, too, are not lagging behind in their efforts to ensure adequate allocation for their development projects.
It is difficult for the finance minister to accommodate all these demands and requirements. He will thus accommodate some that he feels rational and succumb to others under political and economic compulsions.
With the national elections not too far away, the finance minister is likely to provide some relief to the tax payers. He has already hinted at this in different pre-budget discussions. Providing tax relief has some costs and the economy has to bear it. Being aware of the costs, the finance minister may opt for selective measures like cut in corporate tax and rise in the exemption threshold of individual income tax.
The finance minister has a big commitment to finance a large number of development projects, some of which are really big. The government has already endorsed the Annual Development Programme (ADP) worth Tk 1.73 trillion which includes a record 1,347 projects for the next fiscal. The outlay is 16.60 per cent or Tk 246.19 billion higher than that of the revised ADP of FY18. To finance the development budget, the government has set a collection target of Tk 1.13 trillion from domestic sources and the remaining Tk 600 billion from the external sources in the form of the project aid.
Mr Muhith has already hinted that the total size of the next budget would be in between Tk 4.60 trillion and Tk 4.75 trillion. Having done with ADB allocation of Tk 1.73 trillion, the rest of the amount may reach Tk 3.0 trillion for non-development expenditure.
The problem with a big ADP is understandably the quality of spending. It is quite visible that costs of different projects are inflated. Frequent escalation of the costs of many ongoing big projects without adequate justification makes things worse. For instance, construction cost of Dhaka-Mawa-Bhanga four-lane highway project jumped by 65 per cent within two years of commencement of work in 2016. An internal review of the planning ministry identified a lot of shortcomings in the primary plan to construct the 55-km highway. Repairing these faults requires a number of additional measures and these ultimately push the construction cost to soar to Tk 100 billion from the existing Tk 60 billion. Thus, per-km construction cost increased to Tk 1.81 billion from Tk 1.09 billion.
Moreover, slow progress in the construction or development of many projects is also pushing the costs up. Take the case of construction of the third and fourth rail tracks in the Dhaka-Tongi rail route. The project was initiated in 2012 with a plan to complete it by 2017. Due to a number of faults, the project was revised within a year and the completion deadline re-fixed at 2019. But according to a media report, so far only six per cent of work progress has been made. The project was designed to reduce excessive traffic on Dhaka-Tongi-Joydevpur road. Failure to make even moderate progress in six years has already taken a heavy toll on the commuters.
Again, decision to construct different physical infrastructures without proper planning turns the long-term viability of many projects bleak. Short-sighted and ill-designed spending spree in the name of development channels the budgetary resources to a limited section of people. The rent-seekers are, thus, gradually consolidating their positions at the expense of tax-payers' money and long-term financial liability of the country.
The growing current account deficit and financial account surplus in the external front indicate the problem of short-sighted budgetary spending. During the first nine months of the current fiscal year, current account deficit reached $7.08 billion while the financial account posted a surplus over $6 billion. The surplus of financial account also reflects that there are more funds flowing into the country than flowing out. But the funds are mostly long and medium-term credits and not foreign direct investment (FDI). During the July-March period of the current fiscal year, gross inflow of FDI declined by 6 per cent whereas medium and long-term loans increased by 84.55 per cent. Thus the country is gradually accumulating foreign loans which may turn into a big burden.
Despite the increasing discrepancy in the country's Balance of Payment situation, policymakers do not seem to be taking the matter seriously. This is reflected in the country's troublesome banking sector. Growing amount of default loans coupled with a series of irregularities and misappropriation of funds have harmed the sector considerably.
Lack of good governance and transparency in public expenditure is the key challenge these days. It is not clear how the next budget will deal with the problem.
