State of the republic and inconvenient truth

This is the month of June. The current Financial Year ends on 30th and the next FY starts on 1st of July. With the passing of the Finance Bill the budget will be adopted and its implementation will begin with the passage of the Appropriation Bill. But thanks to the absence of good governance, shortage of revenue, government’s overdependence on bank loans, corruption and financial scandals, the government is trading on an ever-increasing false prospectus.

The financial crisis on the scale of the one which is unfolding would be worrying at any time. But the timing of this one is especially significant. In one corner is a prime minister with just over hundred days left to serve, who, people believe, is the most autocratic ever to occupy the seat of democratic power.

In the other corner is the Parliament where three – fourths of its members are determined to continue as MPs for an unlimited period. Flickering in and out of the fray are the two leaders whose campaigns have become the playthings of the forces over which they have no control. If ever there were an unpredictable political leadership, this is it.

The unfortunate coincidence of the economic downturn and the uncertainty over the parliamentary election reinforces the anxieties. Political vulnerability makes it hard to get to grips with a reeling economy, and the economic crisis also threatens to disrupt the process of choosing a new Jatiya Sangsad and a CEO for the country. At a time when the voters ought to be weighing up the candidates’ characters, records, and manifestos, the airwaves are saturated with foul-mouthed stinking deliberations inside the Jatiya Sangsad, and filled with the grim news of the nationalised banks and bourses and grapevine stories about the Padma Bridge, Hallmark and Quick Rental Power plant scandals.

Even before the cost of inevitable “bailouts” of the Sonali Bank and the Janata Bank is considered by the Bangladesh Bank, the budget deficit for the next Financial Year is estimated slightly over TK. 55,000 crore., already about 5 percent of GDP. If Bangladesh were part of the European Union, it would be facing trouble for breaking the Maastricht guidelines by more than 2 percent; if it moves into recession the deficit will be a lot worse. With the extra allocation for the Padma Bridge and higher percentage of debt repayment the current crisis is likely to drive a large hole through a budget that already looks stretched. The Finance Minister has already warned that economy’s growth rate normally slows down about 2 percent in the election year. This means growth rate may go down to 4 percent in the next fiscal year.

He has also proposed to revitalize the sick economy taking a bank loan of TK. 26,000 crore when the country’s bank liquidity is much less than that. This year NBR’s revenue collection fell short by TK. 5000 crore.

Overlooking the grim reality the FM has raised the revenue target 21 percent over the last year’s failed target. The government is already exposed to a budget crunch. The FM has proposed bigger tax cuts and tax holidays with lot more on the spending side. He has more promises that may have to be broken than kept since there is no money. Deficits do and ought to rise in recessions, but if they start out high and are coupled with spending boosts, the long-term consequences for the public finances are alarming.

To many, the FM’s most attractive single policy is that he is committed to begin building the Padma Bridge ending the disgraceful situation whereby some Tk. 7000 crore will be spent hurriedly for ‘obvious purpose’ of laying the foundation stone and end up with ‘no bridge’ at the end.

This allocation which cuts the transport sector spending to half will further weaken the already crumbling infrastructure. In all possibilities, there seems to be no cause for optimism. Look beyond the shattered stock markets, especially at the seized-up money markets and there is little to see except banking crisis due to the enormous toxic securities, slowed economy, emergency rescues and high anxiety in credit markets. These forces may draw the financial system closer to disaster and the country to the edge of a recession.

Most of the time nobody notices the credit flowing through the economy. But everybody feels the consequences when credit stops circulating freely through markets to banks, businesses and consumers. For years the markets had worried about bank’s liquidity and solvency. After the Hallmmark and Destiny scams they panicked. Hallmark is just one among many cases which are still undetected. There are many more dramas in front of us. Time is not far away when the unearthing of governmental irregularities will spin the heads of all conscious citizens of the country.

Source: Weekly Holiday