Budget Analysis of Bangladesh

Budget Analysis for FY 2009-2010

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An Analysis

of

May 04, 2010


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This report is prepared to achieve some objectives. This are-

To become familiar with budget,

To have a look at the characteristics of budget,

To have a look at different types of budgets,

To have an idea of Government Budget and its procedures,

To get an analysis of National Budget for FY2009-10 .

The study mainly focuses on the analysis of National Budget for FY2009-10.

This study is mainly based on secondary data collected from different published

articles, books, prospectus and journals. The basic method that is used to analyze the

data is quantitative analysis based on these data.

This study may provide substantial benefits to the economists of any country,

managers of any organization, academician, business students, regulatory bodies,

decision makers, financial analysts and much other person having concern on

economics and other institutions.

There were some limitations in preparing this report. There is prohibited access

to internal data source to some extents. There are two types of information:

i) General Information and

ii) Confidential Information.

We had to face limitations in accessing the highly confidential information.


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Budget Defined


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Definition of Budget:

A budget (from old French bougette, purse) is generally a list of all planned

expenses and revenues. It is a plan for saving and spending. A budget is an important

concept in microeconomics, which uses a budget line to illustrate the trade-offs

between two or more goods. In other terms, a budget is an organizational plan stated

in monetary terms. A budget is a planning tool that identifies the work plan for the

country for the fiscal year and matches the financial, material, and human resources

available with the requirements to complete the work plan.

In summary, the purpose of budgeting is to:

Provide a forecast of revenues and expenditures i.e. construct a model of how

our business might perform financially speaking if certain strategies, events

and plans are carried out.

Enable the actual financial operation of the business to be measured against the

forecast.

The basic idea behind budgeting is to save money up front for both known and

unknown expenses.

Benefits of Budgeting:

1. Know what is going on

2. Control

3. Organization

4. Communication

5. Take advantage of opportunities

6. Extra time

7. Extra money


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Characteristics of Budget:

Characteristics of budget are classified as:

Major characteristics,

Process Characteristics

Operational Characteristics and

Other Characteristics

These are described as follows:

Major Characteristics:

Clarity:

The budget presentation should be clear enough so every board member,

every employee, and every municipal governing body member and other

people of the country can understand what is being represented.

Accuracy:

Budget documentation must support the validity of budget figures, and

figures must be transcribed and reported carefully, without variation from

the documentation.

Consistency:

Budget presentations should retain the same format from period to period so

that comparisons can be easily made. All budgets are comparative devices,

used to show how what is being done now compares with what happened in

the past and what is projected to happen in the future.

Comprehensiveness:

Budget reports should include as complete a picture of fiscal activities as is

possible. The only way to know the true cost of various operations is to be

certain that all revenue and expenditure categories are included within the

budget.


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Process Characteristics:

Several essential features characterize a good budget process.

Incorporates a long-term perspective

Establishes linkages to broad goals

Focuses budget decisions on results and outcomes

Involves and promotes effective communication with stakeholders, and

Provide incentives to government management and employees.

Operational Characteristics:

Data Representation:

A very good feature for budgeting is the ability to represent the data in the

planned budget in many forms. This aids in understanding the budget better and can

help us find problems with our budget.

Following the laws, regulations, policies and procedures:

The budget must follow the country‟s laws, regulations, policies and

procedures.

Realistic foresight:

There must be the presence of realistic foresight in current and long-term

revenue estimating.

A policy tool to pursue its own goal:

In reality, the significance of a budget is that it forms an important part of

social and economic policies and is expected to be, and actually operated as, a means

of stimulating the economy (fiscal policy) in conjunction with monetary policy. In

theory, however, the use of a budget as a means of improving the economy implies

that a budget is a policy tool to pursue its own goal. Such a characteristic is


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structurally inconsistent, and ultimately has a gap, with the nature as a means and the

value neutrality of the classical budget which has super ordinate norms as a premise.

Ruling program in numerical form:

The budget of any country must be ruling programs in numerical forms.

Other Characteristics:

Careful planning

Practicality

Accessibility

Clear, concise and complete

Easy-To-Use

Flexible Structure

Coordination

These key characteristics of good budgeting make clear that the budget process

is not simply an exercise in balancing revenues and expenditures one year at a time,

but it is strategic in nature, encompassing a multi-exercise in balancing revenues and

expenditures one year at a time, but is strategic in nature, encompassing a multi-year

financial and operating plan that allocates resources on a basis of identified goals.

Types of Budget :

Sales budget:

The sales budget is an estimate of future sales, often broken down into both

units and dollars. It is used to create company sales goals.

Production budget:

Product oriented companies create a production budget which estimates the

number of units that must be manufactured to meet the sales goals. The production

budget also estimates the various costs involved with manufacturing those units,

including labor and material.


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Cash Flow/Cash budget:

The cash flow budget is a prediction of future cash receipts and expenditures

for a particular time period. It usually covers a period in the short term future. The

cash flow budget helps the business determine when income will be sufficient to cover

expenses and when the company will need to seek outside financing.

Marketing budget:

The marketing budget is an estimate of the funds needed for promotion,

advertising, and public relations in order to market the product or service.

Project budget:

The project budget is a prediction of the costs associated with a particular

company project. These costs include labor, materials, and other related expenses. The

project budget is often broken down into specific tasks, with task budgets assigned to

each.

Revenue budget:

The Revenue Budget consists of revenue receipts of government and the

expenditure met from these revenues. Tax revenues are made up of taxes and other

duties that the government levies.

Expenditure budget:

A budget type which include of spending data items.

Budgets have an economic, political and technical basis. Unlike a pure

economic budget, they are not entirely designed to allocate scarce resources for the

best economic use. They also have a political basis wherein different interests push

and pull in an attempt to obtain benefits and avoid burdens. The technical element is

the forecast of the likely levels of revenues and expenses. Examples of budget are

Business start-up budget, Corporate budget, Event management budget, Government

budget, Personal or family budget and so on. In our report we will focus on

Government budget.


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Government Budget


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Government Budget:

Government Budget is the forecast of a government's expenditures and

revenues for a specific period of time. The period covered by a budget of the

government of Bangladesh is a financial year that starts on 1 July of a calendar year

and ends on 30 June of the next calendar year. Government budget contains the

strategies for mobilization, allocation and disbursement of public money by means of

fiscal and monetary operations with due consideration of political, economic, and

bureaucratic decision making process. It developed in Bangladesh on the basis of legal

requirements, economy's management needs, conventions, functional conveniences as

well as accounting and auditing requirements, including transparency and

accountability.

The Constitution of Bangladesh, however, does not use the term budget.

Instead, it uses an equivalent term 'Annual Financial Statement', which is to show

the estimated receipts and expenditures of the government for a particular financial

year.

Government budget in the country has two parts: Revenue and Development.

The former is concerned with current revenues and expenditures ie, maintenance of

normal priority and essential services, while the latter is prepared for development

activities. Formulation of the two budgets follows different procedures. Their

financing pattern and the delegated authorities of incurring expenditure in different

tiers in them are also different.

Revenue Budget:

Receipts in revenue budget are: domestic receipts (tax and non-tax); foreign

grants; capital receipts (foreign loans); domestic capital (net of current receipts and

expenditures in public accounts); extra-budgetary resources (debenture of autonomous

bodies, their self-financing and accumulated balance, and materials at stock); and

domestic loans and advances (net).

Revenue budget is prepared by the Finance Division. Preparation of the

revenue budget is a multi-stage process implemented under a time schedule. The first

stage is the printing of departmental estimates, which is followed by printing and

distribution of Budget Forms (Estimating Officer's forms) for supply to the accounts

officers concerned, who fill them up with estimates from all controlling offices and

send consolidated estimates to the ministry of finance. The ministry of finance then

examines the estimates, receives schedule of new expenditures and information on


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actual expenditures of agencies and organizations in last six months, reviews new

estimates on the basis of these information, and prepares a rough edition of the budget

and the schedule of new expenditures. The ministry also collects forecasts of foreign

development assistance and development programs from ministry of planning and

after making necessary adjustments, prepares the budget documents for presentation

in the Jatiya Sangsad (Parliament) for discussion and approval.

Development Budget:

Receipts in development budget are grouped as public and private receipts.

Public receipts are the revenue surplus (revenue receipts minus revenue expenditures),

incomes through new measures (such as new taxes), net domestic capital, and extra

budgetary resources. A special form of public receipts is the foreign aid (project aid,

counterpart fund from commodity aid and net food aid). Receipts under the private

head for development budget are generated through direct private investment,

borrowing from banking system and foreign private investment.

The agency to prepare the development budget is the Planning Commission.

Development budget of the government of Bangladesh is a result of a continuous

process of identifying new projects, review of project concept papers (PCPs), and

vetting of the projects in ministries and in the Executive Committee of the National

Economic Council (ECNEC). Usually by December, the Economic Relations Division

(ERD) prepares aid memorandum, circulates it to the ministries for their comments,

and based on domestic resource projections by national board of revenue and the

Internal Resources Division, the ERD revises the aid memorandum. The document is

then sent to the Cabinet for approval. Resource position for revenue expenditure and

budget is then estimated and the Programming Committee finalizes eligible projects

for inclusion the annual development program (ADP). In fact, ADP is the

development budget, which, like the revenue budget requires approval of the

parliament.

Two constituent parts of the government budget are the consolidated funds

(Fund) and the public accounts (Account). These are not separate entities but are

distinguished by differences in receipts and disbursements. The transactions in both

heads represent inflows and outflows of funds from a single corpus known as the

'exchequer'. The overall balance of the budget, its surplus or deficit, is represented by

the difference between total receipts and expenditures of the Fund and Account

together.


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Various departments, directorates, and ministries submit their estimated

funding requirements in the form of demand for grants. Demands for each service is

shown under the head issued by C&AG (comptroller and auditor general). No change

in the heads of account can be effected without his approval. No demand for grant can

be introduced in the parliament without prior approval of the President. Article of

92(b) of the Constitution has a provision for making a demand for grant titled

'Unexpected Expenditure'. It is a separate grant shown as lump. There is an elaborate

procedure as to how the money should be drawn. The money drawn from this account

has to be incorporated in revised budget/supplementary budget. Re-appropriation of

funds are effected following the delegation of authority orders which defined the

extent to which and on what items re-appropriation of funds can be made by office

heads, departmental heads and ministries and divisions.

