Bangladesh’s Budget 2006-07 and Poverty Alleviation: The Strategic Mapping and Challenges for the Government.

1. Bangladesh’s Budget 2006-07 and Poverty Alleviation: The Strategic
Mapping and Challenges for the Government.
Prepared jointly by:
Md. Shamsul Alam, MA, MBA. and
Md. Anwar Ullah, M. Com, MBA, ACMA.
(Published in The Cost and Management Journal, Vol.34 No.4, July-August 2006, pp 44-58.)
ABSTRACT
The growing demand and some legitimate claim from different stakeholders become a tremendous
pressure for the Government to continue with the defined revenue expenditures for the financial
year 2006-07. On the other hand, continuing inflation will continue to be the key challenge to
Bangladesh economy in the coming days along with some other international risk factors as
identified by the Bangladesh Bank. Higher inflation makes the poverty situation worse. The existing
inflationary pressure is not only cost push, but also demands pull. While there is a claim that public
borrowing had crowded out the private sector credit, which grew by 17 percent and money supply
increased by 19 percent, above the ceiling set in the monetary policy statement by Bangladesh
Bank1. The energy price is another major challenge to the economy that had already made a
negative impact on different spheres of the economy. The global hike in oil prices has increased the
import bill of fuel, which has compelled the BPC to borrow from nationalized Bank.
INTRUDUCTION
The announcement of budget is a momentous annual national event which raises national
aspiration and hopes as well as fears of the people – hopes that better and happier days will
dawn as a result of budgetary measures – fears that rising burden of taxes will make the
already unbearable cost of living more unbearable. It is therefore, budget come up with
interest and expectations among a large section of the society and at the same time it
reflects the economic and political philosophy of the party in power. Conventionally the
Importance of National budget is recognized for the better fiscal management of every
country – the developing as well as the developed. It is known the budgets of the
developing countries especially the least developing countries like Bangladesh are heavily
dependent on external aid for their development financing and as such aid prospects
greatly influence their annual budgets. Fiscal budgets though a national affair is now a day
greatly affected by the pulls and pushes generated externally. In this respect in a globally
linked economy of today, the tasks of Finance Ministers have become formidable.
The role of our annual development and non- development budget is also paramount
important since its main thrust is upon finding ways and means to accelerate development
activities and reduction of poverty within the long-term plan frame of 2015. The budget for
the govt is therefore an exercise a rather difficult exercise in mobilizing the resources to
meet the development needs and allocation of these resources to such uses as may
maximize the national income and welfare of the common people. The needs are many and
demands are high; the task of the Finance Minister is to strike a balance between the
available resources and the competing demands. This year’s budget is especially important
because it is the last budget of the incumbent government, and it would overlap the
incumbencies of three governments- the present government in power presenting the
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2. budget, the Caretaker government, and the government to be elected next, which is
scheduled to take over the reins of power in early January, 2007.
The 36th National budget 2006-07 that bears its promises and weakness to spur discussions
among the supporters, oppositions and moderates, is approved by the Parliament of Tk
697.40 billion, which is 15 percent of the estimated 4.653 trillion GDP and with an overall
deficit of Tk. 146.90 billion. Based on estimates this budget would be subject to revision as
we have seen revised budget for the financial year 2005-06 was Tk. 610.58 billion as against
the original budget of Tk. 643.83 billion. It is also contended that without setting high
expectations, achievements might be negligible. Finance Minister has expressed his hope
that Bangladesh has the potential to be a self-reliant economy within the next five years
and he said2 “we are now 12 percent dependent on foreign aid, while the rest is being
mobilized through domestic resources.”
FY 2005-06
To make comments on FY 2006-07, it requires an opportunity to look a back to see what
happened, economically during the fiscal year 2005-06. The evaluation of FY 2005-06 would
be where the government had succeeded and where they could not come out success and
why. What were the major problems encountered in the implementation process of
Revenue accumulation, execution of Development and Non-Development expenditures
both in revenue and capital, with respect to functionaries, polices and prioritization.
