An easy read of the budget: How it promotes growth

While people in developed nations pay little attention to their annual budgets, it turns out to be the most influential document for citizens from all walks of life in a developing nation like ours. Hence, its simplified narration may help people get engaged in the government's developmental intent and directions. This piece attempts to be an easy description of the budget for the fiscal year 2016-2017 and its big numbers that work to promote economic growth for the nation.

Let us assume that the budget of Tk. 340, 605 crore (USD 42.58 billion) is equivalent to Tk. 100.  Then the total revenue of Tk. 242,752 crore turns out to be Tk. 71, suggesting a shortfall of 29 percent.  The other way of seeing this financing gap is to say that the budget deficit is 5 percent of GDP because the revenue constitutes 12.4 percent and the budget or the total spending makes 17.4 percent of GDP.  The deficit of Tk. 97,853 crore or USD 12.23 billion is supposed to be met by both domestic and foreign financing at a ratio of 63:37, respectively. 

Simply, Tk. 18 will be drawn from domestic sources and Tk. 11 will be taken from foreign sources to meet the deficit of Tk. 29 in the budget of Tk. 100.  Tk. 11 through bank borrowing and Tk. 7 from nonbank sources, such as sanchaypatra, are supposed to form the total number of domestic borrowing of Tk. 18. Tk. 9 from foreign loans and Tk. 2 from foreign grants will constitute the total of Tk. 11 under foreign sources in deficit financing.

The National Board of Revenue (NBR) collects Tk. 60 and Non-NBR revenue stands at Tk. 11 to make the total revenue of Tk. 71.  Roughly income taxes will give Tk. 21 and Value Added Tax (VAT) Tk. 22.  Import duties plus other minor sources are supposed to give Tk. 17 to make the total NBR contribution of Tk. 60.  Let us look how we spend Tk. 100: Tk. 56 for salary, interests, and current spending, Tk. 34 for development purposes, and the rest Tk. 10 for other items. 

If we assume that the development budget is implemented by 85 percent, the spending behind development becomes roughly equal to our total deficit of Tk. 29.  Thus, the budget would be self-sufficient if we hadn't had any spending for development.  But that is not going to work for growth.  Simply meeting the current expenses is not the practice of even an ideal family. It has to spend for building a house, buying a car, and investing behind skills and knowledge to have a better life in times to come. The development budget, which is almost one-third of the total budget to the tune of Tk. 117, 027 (USD 14.6 billion) will play the vital role in promoting growth via capacity building in a 215 billion dollar economy like ours.

The two prime targets of the budget are economic growth of 7.2 percent and inflation of 5.8 percent. None of the targets seem challenging for the Fiscal Year (FY) of 2017. Bangladesh Bureau of Statistics (BBS) has primarily estimated the growth rate for the FY2016 to be 7.05 percent, leaving a task of adding another 0.15 percentage point growth to the existing number. Inflation, on the other hand, is already slightly below 6 percent. So, the main challenge remains in attaining high revenue targets, ensuring quality private investment, and enforcing greater implementation of the Annual Development Programme (ADP) in a timely fashion. 

ADP implementation by only 50 percent at the end of 10 months and 62 percent at the end of 11 months in the FY2016 does not ensure a healthy progress of development projects. Infrastructure quality is not likely to be optimal. Let us rethink the style we are following in ADP implementation. Can't we think of more outsourcing with definite deadlines – a style many Asian Tigers followed to ensure faster infrastructure buildup? Our concept on the market economy is heavily opportunistic and flawed.  We may endorse outsourcing as long as it doesn't take away our businesses. Inefficient domestic builders lobby to block competition and outsourcing. 

Could countries like the United Arab Emirates, Kuwait, Qatar, and Saudi Arabia come to the stage that they are now, without massive outsourcing of developmental mega projects? We do not need our own bureaucrats or project directors in all cases – a fashion that holds back the desired progress of all projects and dampens our growth. All we need is to ensure the quality and the deadline, which we often fail to ascertain. It doesn't matter who makes what, it matters who owns it. And that is us.

If the budget is Tk. 100, we expect our GDP to be Tk. 576 in June 2017 from a current level of Tk. 508. This additional amount of Tk. 68, which mainly incorporates growth and inflation, must be generated in the economy through greater employment, investment, and technology. Apart from the development budget, current revenue spending, which we still erroneously call 'non-development expenditure,' also contributes to growth. 

Since growth is the change in GDP, a positive change in any element of the output equation, such as consumption, investment, government spending, and exports, may contribute to growth. While imports are supposed to reduce output in any current year, imports of capital machinery, raw materials, and intermediate goods are good to promote growth for the subsequent years to come. Thus, the development budget alone cannot claim to bring in development, because development is the accumulation of growth numbers year after year. And growth can also come from the current expenditure on consumption. Thus, economic growth is attributable to the entire budget although spending on capacity enhancement is more effective than wasting resources behind unproductive and anti-environment activities.

The writer is chief economist of Bangladesh Bank.