Stages of Budget Procedure:

Stages of budget procedure in Bangladesh are preparation, approval,

implementation, and follow-up. A good budget process moves beyond the traditional

concept of line item expenditure control, providing incentives and flexibility to

managers that can lead to improved program efficiency and effectiveness. Policy

components of the budget are:

(a) fiscal measures or revenue policy;

(b) expenditure proposed for basic functions of the government, revenue or

current expenditure;

(c) development or public investment, ADP;

(d) money budget, commonly called credit and liquidity program; and

(e) authorization for implementation of these policies.

Revenue budget follows the traditional process of incremental budgeting.

Estimates are adopted on the basis of preceding year's expenditures and their historical

trend. Development budget is related to long-term investment within the framework of

Five-Year Plan (FYP), mostly in activities of building infrastructures and additional

facilities for production and services. Unlike revenue budget, development budget

allocations are made on the basis of annual allocations shown in each project


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documents and the resources realities. New and on-going projects get the full

allocations as shown in the Project Proforma (PP).

The finance minister places the budget before parliament in June. It

accompanies an introductory speech known as budget speech consisting of two parts.

Part one deals with the overall financial and economic conditions prevailing in the

country and government economic performance during the last one year and

government economic plans and programs and the budgetary allocation. Part two

deals with taxation measures. After budget discussions, money bills, supplementary

bill, and appropriation bill are placed before the parliament. If, for any reason, it is not

possible to pass the appropriation bill within 30 June, a vote on account bill has to be

placed before the parliament. Usually, through this bill an amount equivalent to two

months expenditure is sanctioned.

Implementation of the approved budget is carried out through various rules and

orders embodied in General Financial Rules (GFR), Treasury Rules (TR) and the

Delegation of Financial Orders issued by the finance division of ministry of finance.

Authorizations embodied in the Appropriation Act constitute the outer framework of a

control, while expenditure sanction and disbursement by executive authority at

various levels follows a given pattern of delegated financial powers.

Budget implementation also involves balancing of government incomes and

expenditures. Measures for realization of income and its quantum and the direction of

expenditure affect the economic life of corporate bodies, individuals and households

of different income groups differently during the budget year.

Financial control is closely related to accountability and a control is exercised

in order to ensure that the disbursements do not exceed the amount provided for in the

budget estimates, the expenditures are made for the purposes specified, and financial

propriety is ensured. The C&AG works as the watchdog in this respect. He prescribes

the form and manner of keeping the accounts of the Republic. He ensures account

compilation and timely auditing, prepares reports, and places them to the President

who causes them to be laid before the parliament. This is an annual feature and this

calls for compilation of two types of accounts: Finance Accounts, and Appropriation

Accounts

Finance Accounts, sometimes called Annual Accounts of the government, is

compiled by controller general of accounts (CGA). It incorporates comprehensive

accounts of receipts and expenditures of the government. It classifies transactions

under respective heads pertaining to all approved heads of government accounts and is

kept in two parts. Part one comprises the accounts of total receipts and expenditures,

the resultant revenue surpluses or deficits, the capital expenditures, including


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transactions related to temporary and permanent debts, deposit transactions, and

money adjustments. Part two exhibits accounts of debts, deposit transactions, and

money remittances. The accounts commence with a certificate of the C&AG that

represents and authenticates CGA's reports and accounts.

Appropriation Accounts separately indicates 'charged expenditure' and 'other

than charged expenditure' for each budget grant. This is sent to the controlling offices

exhibiting budgetary provisions and expenditure thereof and their variation, if any, for

their comments. On receipt of the comments of the controlling officers, CGA prepares

the accounts. The rendering of audit reports on both accounts is the responsibility of

C&AG and it serves the purpose of direction in which rules and governments orders

are followed by the disbursing authorities.

Bangladesh followed the financial management system that existed in British

India adopted in Pakistan. After the provincial autonomy was allowed in 1935, there

had been two sets of financial rules: General Financial Rules (GFR-1922) meant for

Central Government and the Bengal Financial Rules (BFR-1937). In 1998, New BFR

was issued adjusting the overlaps and duplication of GFR-1922 and BFR-1937.

In 1990, a Committee on Reforms in Budgeting and Expenditure Control

(CORBEC) was established and on the basis of its recommendations, a program

named Reforms in Budget and Expenditure Control (RIBEC) was carried out. RIBEC

felt that changes in budget format, reduction of budget cycle and identification of

flows of funds between government and autonomous bodies are related to

classification necessary for budgeting, accounting, expenditure control, and analysis.

computer oriented classification has been evolved and put to practice during financial

year 1997-98 and this is based on code groups, such as legal codes, functional codes,

and economic codes.


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Macro- economic scenario


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Macro- economic scenario:

The current crisis in the global economy has created for Bangladesh, as for many

other countries of the world, a more uncertain outlook for the national economy. Due

to Bangladesh‟s relatively limited exposure to international markets and export of low

end garments and low skill workers, both of which are relatively more recession

resistant, the impact of the global crisis is expected to be less severe than in other

countries. However, it is still expected that the economic growth might be affected by

some weakening in exports and remittance earnings. The economy will therefore face

a more challenging environment than in previous years with considerable downside

risks. Economic growth is expected to be lower than previously forecast. In the face of

this greater uncertainty, the Government will pursue a pro-active macroeconomic and

fiscal management strategy so that it can ensure a timely response to the emerging

challenges and risks.

a) The global perspective:

i. The global economy- recent trends, forecast and risks:

After a boom period, from 2002 to 2007, when growth averaged 4.5 percent,

the global economy has entered a more uncertain period. Many advanced economies

now face the most severe recession since the 1930s. International trade volumes have

fallen sharply and oil and commodity

prices have plummeted from the all-

time highs that were being recorded

during the first half of 2008.

The current global downturn,

which originated in the financial sector

turmoil that was triggered by the sub-

prime mortgage crisis in the USA, has

affected advanced economies, emerging markets and the low-income countries in

different ways. Advanced economies were first hit by the systemic banking crisis in

the USA and Europe. The crisis spread to emerging markets through the impact of

cross-border financial linkages on capital flows, stock market investment, and

exchange rates. In countries less integrated into the global financial system, global

crisis affected them adversely through falls in growth and trade.


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World economic growth and stability in the coming years will depend crucially

on how the crisis is managed in the advanced economies. Almost all the governments

have introduced stimulus packages involving increased public spending, lower interest

rates and the injection of liquidity into the banking systems. The resilience of the fast

growing emerging and developing economies, particularly in Asia, will also have a

significant impact. The extent to which sustained growth and stability in these

economies can be decoupled from the crisis in the advanced economies will depend

on prevailing domestic economic conditions as well as on the policy response to

possible economic shocks.

ii. Global output:

The table below shows the most recent IMF forecasts for global output and

trade. They highlight both the sharp deterioration in these indicators during 2008

and 2009 and how the downturn has hit the advanced economies hardest. By

contrast the forecasts for the emerging market and developing economies present a

much less marked deterioration, particularly in the output of the developing Asian

economies where economic growth is being driven by continued strong growth in

domestic demand in China and India. Because of the decline in petroleum prices

and the decline in construction activities some countries of the middle-east

especially Saudi Arabia and UAE are projected to experience negative growths.

Table 1: Global Output


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iii. International trade:

The global economic slowdown has impacted significantly on world trade with

volumes recording growth of 3.3 percent in 2008 compared with 7.2 percent in 2007

and 9.3 percent in 2006. In 2009 trade volumes are forecast to fall by 11.0 percent

before recovering in 2010 with a modest growth of 0.6 percent. Exports from the

emerging market economies grew by 6.0 percent in 2008 compared with 9.5 percent

in 2007 and 11.0 percent in 2006, and are forecasted to decline by 6.4 percent in 2009.

By 2010 it is expected that exports will bounce back from a declining position to a

positive growth of 1.2 percent.

iv. Global inflation:

The sharp economic downturn and dramatic falls in international demand have

in more recent times caused commodity prices to fall. These price falls mainly

occurred during the second half of 2008 and have dampened inflationary pressures.

Headline inflation in the advanced economies is projected to fall from 3.4 percent in

2008 to -0.2 percent in 2009 before edging up to 0.3 percent in 2010. In the emerging

and developing economies inflation is expected to decline from 9.3 percent in 2008 to

5.7 percent in 2009 and 4.7 percent in 2010.

v. International commodity market:

Prior to these recession driven price falls the twin shocks of rising international oil

and food prices created inflationary pressures across the world during 2007 and the

first half of 2008. The rapid increase in food prices in 2007 was largely the result of

production shortfalls, the impact of oil price increases on costs of production and the

increased use of grain for fuel production. The oil price more than doubled between

December, 2006 and July 2008 with food prices rising by more than 50 percent during

this period. After peaking in July 2008 oil prices subsequently fell sharply in response

to the slowdown in global economic growth, declining by 51.6 percent in October-

December compared to the previous quarter. Significant falls also occurred in the

prices of food and other commodities. The price changes during January-March 2009

quarter remains fairly stable.


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Graph 1: International Market Prices (Quarterly Average) of Some Selected

Commodities

b) Budget perspective of Bangladesh:

Economic growth in FY09 and in FY10:

Huge expectation to the new Government

Recession of the World Economy

Lower price in international market

Export fall in particular sectors

Reduction in inflation

Business confidence down


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Bangladesh‟s economy continued to demonstrate considerable resilience during

the FY08 despite the adverse effects of two consecutive floods followed rapidly by

Cyclone Sidr, and of high international oil and commodity prices.. The underlying

factors behind this continued strong performance were the quick recovery in the

agriculture and service sectors in the second half of the fiscal year supported by the

steady flow of private sector credit, sustained export growth and a surge in the inflow

of worker‟s remittances.

Graph 2: Sector wise Contributions to GDP Growth for the Last 5 Years.

Bangladesh has been one of the best performing economies over the last twelve

months. The national economy has been affected less by the slowdown in

international trade than other Asian emerging economies and has maintained strong

economic fundamentals, including sound public finances. It is expected that the

economy, while entering a more uncertain period, will continue to be impacted less by

the global downturn than other countries in the region.

The Effects of Global Recession:


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The year 2007 witnessed a significant reduction and unprecedented price hike

of all commodities including food, fertilizer and fuel. A new crisis ensued in the year

2008 arising from credit crunch. Within a few months, this crisis culminated into a

global recession.

Due to this economic meltdown, investment across the countries stagnated. It

carried in its wake massive retrenchment of workers. Millions of people lost their

means of livelihood. To counter this deteriorating situation, countries around the

world, both developed and developing, declared fiscal stimulus packages depending

on how the respective economies were affected, the depth and dimension of the

problems being faced and their affordability to deliver incentives.

The Global Recession impacted our economy in three fronts: export, import

and remittance. That except for RMG and domestic textile sector, exports of all other

commodities have declined compared to the previous year. The growth of export in

RMG and textiles is also going down.