The achievements of FY 2005-06 appear mixed. Although the Bangladesh Bureau of
Statistics (BBS) had earlier calculated a GDP growth of around 6.8% for the FY 2005-06,
donor agencies and others concerned have scaled it down to 6.3%, which is still an
impressive figure. The international community however believes, and openly airs that
belief, that this growth figure could easily rise by another 2% to make it around 8.3%, if the
government could substantially reduce the level of corruption in the country3. Bangladesh’s
commitment to the Millennium Development Goals (MDGs) of reducing poverty by half by
the year 2015 needs a sustained growth rate of around that figure. It also expected that in
FY 2005-06 the manufacturing sector will achieve a double-digit (10.45%) growth and
contribution of industry to GDP grew to 29%. But year on year inflation rate of around 7.3%
or so is a great headache to the government.
The government at the fag end of a fiscal year 2005-06 downsizes the ADP in the event of
shortfall in revenues earning and resorts to increased borrowing from the banking system.
In the outgoing fiscal, the Government borrowing from the banking system has been
estimated at Tk 49 Billion, the amount is Tk 13 billion more than the amount projected in
the original budget7. The government had to borrow such a big amount of fund even after
downsizing the ADP by Tk 30 billion. This actually happened due to dropping of a number of
low-priority projects, adoption of austerity measures, declining foreign aid-flow and sluggish
utilization of funds in some projects, the ADP is revised and despite that it was 16% higher
than the actual expenditure of last year’s ADP4.
The budget deficit stood at 3.9% in the revised budget against of 4.5% of GDP as projected
in the original budget 2005-06. It was also projected in the original budget of the outgoing
fiscal a substantial growth in revenue for the current fiscal and many economists and
donors termed it very ‘ambitious’. In spite of the fact that revenue collection during the
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3. fiscal 2005-06 would be more than the previous fiscal, there will be shortfall of about TK 7.5
billion. Finance Minister also claimed in his budget speech that the deficit would be 3.5%. As
regard to borrowing from domestic sources he mentioned it is within the limit of 2 percent
and as a result debt stock as percentage of GDP did not increase rather it went down to 48
% from 51% of GDP. In current fiscal year domestic savings and national savings are
expected to grow at 20.3% and 26.6% respectively. As regard to external sector the export
income rise even in post MFA years which is about 19 % higher than that of fiscal year 2004
- 05 and at the same time due to several incentive programmes and enactment of Money
laundering Prevention Act, remittance continued to rise by 20% on an average and in
conjunction with other macro-economic management foreign reserves rose to US$ 3
billion5. Government also claimed that the current account balance remained positive. But it
is relevant to mention here that Finance Minister has not been able to come up with
solutions to the problems that he has encountered during the implementation of the
budget for the fiscal year 2005-06.
Fiscal 2006-07
Estimated Expenditures: Non-Development and Development
The pertinent issue to the government regarding public expenditure is to encourage the
outlays on productive sector and restrain over unproductive outlays with main objectives to
improve living standard of the people, develop human resources and physical infrastructure
and reduce poverty while maintaining the sustainable economic growth and stability. In line
with main objectives government has increased allocation for different social infrastructure
sectors including education, health and women development. In the Table –1 sector wise
expenditure and in Table – 2 the ranking of expenditures is shown to understand estimated
expenditure and the priority of allocation. The table shows that the non-development
expenditure is 14% higher than the revised budget of FY 06-07 and Development budget is
21% higher than the revised budget of FY 06-07 and it is 6.1% of GDP.
