The Finance Ministry has released the projected budget for the 2010-2011 fiscal year. The budget has been revealed as two counter-vailing currents are flowing in somewhat cross-cutting directions.
In the first cut, the budget has been released in the aftermath of encouraging IMF reports on Bangladesh’s macroeconomic health and stability. Remittance inflows have increased. The current account is moving in the right direction and credit supply is increasing. This is the principle cause for the budget to have come out in this particular way. The feasiblity constraints that usually impinge on a government’s spending priorities have been met upward.
On the other hand, with their chains unshackled a bit, the government must now face up to the daunting challenges that it has set for itself, whilst pushing through the ambitious agenda that had served as the Awami League’s platform. This is the ultimate cause behind the budget’s structure. To achieve all this the economy must grow at a rate higher than 6%. The government has laid out a difficult road that it must travel.
Most government’s only envision the possibility frontier; with the feasibility frontier now open, the Awami League government must set about collecting revenue and spending the earmarked revenue in a way that increases general social welfare and thereby, increases the chances of the AL’s return to power in under four years.
And therein lies at least a hearty chunk of the problematics of the 2010-2011 budget. It is obvious that the likelihood of the higher spending will depend on higher revenue. The electoral returns to spending will require that each sector invest its allocated funds as efficiently as possible. This is a tall order for any government; but more so for the current Awami League government. The sunken costs of spending and investment–the sweaky wheel, as it were–lumbers along in Dhaka, no matter how often the joints and gears are oiled. How the government will achieve increasing efficiency in spending –one of the pegs of its budget plan–is not at all obvious. Indeed, marginal efficiency in spending will become more important as the broader economy is affected by the proposed government intervention.
Hence, the biggest gamble that the government is undertaking in proposing its budget is the direction of the effect higher spending will have on the macroeconomic health and stability of Bangladesh. Higher government spending will likely increase inflation, already on the upswing. This might then be a hugely counter-productive development in an economy where 40% of the people earn less than a $1 a day.
The government’s three-way emphasis on a stimulus package for industry, education and infrastructure investment is likely to increase output and therefore growth, but this growth will have to be balanced with a razor thin margin of error on the spill-over effects on higher spending.
None of this argues against the laudable goals outlined in the proposed budget. One hopes that the goals as defined are reached, the means to their final divination, ready and available.