The growth in import is also dwindling. However, remittance flow still holds a

strong position. The Government will have to remain focused on tackling the situation

arising from influx of expatriate workers returning home after losing their jobs.

The Government provides subsidy to 13 items of export. They have increased

export subsidy for three worst affected sectors by 2.5 percent. To this end, there is an

increase of allocation of Tk. 4500 million in the revised budget. They have simplified

the existing procedures for quicker disbursement of cash subsidy to the beneficiaries.

They have provided for presumptive payment of 75 percent of claim and settlement of

the rest of the claim after due audit scrutiny.

In the RMG and Textiles sector, there is already a package of incentives in

place. This includes:

Bonded warehouse facilities through which the exporters can import fabrics

and other raw materials duty free.

Duty draw-back facilities which are extended to those who cannot avail bonded

warehouse facilities.

Providing 5 percent of the export value to those who use local yarn and fabrics

to make their products.


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A zero tariff on imports of cotton in the interest of yarn producers.

Besides these, Government have provided certain additional assistance to other

sectors including RMG and Textiles:

In certain cases bank interest rate has been lowered to 12 -13 percent to

facilitate import and investment.

The time limit for making down payment in respect of repayment of bank loans

for all manufacturers and exporters has been extended up to September 2009.

Rescheduling facilities are to be extended on a case by case basis.

An Export Development Fund is in place for financing the import of machinery

for plants engaged in manufacturing of exportable items. The size of this fund

has been increased. An individual borrower's limit has been increased from

US$ 1 million to US$ 1.5 million.

Steps have been taken to withdraw license renewal fees payable by the captive

power producers.

Steps have been taken to implement immediately the planned actions to revamp

the sick industries including 270 garment manufacturing units.

The Government has an obligation to do more to enhance the capacity of the

exporters. To this end we are closely monitoring the whole situation so that we can

take immediate decisions in order to protect the exporters' interests. Government will

not let the export industry, which is currently undergoing a setback, to go sick.

In order to keep the negatives of global recession at a minimum level on our

remittance flows they have adopted the following strategies:

Rehabilitation and skill development training program for the returnee

expatriate workers who lost their jobs.

Diplomatic initiative to prevent retrenchment of workers and to explore new

labor markets abroad.

Making National Skill Development Council more effective to build a critical

mass of skilled workforce to match the requirement of international labor

markets. In order to keep the domestic demand buoyant alongside exports,

steps have been taken to make the operation of the funds with the Bangladesh

Bank more comprehensive, strengthened and effective.


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Against the backdrop of

current recession, austerity and belt

tightening have to be exercised in

other areas of public expenditure to

free up resources for creation of jobs,

increase of aggregate demand and

implementation of social safety-net

and poverty reduction programs.

Necessary directives have been

circulated to all ministries, divisions and departments urging them to prevent waste

and to observe the standards of financial propriety while procuring goods and

services.


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Analysis of the

National Budget for

FY2009-10


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General Analysis of the National Budget for FY2009-10:

Departures and Distinguishing features of the Budget:

First budget by the newly elected government.

Inspired by and reflection of election manifesto of AL.

Commitment towards continuation of the 3-year PRSP (2009-2011).

Revival of mid-planning with a long term vision (2021).

Five year plan (2010-2015)

Perspective plan (2010-2021)

Introduction of spatial planning.

Dialogue District plan.

Mainstreaming private-public partnership (PPP).

Recognition of importance of reform agenda (e.g. anti-corruption measures,

local government strengthening, right to information)

Sensitivity to global economic crisis.

Lack of clarity regarding policy initiatives and budgetary allocations.

A number of initiatives that appeared to be new have actually been in

existence for a couple of years.

Absence of detailed information on subsidy and social safety net.

Inadequate interpretation of data.

Exchange rate position has been deemed stable, but it is mentioned that

the Taka was devalued by 0.6% in March.

Recognition of need to revisit budgetary framework (e.g. unified budget

deepening MTBF, ADP implementation)

Budget speech went beyond economic issues undermining its focus.

Some important Sectors:

Agriculture

Fisheries and livestock

Water resources


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Our economy is agro-based. Top priority on agriculture and rural development

Tk.4,000 crore for FY 2009-10 to implement these projects.

Rural development

Rural electrification

Industrialization

Small and medium enterprises

7.65 % of the total budget to implement this rural development of this current year.

7.89 % of the total budget to implement this rural development of the last year.

Power and energy

Proper planning for tackling the prevailing situation in power and energy. Total

3.78% budget is allocation in these projects for FY 2009-10 & 3.01% was allocated

for FY 2008-09.

Communication

Roads and bridges

Railways

Water transportation

Post and tele-communication

Civil aviation and tourism

Tk. 6,334 crore for ICT, telecommunication and communication sector in the

budget for FY 2009-10, which is 6.5 percent of the total budget. FY 2008-09 this

budget was 5.58% of total budget.

Housing

Human resource development

Education

Science and technology

Health and family welfare


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Health:

Ensuring adequate health services for all is one of the principal commitments of

our Government. The government proposes 6.13% for FY 2009-10 to implement the

health sector of the total budget. FY 2008-09 this budget was 5.58% of the total

budget.

Food security

Poverty reduction and employment generation

Employment generation

Social safety and empowerment

Education:

Highest allocation given to Education Sector Tk 14,387 crore for the education and

technology sector, with Tk 6,611 crore for Mass and Primary Education ministry.

Total 12.6% budget for education and information sector for FY 2009-10 & 13.13%

budget were allocated for education and information sector for FY 2008-09.

Women empowerment and children welfare

Climate change: disaster management and environment

Foreign policy: Expatriate welfare

Defense

Government would like to keep the defense forces above all controversies.

Tk.7,967 crore in the current fiscal year to Tk. 8,196 crore in the revised budget for

FY 2008-09 and allocate Tk. 8,382 crore in the budget for FY 2009-10.

Public administration

Need for reform in public administration. Government proposes 16.2 % budget for

FY 2009-10 of the total budget. FY 2008-09 this sector budget was 10.56%.

Pension

Public pension is one of the key areas of public expenditure in Bangladesh. In the

annual budget of 2009-10 FY, a total sum of tk. 2,693 crore has been allocated for

pension in public service. 3.19% of the total budget for FY 2009-10 to implement this

sector & FY 2008-09 this budget was 3.84% of the total budget.


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Minorities, people from less advanced

Freedom fighters

Youth , sports and culture

Graph 3: Allocation decrease in total revised Budget 2008-09( %)

Additional sector:

Digital Bangladesh:

The national budget contained Taka 1,13,819 for the 2009-10 fiscal year with a

commitment to implement the initial step of 'Din Badal' (charter for change of days)

and Digital Bangladesh


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Graph 4: Resource plan by practice area (2006-2010).

Table stated below shows actual and planned expenditure allocations by Sector

during the F08-09 to F11-12 and their respective shares of total program expenditure.

Table 2: Expenditure by sector


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Opening of a New Horizon:

Planning Concepts and Strategies of the New Government:

The Government led by the Grand Alliance believes in long-term vision for the

development of the country. A long term Perspective Plan helps a nation to have an

idea of its goals for a foreseeable future and enables it to chart out its course of action

to achieve these goals. With this purpose we have briefly outlined our Vision of 2021.

In order to realize this vision they believe that there is a need for a medium-term Five

-Year Plan. We have already taken up to work out the details of the Vision 2021

simultaneously begun the work of formulating our 5-Year Plan for 2010-2015. At the

same time, we believe that there should be a continuity of Government's activities

and all activities directed towards the welfare of people should be pursued vigorously.

First, Government has reviewed the already prepared 3-year term PRSP

(Moving Ahead 2009-11) in the light of their development philosophy and

socio-economic goals. They plan to complete this task in the next two months.

Poverty reduction is a fundamental issue where there should not be any laxity.

Therefore, they will follow this program till 2011.

The work on their Perspective Plan (2010-2021) is in progress. By June next

year they will be able to share this planning document with the honorable

Members of Parliament.

Alongside this, they have begun our work on 5-Year Plan for 2010-2015. This

planning document will not be a traditional one with sector wise allocations,

lists of projects and investment plan. It will project goals and targets, explore

alternative strategies for reaching the goals and targets. In a broad sweep, it

will contain the projected savings and investment and public expenditure, the

role of public and private sectors and the requirement for institutional structure.

This medium-term plan will contribute to the process of implementing their

Perspective Plan. In fact, this Plan will be an indicative forecast for the nation

reflecting the Government's development philosophy.

The current PRSP shall remain in force until 2011 and this document will be

reviewed each year in normal course. The way the 5-Year plan will influence


33

the annual budget objectives, the PRSP that Government is finalizing likewise

will affect the budget for the intervening period.

The annual budget will specify the programs needed to be operated the broad

directives of the 5-Year Plan. A 3-Year Medium Term Budget Framework

(MTBF) is followed by different line ministries in developing their annual

budgets. This 3-Year MTBF will be converted into a 5-Year MTBF.

The two most important aspects of budgeting for them are augmenting

government revenue and increasing the rate of investment. Considering the

uncertainties due to the global recession, they cannot possibly raise the rates of

taxes, but certainly it would not be unjust to widen the tax net. Similarly

emphasis may be laid on attracting increased investment from private and

foreign sources. They shall definitely support various investment initiatives.

Public-Private Partnership Budget:

Government needs to take our economy to the higher trajectory of growth to

take the people of this country out of the vicious cycle of poverty. What is needed to

meet this objective is a paradigm shift to bring qualitative change in the investment

strategy that they have been followed.

The government alone cannot provide such huge amount of resources. It would

be difficult to maintain macroeconomic stability if the government has to finance such

huge investment by borrowing from domestic sources. Again, it will not be possible to

obtain such funds as concessionary loans from the development partners. The past

experience suggests that it has been difficult to ensure economic use of public

resources and the quality of service delivery when Government is involved in

infrastructure development and maintenance as its involvement is not determined

through a competitive market process. At the same time, direct involvement of the

government in project execution process takes away the focus from its basic

obligation to provide social and other important services.

Since the implementation and funding of any infrastructure development

projects is a long drawn process, the investment risk is much higher and at the same

time, the investment is not, in many cases, commercially viable. It is therefore,

difficult to attract private investment in all projects in this sector.


34

In this context Government take special initiatives to involve the private sector

under Public Private Partnership (PPP) to meet the probable investment gap in

infrastructure development and maintenance, alongside the government‟s investment.