Table – 1: Sector-wise Expenditures including ADP for 2006-07 (Figures in Crore Taka)
Budget 2006-07 Revised Budget 2005-06 Change in
Sectors Non- Devel- Total Non- Devel- Total FY07 over
Develo- Develo- FY06 (%)
opment opment
pment pment
Education & Technology 7,214 3,879 11,093 6,458 2,807 9,265 19.73
Public Service 7,396 1,090 8,486 4,762 815 5,577 52.16
Transport & Communication 2,928 4,443 7,371 2,500 3,623 6,123 20.38
Local Government & Rural 1,171 5,624 6,795 1,130 5,373 6,503 4.49
Development
Agriculture 3,195 2,611 5,806 2,772 1,722 4,494 29.19
Defence 4,746 158 4,904 4,411 75 4,486 9.32
Fuel & Energy 26 4,260 4,286 23 3,747 3,770 13.69
Health 2,409 2,375 4,784 2,065 2,047 4,112 16.34
Public Order and Safety 3,451 226 3,677 3,197 266 3,463 6.18
Social Security & Welfare 2,339 914 3,253 1,925 1,014 2,939 10.68
Total Expenditure of the above 10 34,875 25,580 60,45 29,24 21,489 50,73 19.17
Sectors 5 3 2
Recreation, Culture & Religious 463 412 875 429 311 740 18.24
Affairs
Housing 559 46 605 566 70 636 -4.87
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4. Industrial & Economic Services 186 443 629 287 393 680 -7.50
Total Expenditure of the above 3 1,208 901 2,109 1,282 774 2,056 2.58
Sectors
Interest 7,637 7,637 7,545 7,545 1.22
Net Outlay for Food Account 202 202 207 207 -2.42
Operation
Loans and Advances -1,211 -1,211 -32 -32 3684.38
Non-ADP Employment Generation 548 548 350 350 56.57
Program
Structural Adjustment Expenditures 0 0 200 200 -100.00
Total Non-Sectoral Expenditure 7,176 7,176 8,270 8,270 -13.23
Total Expenditure 43,259 26,481 69,740 38,795 22,263 61,058 14.22
Non-ADP FFW and Transfers 481 763 -36.96
Total ADP 26,000 21,500 20.93
FFW = Food for Work ADP = Annual Development Program
Source: GOB (2006), Annual Budget 2006-07: Budget in Brief.
Table – 2: Sector-wise Ranking of Expenditures for 2006-07
Budget 2006-07 Revised 2005-06
Sectors Non- Develop Total Non- Devel- Total
Develop ment Developme opment
ment nt
1 Education & Technology 2 4 1 1 4 1
2 Public Service 1 7 2 2 8 4
3 Transport & 6 2 3 6 3 3
Communication
4 Local Government & Rural 9 1 4 9 1 2
Development
5 Agriculture 5 5 5 5 6 5
6 Defense 3 12 6 3 12 6
7 Fuel & Energy 13 3 8 13 2 8
8 Health 7 6 7 7 5 7
9 Public Order and Safety 4 11 9 4 11 9
10 Social Security & Welfare 8 8 10 8 7 10
11 Recreation, Culture & 11 10 11 11 10 11
Religious Affairs
12 Housing 10 13 13 10 13 13
13 Industrial & Economic 12 9 12 12 9 12
Services
Projected cash flow/ Financing the Budget 2006-07
Table – 3: Cash flow statement for FY 2006-07 including revised cash flow of FY 2005-06.
Budget 2006-07 Revised 2005-06 Increase
Financing Total Expenditures Amount Percent Amount Percent (in %) over
Last FY
NBR Taxes 41,055 58.87 34,456 56.43 19.15
Non-NBR Taxes 1,860 2.67 1,719 2.82 8.20
Non-Tax Revenue 9,627 13.80 8,693 14.24 10.74
Foreign Grants 2,508 3.60 2,476 4.06 1.29
Foreign Borrowing 5,856 8.40 5,574 9.13 5.06
Domestic Borrowing form Banking System 5,434 7.79 4,911 8.04 10.65
Domestic Non-Bank Borrowing 3,400 4.88 3,229 5.29 5.30
Total inflow - A 69,740 100.00 61,058 100.00 14.22
Financing Overall Deficit (Excluding
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5. Foreign Grants)
Foreign Grants 2,508 14.58 2,476 15.29 1.29
Foreign Borrowing 5,856 34.05 5,574 34.43 5.06
Domestic Borrowing form Banking System 5,434 31.60 4,911 30.33 10.65
Domestic Non-Bank Borrowing 3,400 19.77 3,229 19.94 5.30
Deficit Financing - B 17,198 100.00 16,190 100.00 6.23
ADP Financing
Tax Revenue 42,915 36,175 18.63
Non-Tax Revenue 9,627 8,693 10.74
ADP Financing - C 52,542 44,868 17.10
Total outflow D (B + C) 69,740 61,058 14.22
Note: Resources for ADP Financing.
