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www-trust-orgBump on the road!

While presenting the budget for 2013-14, the honourable finance minister insinuated for a decelerated GDP growth for the year in view of the upcoming election. Indeed, there is a legit ground to this theory. Political unrest and vandalism has unfortunately become our pre-election ritual, setting back the private sector from regular business. The uncertainty of post-election situation and likelihood of policy shift associated with the new government regime also restrains the business confidence vis-à-vis investment of the private sector at a low level. A close look at the historical GDP growth figures clearly reveals dips in the trend line on the election years (see figure 1).

IID 1Note: Vertical lines indicate years when national elections were held.

Recently BBS has published the preliminary GDP figure for 2013-14 estimating a growth of 6.1 percent. This is fairly lower than the targeted growth of 7.2 percent and even lower than the SFYP target of 7.6 percent for the year. Even if the average growth rate for the last ten years (6.2 percent) had been attained, the GDP would have gained an additional Tk. 45,254 crore.

Hence, the upcoming budget holds the duty for rebounding the slow growth trend. Prudent macroeconomic management has become an urgent call. Failing to do so, our journey towards a middle income country status will only become longer and harder to attain.

Where did we fail?

This year’s growth appears to have slipped mainly due to the underperformance of the industry sector. The sector registered an 8.4 percent growth which was 1.3 percentage point lower than that of the previous year. The worrying fact remains that the both ‘mining and quarrying’ and ‘electricity, gas and water supply’ attained lower growth compared to the previous year (see Table 1).

IID 2Agriculture as a whole attained a moderate growth of 3.4 percent. However, this moderate growth has been attained against a lower benchmark growth set during the previous year (2.5 percent). Crops attained only a 1.9 percent growth. As it appears, fishing (6.5 percent) and forest/related services (5.1 percent) has dragged the agriculture sector forward.

On the other hand, to one’s surprise, services sector with 5.8 percent growth has played a major role in this year’s overall GDP growth. The political tension that we observed over a long span of the current fiscal year throughout the nation was apprehended to hurt the service sector more directly than any other sectors. Despite such fears, provisional GDP estimates show that almost all of the sub-sectors under the services sector, including wholesale and retail trading, have attained impressive growth rates.

As it appears, anticipated lower enthusiasm in private sector during the election year was also accompanied by sluggish public sector initiatives in infrastructure support building where we have lost some momentum. While cautious expansion decisions by the production houses may have slowed the growth of the manufacturing sector, accompanying slower growth in the infrastructure sectors will have their toll on the recovering process of the manufacturing sector once the business environment returns to normalcy.

Rebounding the economy back on track

As we step forward from the election year, it is time to get the economy back on track and to recover on the lost momentum. This calls for careful crafting of the fiscal strategy in the budget for the 2014-15. A number of issues need special attention some of which may, however, require measures beyond the scope of the budget.

First, proper attention needs to be put on strengthening infrastructure. Prioritised ADP allocation is necessary, particularly for the power and energy sectors. With only two months left of the fiscal year, only 55 percent of the ADP has been implemented. No wonder net receipt of foreign aid has decreased by (-) 2.9 percent during July-February 2013-14 compared to the same period of the previous year.

Second, adequate policy support needs to be put in place to boost up the private sector. Over the period of July-February of 2013-14, private sector credit growth stood at 6.2 percent which is a little lower than the growth attained for the same period of the previous year. For the coming year, public borrowing from the banking system should leave sufficient room for private sector credit expansion. Sufficient support needs to be provided by the revenue department. But to one’s discomfort, after a couple of promising years of revenue collection, this year’s total revenue receipt may fall short of its target by quite a margin. After the first three quarters of the current year, only 58.8% of the targeted revenue has been collected. Necessary steps are required not only to enhance the tax net, but also to enhance the collection capacity. Considerations of reducing corporate tax rate at this critical juncture may merit further scrutiny and take justifications from both its supportive role for the private sector investments and negative impact on revenue growth.

Third, strive to regain the growth momentum will call for safeguard measures to minimise inflationary expectations. Over the third quarter of the current year, overall inflation rate somewhat stabilised around the 7.5 percent mark. Alarmingly, food inflation has continued to build pressure. Agricultural credit and subsidy needs to be continued to cushion the mounting pressure.

Most importantly, business confidence of the private sector must be restored. Trend was that the political arena calms after the election. Unfortunately political uncertainties are still haunting the private sector this time around. Recent deterioration of law and order on top of political uncertainties may get the private sector hesitant in business expansion decisions even in the post-election period. Sluggish growth of import and LC opening in recent months is an indication towards that. Therefore, regaining business confidence must receive the highest priority which calls for measures beyond budgetary provisions. Failing on this ground will make the longing for a higher growth in next fiscal year a far cry.

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Ashiqun Nabi and Md. Ashiq Iqbal are researchers at Institute of Informatics and Development (IID)

3 Responses to “Budget for 2014-15: Reinstating the growth momentum”

  1. Reply to interesting on

    “Mr. Muhith was very brilliant throughout his student life. He secured first place in Intermediate examination in the province in 1951 from Sylhet MC College. He stood first class first in B.A. (Hons.) in English Literature in 1954 from Dhaka University and passed his M.A. with credit from the same university in 1955. During his service period, he studied in Oxford University in 1957-58 and received MPA degree from Harvard University in 1964.”

    Source: http://www.mof.gov.bd/en/index.php?option=com_content&view=article&id=66&Itemid=1

    MPA denotes Masters in Public Administration.

    Did we question about Mr Muhith’s credibility?

  2. interesting

    One also Wonders are they more qualified then Muith our finance Minister to give such an opinion ?

  3. interesting

    “Ashiqun Nabi” is a Junior Research Fellow at IID. He completed his Master of Science in Environmental Sciences from Jahangirnagar University, Bangladesh. Before joining at IID, he worked at CPD as Senior Research Associate from 2008. His current research interest includes Macroeconomic Policy, Environmental and Climate Change Policy. He has particular interest in data visualization.

    AND

    “Md. Ashiq Iqbal” is a Research Fellow at IID. He completed his Masters of Arts in Development Studies (2010) from University of New South Wales (UNSW), Sydney, Australia. Before joining IID, he was one of the Senior Research Associates at Centre for Policy Dialogue (CPD) from 2005. His Research Interests are Poverty Analysis, Macroeconomic and Trade Policy Studies.

    What do these two writers know about Economics, One questions ?
    They both have INTEREST’S in Macroeconomics, apart from that, none of them have a degree in Economics, are they actually qualified to give such evaluation? One Wonders !

    One of the writers done a Masters in Science in Environmental Sciences and the other writer has done a Masters in Development Studies, so Question yourselves are their opinions valid to the economic growth of Bangladesh, could such an opinion be politically motivated ?

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