They trust that successful application of PPP concept will open up the door for

increased flow of investment from both local and foreign investors. This will

accelerate economic growth. In fact, PPP in Bangladesh commenced after the

adoption of IPP Policy in 1996.

Around 50 initiatives in telecommunication, land port and other physical

infrastructure projects have been successful. There has been remarkable progress in

PPP sector in FY 1998-99 when initiatives were taken to build two mega power plants

at Haripur and Meghnaghat with private sector involvement for the first time. The two

projects were implemented successfully and helped in mitigating power crisis. The

existing PPP framework and the institutions associated with PPP should be more

transparent and should also be strengthened to ensure the success of the PPP sector. At

the same time it is essential to ensure the participation of the government in PPP

projects.

The present government is committed to take timely measurers to attract

private investment in the country through PPP. Therefore, the Government propose to

create three new 'expenditure heads' in the FY 2009-10 budget to facilitate new

projects under PPP.

The first expenditure head will be named as PPP Technical Assistance to

cover expenditure related to pre-feasibility studies and other preparatory work before

asking the private sector to submit their bids for PPP projects. Relevant agencies will

be able to receive necessary funds quickly from this head to prepare PPP project

documents and to appoint PPP consultants. I propose to allocate Tk. 1000 million for

this sector in FY 2009-10.

Government propose to allocate Tk. 3000 million as Viability Gap Funding as

subsidy or seed money to attract private initiatives for the construction of power

plants, hospitals, schools, roads and highways which are non-profitable but essential

for public services.

Government propose to allocate Tk. 2,1000 million in the PPP budget to

accelerate the process of investment through PPP. This allocation will be used for

setting up an Infrastructure Investment Fund. Depending on the type of projects,

the Government will provide equity or loan to the private investors to ensure


35

Government's participation. Different financial incentives will be extended from this

Fund to encourage investments.

Medium Term Budget Framework:

The total volume of public expenditure in Bangladesh compared to other

countries is fairly low. At the same time it is evident that with this level of spending, it

is not possible to achieve the desired level of output. Most of the public expenditure is

not linked with the national and sector wise policies. The probable outcome to be

achieved through these resources is not always clearly articulated. In most cases,

monitoring and evaluation of budget implementation is not properly carried out.

Needless to say, proper utilization of limited public resources can accelerate the

national growth rate and speed up poverty reduction.

By now, 20 ministries and divisions have been included in the Medium Term

Budget Framework. The purpose of MTBF is to link budget with the Government‟s

policy; resources with the performance indicators of the ministry/department/agency

and strengthen the implementation, monitoring and evaluation process. These 20

ministries and divisions spend 53 percent of the total budget and 86 percent of the

ADP. In addition, 12 more ministries will be roped in the MTBF budget process very

soon.

The national budget is not just a statement of income and expenditure of the

government. Budget is a vehicle through which they shall ensure growth, poverty

reduction and commitment relating to achieving the macroeconomic fundamentals.

In the light of the experience in introducing the new budget framework it was

felt that the overall budget management at Ministry level requires further

strengthening through institutional support. In view of the above these Ministries and

Divisions have been asked to create a Budget and Planning Wing or Branch within

their organizational structure. It is hoped, that implementation of this directive will

strengthen budget preparation, implementation and the monitoring activities.

New initiatives have been taken to examine the entire development project

approval process to avoid delay and complexity. The revised procedure will be made

effective some time in the next fiscal year. The activities of ministries and divisions

have been strengthened to monitor and evaluate regularly the implementation progress


36

of development projects. The newly created wings/branches in the ministries and

divisions will support this activity.

Unified Budget:

Government wants to initiate a few reforms related to budget preparation and

execution starting from the next fiscal year. The dichotomy between non-development

and development is essentially artificial. From the perspective of attaining objectives,

this becomes more evident. For example, construction of schools is under the

development budget, but salaries of teachers and other educational inputs are within

the purview of non-development budget. The desired outcome will not be achieved

through the civil works connected with the construction of schools alone.

Besides, if we look at the total resource of the government, we can see that 76

percent of the total budget is spent through non-development budget. There are many

development programs which are now being implemented through the non-

development budget. Around 28.8 percent of total resources have been allocated for

this purpose in the current fiscal year. However, during the same period only 24

percent of the total budget has been allocated for the ADP.

Currently, 14 percent of the total budget has been allocated as interest

payments for the funds which were borrowed to finance previous Annual

Development Programs. Another amount of 2.7 percent of the total budget has been

allocated for the repair and maintenance of infrastructure which was built under the

development projects. A further 3.6 percent of the total budget is spent on salaries for

manpower transferred from completed projects to the non-development budget.

Therefore, the national budget should be unified to help achieve the strategic

objectives of the government in the short and medium term. It will also help to

eliminate duplication and lack of coordination in the budget preparation process.

However, the budget allocation needs to be divided as capital expenditure and

recurrent expenditure at the disaggregated level to understand the expenditure pattern.

A way to manage this will be determined soon in consultation with the Planning

Commission.


37

Gender Responsive Budget:

It is one of the priorities of the government to initiate positive steps to ensure

gender equity across the economy. Government tried their best to ensure women's

equity in the FY 2009-10 budget. The share of participation of women in different

activities and the level of service they are receiving from the government‟s activities

will be evident from that information. At the same time, with such available

information it can be decided whether any affirmative action is required or not to

ensure women‟s rightful position in the society and the economy.

District Budget:

As we all know, the national budget is prepared centrally. This does not capture

the hopes and aspirations of the people at the grass root level. At the same time,

transparency and accountability cannot be ensured, as we cannot say how much

resources have been utilized in a particular district. As an initial step Government

wants to prepare a district budget for one district in each division through partial

modification and improvement in the classification structure and a few changes in the

development project pro forma. If it is possible, then the central budget will also be

able to illustrate a district wise budgetary break up, which will ensure transparency of

public expenditure and accountability in the implementation of programs.

Once the process is begun, Government shall be able to capture inputs for

budgeting and planning from the district level. This initiative is closely linked with

decentralization of our development initiatives. They firmly believe that there will be

an epoch making change in the development initiative if budget preparation and

implementation at the district level, works as planned.

Use of ICT in Preparation of Budget and Accounts:

Information technology is widely used in the processing and compilation of

budget and accounts related data and information. Integrated Budgeting and

Accounting System (IBAS) was introduced in FY 2007-08 and with this we can now

ensure generation of timely and accurate reports. Currently, 58 District Accounts

Offices including the Divisional Accounts Offices are connected through a Wide Area

Network. Financial data and information are being sent directly to the capital from


38

remote accounting locations through this system. In future, this information

technology will be expanded further to cover all Upazilas across the country. This

process will make public spending and use of resources more transparent and will

ensure accountability.

ADP implementation:

The Finance Minister presented a budget on June 11, 2009 that contains many

sound expenditure proposals and some innovative ideas, and is appropriately

expansionary in intent. However, the Government will be hard-pressed to meet its

goals for raising revenue or carry out its ambitious expenditure plans, especially in the

key Annual Development Program (ADP). The budget also partially halts the progress

in trade liberalization of recent years and increases protection of already over-

protected domestic industries.

Graph 5: Original and actual ADP as % of GDP (FY00-FY09)

Expands protection for the poor and vulnerable:

Prioritizes rural development and seeks to redress regional disparities. It

provides for infrastructure development beyond the traditional ADP, and maintains a

provision to deal with the possible impact of the global recession.


39

Subsidies and transfers are decreased to 3.7 percent of GDP from 4.2 percent in

the FY09 revised budget.

Existing safety net programs are strengthened and some new programs

introduced. Total allocation to the social safety net and social empowerment

programs rise by 25.2 percent. The share of cash-based programs in total safety

nets is also increased, which could help to improve their overall effectiveness.

The proposed Tk 305 billion1 ADP gives priority to rural development, fuel

and energy sectors and transportation. It also aims to redress regional

disparities and appears to place strong emphasis on project completion.

For the first time, the FY10 budget introduces the concept of public private

partnerships as a vehicle for infrastructure investment, and allocates Tk. 25

billion to such projects.

There is also a Tk 50 billion provision for a fiscal stimulus and other measures

to lessen the impact of the global recession. The programs initiated under the

FY09 fiscal stimulus package will continue and be expanded if necessary.

Appropriate expansionary fiscal stance of the budget:

Given that growth is subject to significant downside risks, but its effectiveness

will depend on the quality and quantity of actual spending.

The budget provides for public expenditures to increase if, for example, exports

and remittance growth slow further and liquidity in the banking system

tightens.

In such circumstances, an expansionary fiscal stance aimed at increasing

productive assets and protecting the vulnerable can be helpful.

However, weak implementation capacity could undermine the extent to which

additional development expenditures are realized.


40

Dependence of the ambitious spending plans on the government’s ability:

To mobilize concessional external financing and strengthen the revenue intake.

The budget could fail to meet its expansionary targets if spending is hobbled by

weak implementation capacity, as in the past. In any case, a more effective way

to contain deficits would be to improve the state‟s ability to raise revenues and

stem losses from state-owned enterprises. This would also improve the

effectiveness of public expenditure.

In addition to the risk of the budget undershooting its deficit target, the cost of

financing the deficit may remain high if the ADP falls short of its targets

because this would reduce the availability of low-interest external financing.

The projected amount of net external financing required for FY10 (2 percent of

GDP) is high to begin with. A shortfall in external financing may force the

government to turn to bank or even monetary financing of the deficit, which

could fuel inflationary pressures and crowd out credit in the private sector.

The revenue growth target is challenging; Bangladesh has one of the lowest

revenue & GDP ratios in the world. Historically, revenue collection has grown

by one or two percentage points, at most, above the nominal GDP growth rate.

Since expected growth of total revenue for FY10 is 3.2 percentage points

higher than the projected nominal GDP growth rate, the administration will be

hard-pressed to achieve its target.

Partially reversed steady progress in trade liberalization in recent years:

In a country that already has high rates of protection.

The average nominal protection in FY10 is increased to 22.9 percent from 20.1

percent in FY09, mainly because of a wider imposition of Para-tariffs and the

introduction of a 5 percent regulatory duty.

Even though customs duty is reduced on 965 tariff lines in FY10, the benefits

are offset by the wider application of a supplementary duty, imposed on 144

additional tariff lines, and a regulatory duty, imposed on 2,683 tariff lines.


41

Effective protection, especially for domestic industry, is also expected to

increase in FY10 due to the scaling down of customs duty on raw materials and

retention of the duty rate on finished goods.

These measures favor domestic industry at the expense of the consumer, and

could lead to an increase in consumer prices. Civil society and trade bodies

have applauded such protectionism, on the grounds that it increases domestic

demand at a time when external demand for Bangladeshi products is

weakening. However, this static view of protection neglects the negative

impact on exporters, consumers and the long-term competitiveness of

Bangladeshi firms.