Total Domestic Resources 14,682 56.47 10,800 50.23 35.94
Total Foreign Resources 11,318 43.53 10,700 49.77 5.78
Total ADP 26,000 100.00 21,500 100.00 20.93
Source: GOB (2006), Annual Budget 2006-07: Budget in Brief.
Major Expectations in the fiscal 2006-075
 The target of revenue receipt estimated is 17% higher than the revised revenue
estimate of FY 2005-06.
 Budget deficit in the proposed budget has been scaled down to 3.7% of GDP.
 Due to reforms in monetary sector, the price inflation is expected to come down
below 6%.
 The economy will remain resilient to both internal and external shocks. Trade,
commerce and investment will remain buoyant and the growth will reach in the
neighborhood of 7%.
 Remittances will grow to US$ 4600 million and Gross Official reserve will stand at
US$ 3491million.
 Gross domestic investment will reach up to 24.5% of GDP.
 External and Domestic borrowings will gradually decrease which is projected 3.7% of
GDP and interest cost their in projected Tk 76.4 billion.
 Tax Revenue Target in the Budget. Table – 4.
Table – 4: Revenue target for FY 2006-07.
Tax Revenue Budget 2006-07 Revised 2005-06 %
Increase
National Board of Revenue (NBR) Tk. % Tk. % over
(Crore) (Crore)
Portion FY06
Taxes on Income and Profit: 8,500 19.81 6,960 19.24 22.13
Companies 5,650 13.17 4,610 12.74 22.56
Other than companies 2,850 6.64 2,350 6.50 21.28
Value Added Tax (VAT): 14,72 34.32 12,398 34.27 18.80
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VAT on Imports 7,135 16.63 6,198 17.13 15.12
VAT on Domestic Goods and 7,588 17.68 6,195 17.12 22.49
Services
Turnover Tax (TT) 6 0.01 5 0.01 20.00
Import Duty: 9,485 22.10 8,235 22.76 15.18
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6. Customs Duty 8,285 19.31 7,135 19.72 16.12
Infrastructure Development 1,200 2.80 1,100 3.04 9.09
Surcharge (IDSC)
Excise Duty 185 0.43 163 0.45 13.50
Supplementary Duty (SD): 7,701 17.94 6,394 17.67 20.44
SD on Imports 2,003 4.67 1,739 4.81 15.18
SD on Domestic Goods and Services 5,698 13.28 4,655 12.87 22.41
Electricity Duty 1 0.00 1 0.00 0.00
Other Taxes and Duties: 454 1.06 305 0.84 48.85
Advertisement Tax 1 0.00 1 0.00 0.00
Travel Tax 452 1.05 304 0.84 48.68
Other Taxes & Duties 2 0.00 1 0.00 200.00
Sub-Total: NBR Portion 41,05 95.66 34,456 95.25 19.15
5
Non-NBR Portion
Narcotics and Liquor Duty 50 0.12 45 0.12 11.11
Taxes on Vehicles 382 0.89 331 0.91 15.41
Land Revenue 415 0.97 384 1.06 8.07
Stamp Duty (Non-Judicial) 1,014 2.36 960 2.65 5.63
Sub-Total: Non-NBR Portion 1,860 4.34 1,719 4.75 8.20
Total Tax Revenue 42,915 100.0 36,175 100.0 18.63
0 0
Source: GOB (2006), Annual Budget 2006-07: Budget in Brief and GOB (2006), Annual Budget
2006-07: Consolidated Fund Receipts.
Main Policy and strategic issues of Budget 2006-07
Policy issues
 Meeting the MDG by achieving the annual targets embodied in PRS is the
fundamental basis of budget 2006-07.
 Budgetary measures for highest allocation for human resource development with
emphasis on education and IT.
 Tax exemption and rebate for agro-processing, jute and textile industries and for
agriculture sector the duty free import of seeds, fertilizers, capital Machinery and
other agricultural implements. .
