Weakness in the budget

Then comes the B-day, the day of the Minister of Finance. Impeccably dressed in a smart suit he makes a regal entrance into the Parliament chamber escorted by the somewhat more attractively attired Prime Minister and flanked by lesser ministers and minions. He tightly holds in his hand a sleek briefcase purchased specially for carrying his budget papers. For once the Parliament looks like an institution that we can be justly proud of. Quorum and boycott problems are momentarily eliminated. All the truant parliamentarians, who have a proclivity to lose their way wandering about in the wilderness of the concrete jungles of Topkhana and elsewhere, are dutifully seated in their allocated seats. With a flourish honed over many practice runs the minister takes out his speech and stands up to address the Parliament and the nation. He rambles on for hours. The audience listen to his budget speech interspersed lavishly with figures and percentages with the rapt attention of students listening to their math teacher explaining the solution to the very difficult problem of a monkey climbing an oily pole. The speech ends with a rapturous applause from the captive audience and all round congratulations.

No sooner than the Minister of Finance is done with his speech, the media goes into a feeding frenzy. They hunt around for comments on and analyses of the budget. The first to come on board are the favourite "renowned" economists of the media. Their sombre faces are flashed in the box with profound comments such as "the budget has taken some bold initiatives, but has fallen short in some critical areas." Political leaders of various shades do not miss this golden opportunity to take a swipe at the Finance Minister. They dust off the old files to choose their favourite lines such as "the budget holds no promise for the mehnati manush (working class) of the country" or better still "this is looterar budget, gareeb-maarar budget."

The business leaders are more forthright. They roundly condemn any measure that increases their burden and applaud any benefits conferred. The next day the print media gets into the fray. Some newspapers devote as much as a quarter of their news space to budget details and analysis and comments. Next the "dialogue" industry gets into the act with the same people coming together to present their wisdom afresh. The Parliament of course has its own budget debate where the members jockey for the Minister's attention. The comments and analysis extravaganza continues until the budget is passed.

The budget in Bangladesh receives extraordinary media attention. Every government in the world has a budget. In most developed countries the budget has a far greater weight in the national economy than in Bangladesh. The total government revenue and expenditure in some of these countries exceed one-half of GDP compared to less than one-sixth in Bangladesh. And yet budget is not much discussed in these countries where most of the population is adequately educated and qualified economists are abundantly available. Why is it that the budget gets such modest attention in these countries, but so much more in Bangladesh? The commonly proffered explanations of "media ignorance" and "not having anything better to do" are I suspect only part of the answer.

The principal impetus for the excessive interest derives, I believe, from a fundamental weakness of the budget in this country. This weakness is the ever-present unpredictability of the budget, a feature that distinguishes it from budgets in developed countries. This is precisely because some of the fundamental parameters of the economy, such as taxes and tariffs, are altered unpredictably by the budget that so much attention is paid to it by all sections of the citizenry. These parameters happen to be also very important parameters of economic and business decision-making and directly impact on the profit/welfare of business and households. Thus every budget changes the economic decision-making environment as also the outcome significantly and unpredictably.

A hallmark of a good economic policy is its stability. Business decisions are frequently of long-term nature. An entrepreneur takes decision about investment in the current period, but the returns to the sunk cost accrue over several future periods. Hence, some forecasts of the market variables in the future are an essential part of business decision-making and all private businesses have to assume the market risk. Unpredictable and arbitrary government interventions (such as a sudden increase in taxes or withdrawal of a subsidy) also affect future costs and returns and add to the risks of doing business. This has significant debilitating effect on the economy. The heightened risk of budget arbitrariness has the effect of raising the minimum profit margin required of a new business. An entrepreneur venturing into new investment would be wise to recoup his investment as quickly as possible to guard against losses caused by unforeseen budget impositions. The tendency of business enterprises in Bangladesh to seek excessive profits is greatly influenced by this aspect of the budget.

The higher profit margin sought by private business as a risk premium restricts the number (and amount) of new investment. Total investment is depressed which in turn retards the growth rate of the economy. This is the real cost of the unpredictability of the budget. It is instructive to note that much of the private business investment of the country occurred in sectors that were relatively secure from adverse decisions of the government.

The crux of the problem is that the power and prestige of the Ministry of Finance depend crucially on the arbitrariness of the budget; favours can be distributed only if there is scope for discretion. It seems unlikely that the ministry will by itself contemplate fixing budget parameters on a longer-term basis in order to accelerate growth. It looks like the situation will continue for some more time; the only improvements would be incremental, brought about by private sector pressure and demand of the global economy.

The author is a Professor of Economics, University of Dhaka.