Outcomes of This Budget:

a) Growth, investment and macroeconomic outlook:

Growth-investment outlook:

Growth target for FY10 has been conservatively set at 5.5% (particularly in

context of last year‟s budget) – lowest target in last six years.

However, higher GDP growth target has been set for later years.

Investment target for FY10 suggests considerable deceleration in investment

rate (as percentage of GDP)

Considering average ICOR for last five years (3.9), attainment of investment

target (23.7% of GDP) would imply around 6% GDP growth.

As projected, a significant enhancement in public investment would thus imply

a rather depressing future (FY10) for private investment – it is going to decline

further as % of GDP (from 19.6% in FY09)

This would imply either a complete contradiction to the expectation expressed

in the budget ADP about private investment or apriority acceptance of less than

full delivery of ADP.


42

The growth-investment nexus remains perplexing, particularly in comparison

to the fiscal structure .

Nothing on savings – the concern over falling domestic savings remain valid.

Overall growth-investment nexus does not match with the liberal public finance

framework targeted for FY10.

Table 3: Macroeconomic Framework

Global outlook:

2009 is expected to be the worst year for the global economy since World War

II.

However, an end to “free fall” is also expected in near future; world economy

is projected to be at least stabilizing, if not recovering!

How far Bangladesh economy will suffer during FY10, particularly the

manufacturing sector, may turn out to be the crucial determinant of next year‟s

growth performance.

Bangladesh: late entry, late exit in terms of impact of global crisis.


43

Table 4: Global GDP Growth(%)

Growth Outlook:

In the backdrop of robust performance this year (4.7% for agri-sector; 5.2% for

crop-sector FY09) attaining a significant performance in the agricultural sector

will be a major challenge.

However, a near 3% growth (average in this decade) can be expected in the

event of continuation of policy support and absence of any natural disaster

Dialogue disaster.

Crop sector will be a major determinant of agricultural growth.

Historically, steady performance by the services sector has been rewarded by

moderate achievements in the other sectors.

Average growth during this decade is 6%; expectation of a near performance in

FY10 may not be overreaching.

Global recession adversely impacted the industrial sector, particularly

manufacturing sector .

A near 6% to 6.5% growth can be expected given resilience shown by

manufacturing sector and an early recovery predicted from the global

recession.


44

Construction ought to reclaim lost momentum given high expenditure planned

in ADP.

Monetary outlook:

Inflationary pressure is expected to come down gradually within the next three

years.

Expected contraction of M2 growth would imply a conservative monetary

expansion; however, a moderately expansionary monetary policy stance was

earlier suggested by CPD.

Enhancing private sector credit at the same time would mean a possible

reduction in public growth.

External outlook:

Targets were kept at earlier levels in anticipation of lagged response to possible

global recovery in the second half of FY10.

An upturn is expected in the following fiscal year (FY11) but, balance of

payments may come under pressure.

A lot will depend on when and how the global economy recovers in coming

months.

Fiscal outlook:

Other than ADP (and hence deficit), revenue earnings and revenue expenditure

projections seem to be of regular nature.

Advocated enhancement of domestic demand through higher public

expenditure (Reflected through higher deficit) as well as crowding-in private

investment through higher public investment do not tally with the projected

growth investment nexus.


45

b) Public Finance Framework:

Fiscal structure:

Both the total revenue and expenditure in the revised FY09 budget fell short of

the initial projection. The budget deficit as percentage of GDP ended up 4.1

percent, which was lower than the target of 5.0 percent.

The domestic borrowing of the government, which had surged to 3.7 percent of

the GDP in the preceding financial year, was restricted to 2.3 percent of the

GDP.

The fiscal structure of FY2010-11 is not expected to undergo any dramatic

change.

Revenue earnings:

The total revenue receipts in FY09 was higher than the FY08 revenue receipts

by 14.3 percent.

The tax revenue making up 80.3 percent of the total revenue receipts increased

at a lower rate of 15.7 percent compared to 22.3 percent growth in FY08.

The aggregate target of revenue collection, if fully realized, will lead to some

improvement in the tax-GDP ratio in FY2010-11 (from 11.6 per cent to 12.0

per cent).

Revenue-GDP ratio and Tax-GDP ratio for FY10 are targeted at 11.6 % and

9.3% respectively (11.2% and 9.0% in the revised budget of FY09).


46

Graph 6: Revenue Earnings of Government

Public expenditure:

Total public expenditure in the revised FY09 budget was 0.6 percent higher

than the FY08 expenditure.

The current expenditure in FY09 was 3.2 percent higher than the initial

projection of Taka 607.6 billion. The ADP of Taka 230.0 billion was 10.2

percent lower than the initially targeted Taka 256.0 billion.

The total public expenditure package of FY2010-11 is expected to experience a

moderate increase as a share of GDP (from 16.6 per cent to 17.0 per cent). It is

to be noted that the dichotomy between revenue and development expenditure

will continue into the upcoming fiscal year.

The total public expenditure in FY10 is expected to increase by 20.9 percent.

The proposed ADP with its increased size will drive the higher expenditure

planned for the upcoming fiscal year.

Share in total expenditure:

o Development Revenue – 61 1% (66 6% in FY09)

o ADP 26.8% (26.3 % in FY09)


47

o Other expenditures 12.1 % (7.2 % in FY09)

Table 5 : Sector-wise Distribution of Total Expenditure (Non Development and

Development)

Revenue expenditure:

Enhanced revenue expenditure target for FY10 is Tk 71,774 crore (Tk 65,051

crore in the revised budget of FY09) which is an increase of Tk 6,723 crore

from FY09.

Revenue expenditure as a percentage of GDP is targeted at 9.4 % (9.2% in the

revised budget of FY09)

Interest Payments will rise by 18.7% in FY10 (6.8% in FY09)

Interest payment on both domestic and foreign debt is set to rise in FY10

(compared to FY09)


48

c) Overview of fiscal measures:

Personal income tax:

High income tax mobilization is a good sign. Renewed effort required to

sustain growth.

A program under NBR should be undertaken to popularize online submission

of tax returns. The online tax form should have an in-built tax calculator to

facilitate self-assessment.

Corporate tax

There has not been any change in the corporate tax structure and incentives.

Value Added Tax:

A good proposal but implementation will be difficult as awards are given at a

later stage while VAT has to be paid initially.

Government should enforce the use of Electronic Cash Registers (ECRs) to

enhance VAT collection for all medium and large enterprises located in division and

district level towns. A time-bound target towards this should be announced in the

forthcoming budget.

Indirect taxes

Shift in tax burden to high end consumption. Reducing pressure on demand for

electricity.

Growth of taxes

Growth in total tax revenue has fallen to 15.18% on 2009-10 from 18.28% in

2008-09.

Growth in income tax 2009-10: 22.32% and 2008-09: 23.02% (minimal

decrease)


49

Growth in VAT 2009-10: 13.32% and 2008-09: 18.24% (decrease)

Growth in import duty: 2009-10: 9.56% and 2008-09: 2.9% (increase)

Growth in excise duty 2009-10: 10.13% and 2008-09: 11.27% (decrease)

Growth on supplementary duty 2009-10: 19.95% and 2008-09: 14.44%

(increase)

Customs and regulatory duties

These duties will control the export import process of the country.

Supplementary duties:

Will affect the purchasing power of the lower income groups.

A good measures towards increasing tax collection

In view of rising production cost, duty on raw materials and intermediate

products may be rationalized further and revised downward.

Duty on finished products may, however, remain unchanged at 25 per cent.

Changes in tariff structure: impact on revenue earnings

Government‟s decision to reduce customs duty on basic raw materials from 7%

to 5% will reduce cost of production.

Special tax benefits:

The provision of legalizing undisclosed income should not be there in the upcoming

budget.

(1) Capital gain from sale of land:

Tax rate will be reduced for deductions of income tax at source against capital gain

from the sale of land

(2) Benefits for buyers of properties:

May inflate the housing price with the entry of black money and put pressure

affordability of flats by the fixed income groups. This will not solve the housing

problem of the poor.


50

Comparison with previous years:

Table 6: Comparison between National Budget of FY 2009-2010

Budget 2009-10

(Per cent)

Budget 2008-

09 (R) (Per

cent)

Public administration 16.2 10.56

Interest payment 13.88 14.14

Education and information technology 12.6 13.31

Agriculture 7.9 8.11

Social security and welfare 7.8 8.03

Local govt and rural development 7.65 7.89

communication 6.53 5.58

Defense 6.19 7.31

Subsidies 6.14 8.89

Health 6.13 5.58

Public order and security 5.5 6.48

Energy and power 3.78 3.01

Pension 3.19 3.84

Miscellaneous 3.1


51

74%

25.80%

Budget 2008-09 (R)

Non-Developmnet ExpenditureDevelopment Expenditure

Graph 7:

Non-development and development expenditure of National Budget of FY 2009-

2010 and 2008-2009

69.81%

18.05%

11.61%

4.50%Budget 2009-10

Revenue Domestic borrowingForeign net borrowing Foreign Grants

Graph 8: Financing sector of National Budget of FY 2009-2010 and 2008-2009

72%

27.79%

Budget 2009-10

Non-Developmnet ExpenditureDevelopment Expenditure

73.48%

15.08%

10.85%

5.23%Budget 2008-09 (R)

Revenue Domestic borrowing Foreign net borrowing Foreign Grants


52

Criticisms of the Budget


53

Criticisms of the Budget:

Deficit Budget:

The overall budget deficit is projected to increase from 4.1 percent of GDP in

the FY09 revised budget to 5 percent in FY10 and remain close to this level in the

subsequent two years (Table-1). The government‟s strategy has been to cover as much

deficit as possible from external grants and concessional credits. However, external

financing has been declining in recent years with the exception of FY08 when external

Financing increased due to emergency assistance to cope with the impact of natural

disasters. External financing is projected to increase to 2 percent of GDP in FY10,

compared with an estimated 1.8 percent in the FY09 revised budget. Gross

disbursement of external assistance has averaged US$1.5 billion per annum in the

current decade. Given this historical record along with the tight international financial

Conditions, the absence of a substantial structural reform program so far, and the

prospect of some regressive amendments to Public Procurement Act and Public

Procurement Regulation, this expectation appears to be unrealistic.