 Increased allocation and expansion of social safety net.
 Expanded step has been taken to introduce Medium Term Budget Framework
(MTBF), replacing the traditional budget system. For FY 2006-07, 10 ministries
brought under MTBF and there is commitment that this medium term perspective
will gradually be rolled out to all ministries and divisions.
 Two manuals titled “Public Expenditure Management Manual” and “Internal Control
Manual” are being implemented to achieve appropriate value for money from each
taka spent by the government. Within the main government account, arrangement
has been made for separate preparation of monthly accounts and Annual Financial
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7. Statement by each ministry. The Government, meanwhile, has taken steps to
separate cash management from public debt management.
 At the initiative of the present Government a “Public Procurement Regulations” was
framed in 2003 to ensure competition, transparency and accountability in
government procurement system. To bring about procurement practice in alignment
with international best practices, a bill has been placed before Parliament to convert
the Regulation into an Act.
 A Tax Ombudsman Act. 2005 has been enacted in the Parliament to ensure
transparency in tax administration and accountability. Main emphasis has been
given on the improvement of management, increasing efficiency and on
modernization of revenue administration and bringing high level of discipline in this
respect. The Tax Ombudsman has assumed his office and start functioning from July
2006. The fiscal Act is also under active consideration of the government.
Strategic issues
 Accelerate economic growth by further streamlining the strong macroeconomic
framework that is in place through continuous reforms and create employment
opportunities;
 Elevate Human Development Index (HDI) with the increased allocation in education;
health and other social sectors along with qualitative improvement;
 Ensure financial security of the disadvantaged by widening social safety nets;
 Promote private sector initiatives and investment by adopting prudent fiscal and
monetary policy;
 Reduce the cost of doing business by developing physical infrastructure;
 Ensure economic good governance;
 Improve law and order;
 Maintain internal security and
 Enhance public management capacity.
Salient features of Resources allocation for FY 2006-075
 56.3 percent of total resources have been directed towards direct and indirect poverty-
reducing spending.
 The total size of the budget, development and non-development, which is 15 percent of
the estimated GDP. Out of this, the non-development outlay has been estimated 14
percent higher than the revised budget 2005-06.
 The size of the ADP has been proposed at Tk. 26000 crore, which is 5.6 percent of GDP
and 21 percent higher than the revised ADP of FY2005-06.
 Tk. 1982 crore for development programmes financed from revenue budget for
employment generation programmes.
 Consistent with our economic goals, there is an increased allocation for different social
infrastructure sectors including education, health and women development, which is 43
percent of the total budget.
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8.  Allocation for human resource development has been proposed to rise to 23 percent of
the total budget.
 For education and technology sector it is proposed to allocate 20 percent higher than
the allocation made in the revised budget of FY 2005-06.
 In FY 2006-07, it is proposed to allocate Tk 4784 crore for this sector, which is 16
percent higher than the allocation made in the revised budget.
 For the Ministry of Agriculture, which is 42 percent higher than the allocation of revised
budget for FY 2005-06.
 For the Ministry of Fisheries and Livestock, allocation is 36 percent higher than the
revised allocation of FY 2005-06.
 For Development of Small and Medium Enterprise (SMEs), Special fund allocated for -
Refinancing Scheme, Equity Development Fund, Agro-based Industries Assistance
Programme and Fund for Assistance to Small Farmers Affected by Natural Disasters.
 Allocation for local government and rural development is Tk. 6427 crore, development
and non-development combined.
 About Tk 450 crore allocated for widening social safety nets. This groups belong to
“Senior Citizen Allowance”, “Fund for Rehabilitation of the Acid-burnt and the Physically
Handicapped”, “Fund for Mitigating Risks due to Natural Disasters”, “Honorarium
Programme for Insolvent Freedom Fighters”, “Programme for the Assistance to the
Fully Retarded”, “Seasonal Unemployment Reduction Fund”, “Retraining and
Employment of Voluntarily Retired/Retrenched Employees/ Labourers”, “Skill
Development Fund for the Readymade Garments Workers” and “Fund for Housing the
Homeless”
 Allocated Tk 148 crore to create employment opportunities for the poor under Special
Credit Programmes that will be implemented through Rural Development and
Cooperatives Division, Ministry of Fisheries and Livestock, Ministry of Youth and Sports,
Ministry of Liberation War Affairs and Ministry of Women and Children Affairs.
