Big budget, but where is the money?

If the annual budget is the financial blueprint of the government relating to its anticipated income and expenses, it must as well be realistic and growth-friendly.

The budget for 2013-2014 is a lofty one, encompassing many of the promises made to woo voters in the upcoming general election. About Tk 222,490 crore budget is 16 per cent higher than the previous one and it largely depends on day-dreaming revenue targets.

Revenue and internal debt

As of March 2013, total internal outstanding credit of the government from banks and savings instruments stood at Tk 162,791 crore. The higher borrowing in 2013-2014 will warrant more money for interest payment.

Besides, as the total external debt now stands at about US$24 billion, approximately $1.4 billion worth of fund has to be spared to meet external debt payment obligations, about $226 million higher than what was needed in the previous year.

According to one estimate, $964 million will be needed in the next fiscal to make payment towards the principal amount owed on external credit while another about $210 million will be needed for interest payment alone.

In 2013-2014, revenue from external trading is likely to fall due to reduced import activities observed in the previous fiscal and an anticipated fall in exports too. During the first nine months of the previous fiscal (July –March), import amounted to $24.2 billion against $24.4 billion of the corresponding period of the previous year.

While remittance from Non-Resident Bangladeshis (NRB) is likely to remain robust in the upcoming fiscal too, due mainly to the obligations of expatriate workers to their family members back home, export of Readymade Garments (RMG) — which accounts for over 80 percent of the total export earning and earns for the economy about $20 billion annually—is expected to fall dramatically.

The RMG sector is under a tectonic transformation due to the bad publicity it had received lately from the collapse of the Rana Plaza complex in Savar and the consequent deaths of over 1100 people. Buyers are also scared by the fact that 60 per cent of Bangladesh garment factories are considered similarly vulnerable and at risk of collapsing.

This is shown in the results of a survey analyzed by a team of engineers from the Bangladesh University of Engineering and Technology (BUET), who have so far visited and examined just a sixth of the Dhaka region’s 3,000 RMG factories.

The survey shows most of the factories suffer from the same pitfalls as are being discovered in the Rana Plaza complex. According to a police report on the Rana Plaza disaster, permission was initially granted for a five-storey building, but three additional floors were later added without permission due to the owner Sohel Rana being a blue eyed guy of the people in power, and, an executive of the ruling party’s local chapter.

No wonder a new set of compliances are now being demanded of the manufacturers from Bangladesh by external buyers while the competition is intensifying further. High street retailers like Primark, H&M and Zara- who’d used the Rana Plaza factories for their products — have already preconditioned their future trading with Bangladesh on fulfilling new health and safety standards to prevent the recurrence of similar tragedies.

Added to this sullied image and stricter preconditions is the demand by nearly 4 million workers of increased wage, which, though realistic and unavoidable, will further undercut the nation’s competitive edge.

Lately, Cambodia responded to angry worker strikes by raising its minimum wage to $78 a month, about double of what is being paid in Bangladesh. The average Cambodian T-shirt now costs around $2.50, which is 82 cents more than the one coming from Bangladesh.

Finally, the budget is not growth-friendly. The four main planks of the GDP are: Volume of domestic consumption; private investment, productivity and job creation; public investment, productivity and job creation, and; volume of export and import.

While excessive public borrowing will choke off private borrowing and investment, exacerbate the unemployment crisis, and, cause both export and import to nosedive, reduced consumer demand will truncate the revenue from the VAT which now constitutes the main chunk of the government’s earning.

Above all, the huge allocation for the Padma bridge construction project, about Taka 50 billion, will divert indispensible allocations from other vulnerable sectors without offering commensurable dividends to growth, employability and revenue earning.

In the final analysis, the lofty budget may be election friendly for a regime hell bent on clinging onto power; it is economically unsustainable and politically disastrous.

Source: Weekly Holidays