The decline in concessional external financing relative to GDP combined with

an increase in budget deficit in recent years has led to greater reliance on (higher cost)

domestic borrowing. Domestic borrowing is projected at 3 percent of GDP in FY10,

compared with 2.3 percent in the revised FY09 budget, and relying largely on

borrowing from the banking system. Total cost of borrowing has thus increased

significantly. While the cost of government borrowing both as a share of total debt

and as a share of GDP is low compared to many other countries, interest costs as a

share of total expenditure are much greater due to the relatively low levels of total

revenue and total spending.

The deficit of state-owned enterprises (SOEs) decreased in FY09. Overall net

losses of non-financial SOEs declined to Tk 1.5 billion in FY09, compared with Tk

99.9 billion losses in FY08. This largely reflects a decline of the Bangladesh

Petroleum Corporation‟s (BPC)‟s losses from Tk 95.5 billion in FY08 to Tk 35.8

billion in FY09 as a result of both increased pass-through of import parity prices of

petroleum products to domestic prices as well as a decline in import parity prices

themselves. A second reason was the performance of the Bangladesh Telephone

Regulatory Commission which made a profit of Tk 32.4 billion in FY09, compared

with Tk 0.4 billion losses in FY08. However, the losses of the Bangladesh Power

Development Board increased from Tk 9.9 billion in FY08 to Tk 15.7 billion in FY09.


54

Using standard debt sustainability assumptions, it can be shown that the

projected level of primary deficit is sustainable if GDP growth is 5.5 percent or higher

and the nominal effective interest rate is 9 percent or lower.6 the ability to mobilize

concessional foreign financing will therefore be critical. If foreign financing continues

to decline, Bangladesh may face a sustained rise in the effective interest rate.

Table 7: The Budget Deficit and its Financing

Percent of GDP

ADP Implementation:

Poor implementation of ADP seems to be a combined consequence of three factors

listed below in an ascending order in view of their importance –

resource constraints,

unrealistic targeting, and

lack of implementation capacity.


55

Resource Constraints:

Over the last decade or so, annual change in actual delivery of ADP has

roughly flowed that trend in annual change of revenue earnings. An earlier CPD

study32 indicated that implementation of ADP can be mostly explained by revenue

collection. This indicates the possibility of resource constraints as a key factor

determining the level of ADP implementation.

Unrealistic Targeting/Potential Investment Demand:

A sizeable ADP of Tk 30,500 crore has been earmarked for FY10, with an

ADP-GDP ratio target of 4.4 per cent. The issue of targeting emerges from the fact

that size of ADP gradually increased irrespective of the stagnated implementation

level. Between FY01 and FY08, actual ADP increased by only 13.9 per cent while the

size of original ADP has increased by 51.4 per cent. This increase is a reflection of the

potential investment demand of a developing economy. From the previous trend in

ADP implementation over the last ten years, highest annual increase of 23.7 per cent

in actual ADP was achieved in FY00, while the lowest was of (-)13.2 per cent in

FY02 (averaging 5.8 per cent). Applying these figures over the actual ADP of FY09

(which is of Tk 19,646 crore), the best case scenario for FY10 would be of an actual

ADP of about Tk 24,300 crore (3.5 per cent of the targeted GDP) i.e. about Tk. 6,200

crore less than the original. On the other hand, an ADP of Tk 20,800 crore (3.0 per

cent of the targeted GDP and Tk. 9,700 crore less than the original) is a possibility if

one considers the average increase of the last ten years.

Lack of implementation capacity:

In FY00, the top three causes of poor implementation related to:

(a) delay in fund release,

(b) lack of manpower,

(c) lack of coordination with donors.

In FY05 the corresponding factors were:

(a) delay in procurement,

(b) delay in project approval,

(c) delay in tender processing.


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According to the most recent report of the IMED, the three reported problems

of implementation from the top as reported by the ministries are

(a) delay in tender processing,

(b) delay in land procurement,

(c) delays caused by project amendment.

One may observe a number of features emerging from these self-assessments of

ministries and divisions. Firstly, resource availability, both in terms of financial and

human capital, as a constraint to ADP implementation is losing its significance.

Secondly, coordination with the donors‟ must have improved significantly, perhaps a

positive outcome of initiatives like “Harmonization Action Plan”. Thirdly, and most

detrimentally, issues related to early stages of ADP implementation, such as “tender

process” and “land acquisition”, have emerged as the major bottlenecks. This implies

that over time, vortex of the impediments has moved upstream. In other words,

nowadays launching of the projects itself has become a challenge.

Public Debt:

Bangladesh‟s current and projected levels of public debt remain sustainable,

although interest rates are on the rise. Notwithstanding the rise in the deficit, total

outstanding public debt has been declining in recent years and this is projected to

continue. Total debt-to-GDP has declined from 49.6 percent in FY07 to 44.8 percent

in FY09 and is projected to decline to 43.6 percent in FY10 and further to 42.8 percent

by FY12 with domestic debt-to-GDP stabilizing at 21.3 percent. External debt still

accounts for 55 percent of total debt, despite a significant increase in the share of

domestic debt in total debt, from 39 percent in FY07 to 45 percent in FY09. Since

external debt is mostly concessional, it has a relatively lower impact on debt

repayments. Amortization and interest payments on external debt declined from 5.4

percent of exports of goods and services in FY07 to 4.6 percent in FY09 and are

projected to decline to 3.3 percent by FY12. The effective interest rate on external

debt has declined from 1.1 percent in FY06 to 1 percent in FY09, but that on domestic

debt has increased from 9 percent in FY06 to 9.7 percent in FY09. Consequently, the

effective interest rate on total debt has increased from 4 percent in FY06 to 4.8 percent

in FY09.


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Risks to Debt Sustainability:

According to the joint Bank-Fund Debt Sustainability Analysis completed in

September 2008,7 the net present value (NPV) of the public debt-to-GDP ratio ceases

to decline when growth slows down to baseline minus one-half the standard deviation

of the historical growth rate (about 5.6 percent per year). In fact, because the low

growth scenario also assumes that revenues adjust downward to lower growth whereas

expenditures do not, the debt-to-GDP ratio starts to rise modestly in the outer years

(2015 onwards). This highlights the need to manage expenditures prudently, while

protecting priority spending, in the event of a growth slowdown.

Public debt indicators are also vulnerable to one-off debt creating flows.

Under-pricing of energy products by BPC and Bangladesh Power Development

Board, and of fertilizer prices by Bangladesh Chemical Industries Corporation have

created contingent liabilities that may need to be borne by the government. Until last

year, these contingent liabilities grew by almost 1 percent of GDP per annum. The

decrease in contingent liabilities in FY09 was largely due to fortuitous circumstances

and, therefore, cannot be taken for granted. In the absence of an effective strategy to

address this problem, the risks of large debt-creating flows in the future remain. Under

the assumption of a one-off debt creating flow of 10 percent of GDP – which could be

conservative given that contingent liabilities will increase again when international

commodity prices rebound unless policies are changed – the debt-service-to-revenue

ratio reaches 36 percent in 2010, compared with the baseline ratio of 23 percent.

The government has made significant progress in improving Bangladesh‟s

medium-term debt strategy formulation. A committee has been created under the

chairmanship of the Resource and Debt Management Wing of the Finance Division of

the Ministry of Finance with members from all the divisions and departments that

currently deal with debt information; UNCTAD‟s debt management system (DMFAS)

was installed to help to monitor and analyze existing debt; and Finance Division staff

are working with Fund and Bank staff to familiarize themselves with the preparation

of DSAs. It will be important to build on these steps and move forward quickly to

strengthen debt management capacity, starting from the development of a

comprehensive external and domestic debt data base and to centralize the reporting of

all external aid and domestic debt flows.


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Contingent liabilities:

Contingent liabilities have declined as well. The current stock of contingent

liabilities is estimated at Tk 99.3 billion, equivalent to 1.6 percent of GDP. This is

about 41.2 percent lower than government‟s contingent liability from last year, mainly

because of a significant decline in losses from oil trading by the BPC. Nearly 60

percent of the government‟s current contingent liability is on account of the

Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank, which specialize in

lending to the agriculture sector.


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How to recover these problems


60

How to recover the problems in the budget plan:

Lower investment, growing shortfall in power and gas supply, and rising

inflationary pressures are as key challenges as the government prepares for next

budget. Here, we have stated the ways of recovering the problems in the budget plan.

Strategic Vision and Structural Reforms:

PRSP and Five Year Plan:

The Budget Speech brings clarity on the status of Poverty Reduction Strategy

vis-à-vis the Five-Year Plan. It says “we have reviewed the already prepared 3-year

term PRSP (Moving Ahead 2009-11) in the light of our development philosophy and

socioeconomic goals. We plan to complete this task within the next two months.” On

Five Year Plan it says “Alongside this, we have begun our work on Five-Year Plan for

2010-2015. This planning document will not be a traditional one with sector wise

allocations, lists of projects and investment plan. It will project goals and targets,

explore alternative strategies for reaching the goals and targets.” It goes on to say “the

current PRSP shall remain in force until 2011 and this document will be reviewed

each year in normal course.”

Unified Budget from Next Fiscal Year:

Reforms in budget preparation and execution will be implemented from the

next fiscal year. The national budget will be unified to help achieve the strategic

objectives of the government in the short and medium term. The budget allocation will

be classified as capital expenditure and recurrent expenditure at the disaggregated

level. A way to manage this will be determined soon in consultation with the Planning

Commission.

The role of Government in Trade and Industry:

The Budget Speech commits the government to play the role of a close

observer in the area of trade and industry and it would come forward only to tackle

crises: “Private sector promotion is our motto.” However, the government is not

contemplating divestment of any SOE in FY10, in light of the uncertain environment,


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and it made it clear that no SOE will be closed until alternative arrangements are made

for the displaced workers.

Financial Sector:

Major financial sector policies include:

(i) Disbursement of loans to the private sector using risk-based assessment instead of

collateral based financing. However, there is no guidance on the issue of capacity

building of the financial institutions to do this;

(ii) Continuing automation of the Central Bank business processes. Apart from

improving efficiency in central bank‟s operation this will help prevent concentration

of credit to any individual or group and is expected to improve loan default situation;

(iii) A 5-year strategic business plan has been prepared for the state-owned

corporatized banks (SCBs) to improve quality of banking operation. It is not clear

whether this has been done following the ongoing corporatization framework, and;

(iv) A plan to form a new wholly-government-owned investment company through a

merger of BSB and BSRS. Unless there is a qualitative change brought in the

management and decision-making process of the new DFI, this will be another case of

the same wine in a different bottle.

