A tale of SAARC Budgets – Teezad Tabriz
Every economy has one similarity – the basic economic problems. We have finite resources while we have infinite wants; the purpose of economic activity is to allocate resources in conditions of scarcity. Therefore, each society must answer three questions; ‘what will be produced?’, ‘how will it be produced?’ and ‘who will get what is produced?’
The government plays a variable role in an economy; the role varies depending on the type of economy it is. Generally in a free market economy the government’s role is minimised. The general prices of goods and services are determined by the open market and by consumers. However, the government’s role is to provide a legal system; to make and enforce laws and to uphold private property rights. Secondly, it provides public goods which otherwise individuals and the private sector would not provide. Lastly, the government corrects ‘market failures’ such as environmental costs and economic slowdowns.
The question remains as to how the government enforces their role in a market economy. One such way is its expenditure – the public sector spends money to ensure the provision of public goods and services such as education, healthcare and law enforcement. On the other hand, the government earns money from taxes but we call this ‘revenues’. When the two are combined, we get what we call a ‘national budget’ – it is the total expenditure and total revenues in a fiscal year.
A national budget is crucial to the health of an economy. If the economy were to be left alone, the private sector would only keep prospering at the cost of the environment and its individuals. At times where ‘climate change’ is vital to the survival of our planet, a government plays the pivotal role in tackling this issue. Therefore, we must ask what factors influence and affect the national budget?
A budget can be split into two parts; current expenditure, on things like civil servants’ salaries and capital expenditure. Capital expenditure is what really affects the aggregate demand of an economy and acts as an expansionary fiscal policy. It ranges from investments in infrastructure, subsidies, etc.
The first factor in a government’s budget is the size of the deficit it has. The deficit can be measured by subtracting expenditures from tax revenues. Therefore, the larger the deficit is, the lesser the government expenditure likely. Consequently, the second factor is the willingness of the government to borrow, which increases the national debt. The only option is to increase taxes such as income tax. However that would cause the aggregate demand to contract and, hence, contradict the purpose of increasing government spending to a large degree. As a result, this factor relies on the political outlook of the economy at a given period of time. Economic influences shape up that outlook of the economy and thus call for the third factor in play – the performance of the economy. During periods of economic downturn, it is politically beneficial for the government to spend in order to boost the aggregate demand and correct the reduction in demand. As no government should seek to decrease spending due to above mentioned economic and political reasons, the last factor remains the most important one.
On the 13th of June, Bangladesh’s parliament approved its budget for the fiscal year 2019-20. Finance Minister AHM Mustafa Kamal presented the budget worth Tk 523,190cr at the Jatiya Sangsad. The budget is the first one of the finance minister who took charge of the ministry in January earlier this year under the Prime Minister Sheikh Hasina. The goal to achieve middle-income status is the central idea surrounding the new budget. Accelerating investment, generating employment and increasing revenue income are daunting tasks for the finance minister.
The GDP growth projection of 8.20% for 2019-20 remains a target to be achieved. However the private sector has suffered from lack of investments while the job sector has failed to find sufficient employment. Investment of private sector added up to only 1.37% of GDP since 2013-14 when it had been 22.03% according to the data of Bangladesh Bureau of Statistics (BBS). It is of major importance that our new budget should push up the private sector investment to GDP ratio in order to facilitate sustainable economic growth and job creation for millions on the one hand.
While on the other, revamping the banking sector has been a target for many years, but nevertheless it remains unachieved. The government’s increased dependency on bank borrowing to finance the deficits would only increase stress on this sector. The heart of any economy is its banking sector; today the banking sector of Bangladesh suffers from credit crunch due to soaring default loans, falling deposits and a recent surge in government borrowing.
Moreover, the new VAT and Supplementary Act is to be effective from July 1. The new act introduces four main rates – 5 percent, 7.5 percent, 10 percent and 15 percent. However businesses can enjoy VAT rebate facilities only if they pay 15 percent VAT.
The government also introduced four other special VAT rates on goods and services such as medicine, petroleum products, flat registrations and slapped a specific tax on certain products including iron rods and bricks as disclosed by the Finance Bill 2019.
The new VAT rates may hinder the living standards of the poor while the rich can get richer. On the other hand, the scope to whiten already earned black money aids the top wealthy portion of the population; this option led by the government’s new budget has been heavily criticised by opposition leaders. Black money holders will go unquestioned about their sources of income only if they invest in industries by paying a tax of 10 percent of the amount held. While the initial goal is to improve and inject growth in the private sector and hence create jobs, it nonetheless benefits the rich yet again.
