Editorial
Ambitious budget
Is it achievable?
The FY 2012-13 budget has been presented with due fanfare and it is now time to take a closer look. The reactions are mixed across the board, but it comes across as rather vague on a number of crucial issues, particularly, how to tackle rising unemployment, the under-utilisation of foreign aid, the overall liquidity crunch that has hampered the economy at large, dismal foreign direct investment inflow and of course the case of reining in inflation.
With disbursement of foreign aid standing at $835 million till April, the government's intention to utilise $2.5 billion this year seems to be a tall order. Again, if one takes a look at the thrust given to raising public finance through the proposed sale of Tk74 billion worth of national savings certificate (NSC) in the current fiscal, it does not generate overwhelming confidence. Up till April '12, the government has managed to generate only Tk3.8 billion through sale of NSC.The downside to any shortfall in revenue generation will force the government to resort back to borrowing from the banking system the adverse effects of which have been felt in the last fiscal where private investment took a decisive hit in terms of reduction in private investment as a share of GDP declined in FY12 to 19.1% from 19.5% in the preceding year. The other problem that can arise from borrowing internally beyond Tk230 billion would violate the stringent loan conditions of the International Monetary Fund that has lent $987 million to help with balance of payments. Any excess borrowing beyond the threshold of Tk230 billion will result in defaulting on IMF conditions that are non-negotiable, as was proved to hold true when the last caretaker government failed to clinch the second tranche of a similar loan due to failure to meet conditions.
Though the finance minister is hopeful about reducing inflation rate to single digit, i.e. 7.5%, the mechanism for attaining this has not been spelled out. Although the IMF loan specifically spells out "contractionary monetary policy" in its loan to Bangladesh, whether that alone will be sufficient in tackling inflation is a matter of debate. To what extent budget can be implemented will depend to a large degree on the government's institutional capacity to implement.
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