Good Governance:

The budget speech lists the following measures taken by the government to

improve governance:

All the parliamentary committees were set up in the first session of the new

parliament and these committees have started functioning;

The first session of the parliament enacted 32 ordinances promulgated by the

caretaker government, including the Right to Information Act, the Anti

Terrorism Act, and the Anti-Money Laundering Act;

Enhanced ration facilities to 1,91,780 members of Police, Ansar & Village

Defense Police, Directorate of Prisons, Bangladesh Rifles, Fire Service & Civil

Defense and Directorate of National Security Intelligence. This has required an

additional allocation of Tk 1.24 billion;


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The Ministry of Home Affairs has been given Tk 58 billion in the FY10 budget

to enhance its capacity and control over the law and order situation.

Combating Corruption:

The budget speech commits to strengthen accountability and transparency in

the procurement process, selection of projects, determination of project costs, bidding

process and evaluating the quality of completed projects. It further commits to

increase the use of information communications technology (ICT) in government

operations to reduce corruption particularly in police, land administration and tax

administration. Finally, it emphasizes the need for building a modern, efficient,

corruption-free and service-oriented public administration to implement the “charter

for change”.

Whitening Black Money:

Under the proposed FY10 policies, owners of undisclosed income will be able

to legalize their incomes in FY10 by paying 10 percent tax on the disclosed amount,

and by investing the legalized money in the specified new industries or physical

infrastructure; balancing, modernization, renovation and extension of an existing

industry; purchase of stocks and shares; and purchase of flats. The National Board of

Revenue (NBR) reportedly expects approximately Tk 150 billion - Tk 200 billion in

undisclosed money to join the mainstream economy over the next three years and

thereby create substantial employment opportunities.

Several issues remain unclear about this scheme, especially with regard to the

incentives that the scheme would likely put in place. For instance, could taxpayers opt

to declare their money only in the third year without having to account for it? Would

the scheme encourage taxpayers to hide white money in order to take advantage of the

significantly lower rate on undisclosed money? Would money earned through illegal

means be treated as undisclosed money and subjected to the facility of whitening

black money? Would mechanisms be put in place to differentiate undisclosed income

from illegal income?

Past experience, however, suggests that this scheme may not produce much

additional revenue. Such schemes have featured nine times in Bangladesh‟s history,


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under every government since the mid-1970s. A total of Tk 180 billion (US$2.6

billion at the current exchange rate) was whitened and the NBR collected Tk 14.8

billion (US$214 million) in taxes. The highest amount – TK 96.8 billion, in whitened

funds and Tk 9.11 billion in taxes – accrued under the caretaker regime immediately

prior to the current government. That government ran a whitening facility in two

phases and under much stricter terms than the current one: a fine of 7 percent on top

of the prescribed income tax forFY09.

Stimulus package to counter:

A stimulus package was announced on April 19, 2009 that declared a Tk 34.24

billion package for fiscal stimulus and other measures. This package also included

administrative reforms and policy supports. Subsidies for agriculture, export and

electricity and social safety net programs are also included in the package. Key

elements of the package are:

Increasing the cash incentive by 2.5 percent to selected industries i.e. those

most affected by the crisis, such as jute goods, finished leather and leather

goods and frozen foods, while continuing with existing export incentives.

CPD suggested the govt. impose green tax on all polluting industries to

encourage establishment of effluent treatment plants (ETPs) to check

environment hazards.

Streamlining disbursements from the cash incentive fund and implementing

immediate disbursement of 70 percent of this incentive.

Relaxing the conditions for repayment of rescheduled loans for exporters and

yarn producers.

Enhancing the Export Development Fund (EDF) from US$ 100 million to US$

150 million. For an individual loan recipient the ceiling has been increased

from US$ 1.0 million to US$ 1.5 million.

Rationalizing the renewal fees for captive generation of electricity.

Undertaking special initiatives to withdraw the fuel surcharge on the

transportation of vegetable and fruits by airlines.


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Continuing refinancing of the export credit of the commercial banks through

the Bangladesh Bank.

Taking steps to ensure the use of domestic credit for productive activities and

to ensure liquidity.

Reducing the interest rate to a more market-related level and undertaking

measures to reduce charges made by the banks to their customers.

Evaluating and reformulating the existing interest rate structure to increase the

flow of credit to SMEs and provide concessional loans to enhance investment

in the manufacturing sector.

Issuing directives to the banks and financial institutions to provide loans on the

basis of the business prospects of a project rather than on the basis of collateral.

Providing merchant banking privileges to the nationalized banks to curtail the

monopoly power of the merchant banks, large investors and brokerage houses

in the capital market.

Opening additional bank branches in localities with significant remittance

receipts and establishing exchange houses in countries with higher remittances

in order to speed up the settlement of remittance transfers; Making the

remittance earners more aware of the available investment tools designed for

them.

Set of Proposals Prepared by CPD:

Centre for Policy Dialogue (CPD) prepared a set of proposals. Some of

those are stated as follows:

A subsidized insurance program for crop, livestock and poultry sectors,

particularly against natural disasters like hailstorm, floods and cyclones, may

be introduced.

Highest priority for power generation.


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Special allocations in the budget should be made towards the development of

fisheries, agro-based industries and livestock Development. Agro-processing

industries may be promoted through a waiver of 3 per cent import duty on

capital machineries for agro-based industries.

Government may allocate funds for training and skill development programs in

the backward regions to increase the number of migrant workers from the

backward regions.

The Skill Development Fund with an allocation of Tk. 70 crore as proposed in

the last budget may be extended to Tk. 100 crore for the development of RMG

sector.

In order to reduce the burden of taxes, domestic market-oriented SMEs could

be waived from VAT on imported raw materials.

Necessary allocation of funds needs to be ensured in support of various

activities, including insurance for workers, envisaged under the Labor Welfare

Foundation Act 2006.

In the backdrop of considerable rise in the demand for gas, budget may propose

introducing multi-metering billing system for households as well as factories to

reduce misuse of gas resource.

Appropriate allocations in the budget should be kept for Aila affected areas for

reconstruction of damaged embankments and rehabilitation of affected people.

Education facilities in most of the public Technical and Vocational Education

Training (TVET) Institutions are outdated. Government may consider

allocating adequate fund to modernize the existing TVET institutions and

establish more such institutions with a view to creating skilled manpower for

both domestic and international markets.

PPP should be encouraged in non-industry-infrastructure development sector as

well. For example, BADC may be designated as a facilitating institute for PPP

in agriculture sector.

Carbon emitting and obsolete transports should be penalized by imposing

„carbon tax‟ which would discourage them to run on the roads.

Continuation of incentives to industries to combat global recession.

Continuation of zero-tariff for import of essential foods.

Incentives for establishment of cold storage.


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Budget in Other Countries


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Budget in Other Countries:

Statutory budget establishment system in Prussia:

In Prussia, a “budget in the form of law” suddenly appeared in its Imperial

Constitution in 1848 for the first time in Germany. Such a statutory budget

establishment system was inherited by Bismarck‟s Constitution in 1871, the Weimar

Constitution in 1919, and the present German Fundamental Law. It has also exerted a

very strong influence on the budget system and budget theory in Japan. In contrast

with Wurttemberg‟s system, in which a budget was decided on by parliament, budgets

in Prussia were established by law. Some scholars who note such legal status

comment on the Prussian budget system as if it was more “democratic” than that of

Wurttemberg, but such an understanding is superficial and improper. The budget

making process in Prussia was dominated by concerns about how to hold down the

demands of parliament for their extended involvement in financial affairs, as is

evident from a comprehensive analysis of the structure of power allocation between

the parliament and the government in terms of both national revenue and expenditure.

The statutory budget establishment system may be understood as a distorted system

that was produced out of the struggle between powers, while sharing its basic structure

with preceding systems.

Budget system under the Present Constitution of Japan:

After the regime based on the Meiji Constitution collapsed when Japan was

defeated in World War II, a new constitution was established supported by radical

new ideas for the country. Even though the new Constitution was established as an

“amendment” to the Meiji Constitution, there has been a change in sovereignty in the

new Constitution. It is therefore undeniable that there is a theoretical discontinuity

between the constitutions, and naturally, there are some systems and theories that were

eliminated together with the Meiji Constitution. On the other hand, it must also be

admitted that there exist theoretical principles of universal applications relating to

certain subjects that remain valid, even after the changes to the constitution. For

example, while it is undoubtedly true that expenditures under imperial prerogatives

directly connected with a monarchy may be justifiable only under the former

Constitution, the reasoning that a certain general norm needs funding measures, in

which the government‟s involvement is unavoidable, remains valid regardless of any

changes in the constitutional regime. This is why an examination of the present

Constitution is necessary.


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The present Constitution provides the following:

Article 83: The power to administer national finances shall be exercised as the

Diet shall determine.

Article 84: No new taxes shall be imposed or existing ones modified except by

law or under such conditions as the law may prescribe.

Article 85: No money shall be expended, nor shall the State obligate itself,

except as authorized by the Diet.

Article 86: The Cabinet shall prepare and submit to the Diet for its

consideration and decision a budget for each fiscal year.

Article 87: In order to provide for unforeseen deficiencies in the budget, a

reserve fund may be authorized by the Diet to be expended upon the responsibility of

the Cabinet. The Cabinet must get subsequent approval of the Diet for all payments

from the reserve fund.

Budget in Russia:

There are a number of features of the Russian budget formulation process

which merit special attention. These are:

Three-year budgets.

Fiscal rules.

Extra-budgetary activities

Three-year budgets:

Three-year budgets were introduced through the revision of the Budget Code in

2007. Starting from the budget year 2008, the federal budget and budgets of state off-

budget funds are authorized for the next budget year and a two-year planning period.

In practice, budget formulation will be a rolling exercise, where a new second out-

year is added to the budget as the former first out-year becomes the budget year. The

appropriations in the out years remain unchanged, but are inflated by the use of

various indexes (including price indices in accordance with inflation forecasts27)

fixed by the Ministry of Finance and estimates of uptake of entitlements. It is

estimated that 40-50% of federal budget appropriations finance entitlements. In

principle, new spending initiatives must be accommodated within an envelope of

additional funds set apart in the budget of the previous year. In the budget for 2008-


69

10, the envelope was set at 2.5% of total expenditure in 2009 and 5% of total

expenditure in 2010.

Fiscal rules:

Since the revision of 2007, the Budget Code contains a number of fiscal rules

for the federal budget. These rules aim to put limits on the non-oil/gas balance and the

use of oil revenues for spending purposes. There are two aggregate limits: one for the

non-oil/gas deficit (non-oil/gas revenue minus expenditures) and one for the regular

budget balance. The new fiscal rules are strict and assure sound fiscal management in

Russia.