The total revenue target for the upcoming fiscal year has been set at Tk 377,810 crore, larger in size by 17.92% than the revised target for the outgoing fiscal year. While the National Board of Revenue (NBR), which typically earns 80% of net revenue, only registered 7.1% growth in the first nine months of the current fiscal year and therefore the new revenue growth target of 17.92% seems unrealistic to achieve and highly ambitious.
Attaching high hopes to enhanced revenue generation, the finance minister plans to generate Tk 3,25,600 crore alone from the National Board of Revenue (NBR) alone.
According to the Economist Intelligence Unit, 47% of graduates in Bangladesh were unemployed in 2016, while the rate is only 10% in India and Pakistan.
On the other hand a Bangladesh Bureau of Statistics data says the country had 26,77,000 jobless people in 2017, of which 40 percent are the educated youth.
The banking sector is in desperate need of a saviour; our newly-appointed finance minister had spoken of this issue since taking office in January and it is high time he acknowledges his words. Without a healthy banking sector, the nation will lose its immune system; economic growth will diminish in the near future as without finance the private sector would sit idle and at one point dismantle. A market economy without its private sector healthy and fully functional will result in an economic disaster.
In April, private sector credit growth sank to a 56-month low at 12.07 percent. On a wider scale, private investment to GDP has been declining at the 22-23 percent mark for the longest time; this is way lower than the requisite 32 percent to carry on the growth momentum.
The cause behind this is because banks have insufficient funds to lend out to the private sector and on a broader perspective, there are one too many bottlenecks for the sector to dive in with ease.
The restraints are isolating the business community from the unavailability of land, poor logistics, plodding bureaucracy, mismatch of skills, lack of skilled labour and scarce quality energy.
To shed light on the unavailability of land, the government had announced in the past the creation of 100 economic zones, but their current status remains equivocal.
Moreover, to address the bureaucratic delays, the government passed an act in the parliament that would alter the Bangladesh Investment Development Authority into a one-stop for investors to set up shops and factories. This would most certainly encourage small businesses and shops to grow and increase competitiveness in the market environment hence creating more jobs. However as of now, this just remains an idea.
To alleviate poor logistics and energy scarcity, the government did initiate 14 mega infrastructural projects however none is on schedule.
Last but not the least, there exists an ever-growing plague of skills mismatch. It seems youths with academic qualifications are sitting idle and all the while employers are complaining of not finding the right employee for the job – often resulting in employment of foreign labour.
In 2017, 5 lakh foreign workers were reported to be employed in Bangladesh and they sent home about $5 billion according to a study by the Centre of Excellence for Bangladesh Apparel Industry and former finance minister AMA Muhith.
According to the Labour Force Survey 2016-17 more than 20.1 million youths aged 15-29 participated in the labour force – of them 2.1 million were unemployed. Another 29.8 percent of the total 44.1 million youths aged 15-29 were uneducated, unemployed and not in training. A staggering 87 percent of them were women.
It appears that the mismatch of skills is costing the nation heavily; youths are unemployed and a huge portion of that strata is uneducated and/or unemployed women. Utilizing the two together could boost up economic growth. However, this issue means that Bangladesh is simply watching its treasured demographic dividend pass it by.
Demographic dividend, as defined by the United Nations Population Fund, is the potential of economic growth that can result when a country’s population’s age structure tilts more towards the working age of 15-64 than the non-working age of 14 and younger and 65 and older.
What’s alarming is that by 2020 this window of opportunity will shut firm. It is important to note that the government did bring to light the National Skills Development Authority Act in 2017 but as with most things, the project has not seen the light of day.
A new minister and a clean slate; this year’s budget can take the right direction if AHM Mustafa Kamal ensures that. It is essential that there is good governance and there is a cost-benefit analysis of every step taken to reassure proper utilization.
Not so far away from Bangladesh, we have South Asian Association for Regional Cooperation (SAARC) neighbours who have got their budgets. Afghanistan joins Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka to be a member of SAARC which was founded by seven states in 1985.
Bangladesh’s closest neighbour India’s budget announcement is knocking on the door. It will be announced on the 5th of July. Indian Prime Minister Narendra Modi has taken off and this is Modi’s opportunity to solidify his government through strong governance. The Indian youths are unemployed too it seems. The second issue is implementing greater investments in the sexual and reproductive health. This upcoming budget is an opportunity for the government to increase allocations for family planning services and activities surrounding it to at least 10 percent of the total budget of the National Health Mission (NHM).
India’s public healthcare system has taken another leap towards universal health coverage through the launch of the Prime Minister’s Jan Arogya Yojana (PM-JAY) under Ayushman Bharat that seeks to provide free health coverage to 500 million citizens. It’s central goal is to bring comprehensive primary healthcare to the doorsteps of communities through the creation of Health and Wellness Centres (HWCs).
The portion of budgetary allocations devoted to NHM has declined 60 percent in 2012-13 to 57 percent of the total health budget in 2018-19.
The budget allocated for procurement and distribution of contraceptives, which are exclusively provided as budgetary support from the Union government has declined continuously over the years – from 3 percent in 2013-14 to 1.5 percent in 2018-19. These numbers show how far below the requirements needed for financing the country’s shortage of family planning (13 percent) and certainly far below the current demand with three new contraceptives introduced to the market in 2016.
On the other end of the aisle, Pakistan’s budget was announced on the 11th of June by its new State Minister for Revenue Hammad Azhar. Its total budget outlay is Rs7,022bn which is 30% greater than the previous year. The tax revenue target was set at Rs5,822b. More importantly, the government of Pakistan Prime Minister Imran Khan has allocated Rs1,152 trillion to the defence services, showing an increase of about 4.8 percent over the original allocation for the current year.
Nepal’s priorities are in achieving the status of a middle-income country by 2030. Its budget for the fiscal year 2019-20 is Rs1.53 trillion which was placed by the country’s Finance Minister
Dr. Yuba Raj Khatiwada. The new budget has set an economic growth target of 7 percent and focuses on social justice, increment in exports to reduce the trade deficit (its trade deficit recorded in December 2018 had been Rs109030.40 million) and increase in general productivity.
The new budget also includes completion of unfinished projects from current fiscal year. Specific standards have also been set for the transfer of development projects to province and local governments.
Some key features of the new budget include free education up until secondary level; 70 districts to be designated the status of fully literate districts, revenues worth Rs130bn to be distributed between provincial and local levels, over Rs110b allocated for Madan Bhandari Science and Technology University; science tech labs to be established in each province – as part of Science and Technology and Rs6b allocated for free insurance service in all districts, etc.
Roads and highways, technical education, Flagship Programs for which Nu 15 billion have been allocated, financing the fiscal deficit, hydropower, hydroelectricity, agro-based industry, ‘Narrowing the Gap’ between poor and the rich, housing etc are the priority sectors to Bhutanese finance minister Druk Nyamrup Tshogpa (DNT) of government of Prime Minister Lotay Tshering who studied medical science in Bangladesh.
Finance Minister Mangala Samaraweera presented his second time prioritizing the theme “Enterprise Sri Lanka – Empowering the People, Nurturing the Poor” when minority Muslim communities are facing racial discrimination in the wake of the recent Easter Sunday attack which left around 250 people.
Maldives’ budget 2019 aims to begin efforts of the new government to provide the services to the people as promised in the manifesto. In this regard, this budget paves the way to reach “Jazeera Dhiriulhun” by solving the economic and social constraints faced in islands. Further, to achieve “Noo Iguthisaadu”, this budget would give additional support to enhance the benefits from economic activities in Maldives. As such the government shall continue its investments in infrastructure projects. In addition, Minister of Economic Development Mohamed Saeed has prioritized enhancing quality of services given to the public.
Data on Afghanistan government of President Mohammad Ashraf Ghani Ahmadzai budget were not available on the Internet. But the war-ravaged country’s top priority is national unity which is solely political. American aggression for last two decades was preceded by the Soviet aggression for another decade have devastated the country which has around one trillion dollar untapped mineral resources.
Our neighbours give us a newly-formed perspective; we get to measure our own budget in terms of many aspects in comparison to equally performing countries and countries far beyond our reach. The priorities in each country’s budget allocation reflect key information about their circumstances, we better understand our own priorities and it is much clarified a picture for economists to predict further escalations.
The ultimate goal to become a developed country by 2041 remains unrealistic yet achievable if good governance is ensured. Our country requires many improvements in multiple sectors therefore it is hard to come to a certain conclusion as to which priorities kindle our imaginations. However, as the new budget rolls out and as the months go by, we can hope to achieve clarification and comparison of how further we have come from where we were; we can then conclude as to how well our finance minister has done to achieve the numerous targets – whether our banking sector has come to see better days or whether our transportation system has advanced. It all remains as a stubborn question waiting to be asked.