Extra-budgetary activities:

In accordance with the revised Budget Code of 2007, Russia is making large

efforts to clarify the boundaries between the government sector and the market sector.

Traditionally, Russian finance statistics were based on the distinction between the

government sector and the state sector. The Russian government sector is defined as

entities subject to the Budget Code, distinguished as federal entities, regional entities

and local entities. The government sector includes the commercial activities in which

many of these entities engage (leading to non-tax revenues estimated by the Russian

authorities at 2.5% of GDP). The state sector includes the government sector and state

unitary enterprises at federal, regional and local level. State unitary enterprises are

owned by the government but work on the basis of commercial accounts and

commercial legislation. They are under ministerial responsibility, but off budget. They

are auxiliary to a ministry‟s activity, such as a printing house under the Ministry of

Education or a production facility for police equipment under the Ministry of Justice.

State unitary enterprises have a distinct legal status, different from regular market

sector corporations. There are also many state unitary enterprises at the regional and

local level.

The new budget formulation procedure is divided into two distinct parts. First,

there is a technical update of the estimates for the upcoming budget year and the first

out-year as contained in last year‟s budget and the addition of current policy estimates

for the second out-year. The second part involves the distribution of the pre-set

envelope for new spending in the budget year (with consequences in the out-years)

and the setting of the new spending envelopes for the new out-years.


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Budget in USA:

The Budget of the United States Government is the President's proposal to the

U.S. Congress which recommends funding levels for the next fiscal year, beginning

October 1. Congressional decisions are governed by rules and legislation regarding the

federal budget process. Budget committees set spending limits for the House and

Senate committees and for Appropriations subcommittees, which then approve

individual appropriations bills to allocate funding to various federal programs.

After Congress approves an appropriations bill, it is sent to the President, who

may sign it into law, or may veto it. A vetoed bill is sent back to Congress, which can

pass it into law with a two-thirds majority in each chamber. Congress may also

combine all or some appropriations bills into an omnibus reconciliation bill. In

addition, the president may request and the Congress may pass supplemental

appropriations bills or emergency supplemental appropriations bills.

Several government agencies provide budget data and analysis. These include

the Government Accountability Office (GAO), Congressional Budget Office, the

Office of Management and Budget (OMB) and the U.S. Treasury Department. These

agencies have reported that the federal government is facing a series of important

financing challenges. In the short-run, tax revenues have declined significantly due to

a severe recession and expenditures have expanded dramatically for stimulus and

bailout measures. In the long-run, expenditures related to entitlement programs such

as Social Security, Medicare and Medicaid are growing considerably faster than the

economy overall, as the population matures.

President Barack Obama proposed his 2010 budget during February, 2009. He

has indicated that health care, clean energy, education, and infrastructure will be

priorities. The proposed increases in the national debt exceed $900 billion each year

from 2010-2019, following the Bush administration's outgoing budget which allowed

for a $2.5 trillion increase in the national debt for FY 2009, more than twice the record

$1 trillion increase in 2008.


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Whether we follow the State/Local Budget procedure of USA in Our Country:

USA prepares two kinds of budget: State Budget and Local Budget. Now the

question is if we follow any of these, what would be the results or impact on the

overall economy.

We may consider the following suggestions for the local govt. in our country in

this regard:

Funds allocated for local governments such as Upazilla and Union

Parishad in the ADP may be released upfront preferably in the first

quarter of the fiscal year, for first two quarters at a time, so that these

bodies can draw development schemes and start implementing these

from the beginning of the financial year. These schemes should be

developed through local level planning in consultation with local

stakeholders.

Modalities will need to be developed to involve local governments in

both design and formulation of projects and monitoring of their

implementation. Dedicated committees may be constituted with

participation of government officials, and representatives of

beneficiaries and experts to monitor quality of implementation in key

result areas and timeliness of implementation, particularly for major

projects.

In our country, if central Government collect information about the

needy sectors from the root level by taking help from the local

Government, the budget can be prepared more properly and accurately.

In this way, the central Government can realize the actual requirement

of the root level sectors, can allocate budget for them properly and can

reduce the unnecessary expenditure.


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Findings:

Our analysis is based on the National Budget of the Financial Year 2009-10. Here we

have got some significant factors which are the actual findings of our report. These are

mentioned below:

Budget can have different characteristics. These are process characteristics,

major characteristics, operational characteristics and some other characteristics.

These defines a total budget.

There are different kinds of budgets. Among them our main concern is The

Government Budget. There are two types of budgets under Government

budget. They are The Revenue Budget and Development Budget.

The current crisis in the global economy has created for Bangladesh, as for

many other countries of the world, a more uncertain outlook for the national

economy.

The year 2007 witnessed a significant reduction and unprecedented price hike

of all commodities including food, fertilizer and fuel. A new crisis ensued in

the year 2008 arising from credit crunch. Within a few months, this crisis

culminated into a global recession.

The Global Recession impacted our economy in three fronts: export, import

and remittance. Government have provided certain additional assistance to

other sectors including RMG and Textiles.

In order to keep the negatives of global recession at a minimum level on our

remittance flows they have adopted the some strategies.

First budget by the newly elected government.

Inspired by and reflection of election manifesto of AL.

Commitment towards continuation of the 3-year PRSP (2009-2011).

Revival of mid-planning with a long term vision (2021).

Five year plan (2010-2015)

Perspective plan (2010-2021)

Introduction of spatial planning.

Dialogue District plan.

Mainstreaming private-public partnership (PPP).


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Recognition of importance of reform agenda (e.g. anti-corruption measures,

local government strengthening, right to information)

Sensitivity to global economic crisis.

Lack of clarity regarding policy initiatives and budgetary allocations.

A number of initiatives that appeared to be new have actually been in

existence for a couple of years.

Absence of detailed information on subsidy and social safety net.

Inadequate interpretation of data.

Exchange rate position has been deemed stable, but it is mentioned that

the Taka was devalued by 0.6% in March.

Recognition of need to revisit budgetary framework (e.g. unified budget

deepening MTBF, ADP implementation)

Budget speech went beyond economic issues undermining its focus.

We have several outcomes from the budget analysis.

Growth, Investment & macroeconomic Outlook:

Growth & Investment Outlook

Global Outlook

Monetary Outlook

External Outlook

Fiscal Outlook

Public Finance Framework:

Fiscal Structure

Revenue Earnings

Public Expenditure

Tax Structure:

Personal Income Tax

Corporate Tax

Value Added Tax

Indirect Tax

Custom Duties

Supplementary Duties


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We reform a comparison between the budget of the current fiscal year with the

previous fiscal year. Then we find out some criticisms of the budget of this

year.

There are few suggestions about the recovery from the problems in our

analysis:

Strategic Vision & Structural Reforms.

Whitening Black Money.

Stimulus Package to Counter.

Set Proposals Prepared by CPD.

At last we discuss about some other countries budget and analyze that whether

we can implement any term of those in our budget or not.


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Conclusion:

The FY10 budget emphasizes maintaining macroeconomic stability and fiscal

sustainability while investing in infrastructure, human resources and protection of the

vulnerable. It assigns high priority to energy and power, social safety nets and

agriculture while protecting the shares of education and health. It is an expansionary

budget ex ante. However, given past experience, the FY10 deficit will likely end up at

less than 5 percent of GDP, primarily because the government may not be able to

reach its expenditure targets due to weak implementation capacity. Shortfall in ADP

utilization alone is likely to bring the deficit down to 4.3 percent of GDP. If

disbursement from PPP allocation also falters and the block allocation for the fiscal

stimulus package to fight the impact of global recession is not fully utilized, the

overall budget deficit will be even lower.

The growth impact of the FY10 budget would depend on the implementation of

the ADP and PPP provisions. ADP implementation problems are well known – delays

in project design, repeated design revisions after approval, delay in approving original

design and subsequent revisions, lack of procurement capacity in the line ministries,

lack of continuity in project management and various legal snags. This is where

change is most needed. Implementation of the PPP program would require

establishing clear policy and legal frameworks for PPPs; competent and enabled

institutions that can appropriately identify, procure and manage PPPs, and; efficient

oversight and dispute resolution procedures.

The defining feature of the upcoming budget will have to be enhancement of

the ability of the development administration to deliver on the ADP, particularly in the

thrust areas such as generation and maintenance power supply, infrastructure, and

supporting accelerated economic growth with macroeconomic stability and control of

inflation. Capacity to flexibly respond to any macroeconomic shock will need to be

strengthened and toward this, a sophisticated system of monitoring will need to be

developed. The government needs to concentrate on the implementation of the priority

development projects in energy and infrastructure sectors. If FY2009-10 has been

the year of preparation; FY2010-11 will be the year of delivery.


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Recommendations:

Higher development expenditure appears to be the major reason why budget

deficit is rising. In 2008-09, development expenditure is estimated to have been

3.7 percent of GDP. This is projected to rise by a percentage point by 2011-12.

Non-development expenditure, on the other hand, is expected to dip by 0.4 of a

percentage point relative to GDP over the same period. So, the govt. should be

more careful in this regard.

Government should develop the right mechanism so that the marginal people can

get proper access to agro incentives.

Government can ensure information flow to create awareness in the rural

community. In this regard, modern technology can play a significant role to create

an information network among the rural people. On the other hand, infrastructure

development is other issue to give a new dimension to agro sector in Bangladesh.

Through public private partnership (PPP) government can welcome private

investors to invest in the agro sector of the country.

Government should come forward to incorporate new technology to yield

production. Regarding the price manipulation government emphasize on the

direct purchase from the farmers. But the crops government gets from the farmers

need a primary level processing and in this regard mill owners can take part to

leverage production system.

Rural employment generation also is a vital issue and government can come

forward to provide proper incentives in this regard.

Excess expenditures on entertainment for government meetings and seminars

have to be avoided.

The government should give more emphasis on job creation for women because

the experiences of 1997 Asian financial crises had a serious negative impact on

the Asian working women community, many of whom were sacked from almost

every sector. Therefore they were forced to resort to prostitution. Considering this

situation the experts under the then government took some protective measures to

ensure that Bangladeshi working women did not suffer from the global financial

crises. The govt. should give emphasis in the next budget on women in labor-

intensive industry like garments sector, hospitals, clinics, diagnosis centers, etc.


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Reference:

Md. Mukhlesur Rahman

Lecturer,

Department of Finance,

Faculty of Business Studies,

University of Dhaka.

http://www.yahoo.com/

http://www.google.com/

http://en.wikipedia.org/wiki/

http://www.4shared.com/

www.cpd-bangladesh.org/

http://www.yahoo.com/

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Budget Analysis of Bangladesh

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Transcript of Budget Analysis of Bangladesh