 Under Palli Karma Shahayak Foundation (PKSF) Tk 417 crore allocated for “ Special Fund
for the Employment of the Hardcore Poor” and “Credit Assistance to Small
Entrepreneurs” and under NGO Foundation again Tk 100 crore allocated to raise the
endowment fund to Tk 125 crore.
 A Power Rehabilitation Programme with an outlay of Tk.100 crore financed from non-
development budget has been undertaken for repair and maintenance of old power
plants and to improve power generation, transmission and distribution, an allocation of
Tk. 3586 crore has been earmarked for 52 projects including 2 new projects in the ADP.
 Allocation of Tk 100 crore for the “Energy Development Fund” to promote use of solar
power and other renewable sources of energy for inaccessible localities where people
are deprived of power supply.
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9. Table – 5: Non-Development and Development Expenditures for FY 2006-07
Position Major sector Allocation (Tk. in
crore)
13 Housing 609
12 Industrial and Economic Services 632
11 Recreation, culture and Religious affairs 875
10 Social Security and welfare 3461
9 Public order and safety 3688
8 Fuel and Energy 4283
7 Health 4794
6 Defense services 4908
5 Agriculture 5820
4 Local government and rural Development 6798
3 Transport and Communication 7545
2 Education and Technology 11107
1 Public services 15220
******* Total 69,740
Source: GOB (2006), Annual Budget 2006-07: Budget in Brief and GOB (2006), Annual Budget
Non-Development Expenditure
Non-Development Revenue expenditure : Tk 39536 crore.
Non-Development Capital expenditure : Tk 2750 crore.
Total : Tk 42286 crore.
Development Expenditure
In the Budget summary there is no separate presentation for revenue and capital
expenditure of Development budget. Total Development expenditure is Tk 28463
crore.
Medium Term Budgetary Framework (MTBF)6
Introduction of Medium Term Budget Framework (MTBF) from FY06 is a new initiative for
the Government of Bangladesh. In consideration of the implementation capacity initially,
the budgets for four ministries were prepared under the MTBF and from FY2006-07 the
coverage extended to 10 Ministries.
Objectives of MTBF
 These Ministries were to formulate a medium term expenditure framework which
will be consistent with the ceiling provided to them and the expenditures are also to
be consistent with the strategic goals, policies and priorities that have been
identified in NSAPR and/or ministry relevant sectoral policies.
 These Ministries were to establish an effective link between government’s strategic
goals, policies and priorities with budget allocations.
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10. Features of MTBF:
 Three-year budgeting was introduced instead of usual budgeting for one year;
 A single ceiling was given for Non-Development and Development expenditure and
the Budget Management Committee of the respective ministry determined the total
amount to be allocated to Non-Development and Development expenditure;
 Effort was made so that the line ministries could link budgetary allocation with
government policies, strategies and priorities;
 Performance indicators were established in order to ensure that the output
achieved from the public expenditure could be measured.
Expenditure ceilings determined on the basis of the following assumptions:
 The expenditure of the line ministries are consistent with GDP growth so that they
can maintain continuity in their work;
 The ministries/divisions can continue their activities and achieve their medium term
target and goals on the basis of their medium term strategies and existing policies;
 The ministries/divisions are able to increase expenditure allocation so that they are
consistent with poverty reduction strategy and can undertake pro-poor activities
and improve and strengthen service delivery for the poor;
 With the given expenditure ceiling, the relevant ministries can implement the new
pay scale of 2005.
The experience of implementing MTBF suggests that, in future govt. have to
successfully face the challenges outlined below:
 Enhance financial management capability of the line ministries;
 Retain the trained personnel;
 Develop appropriate information system necessary for budget preparation,
implementation and achieving the desired objectives of poverty reduction strategy;
 Ensure more participation of senior policy makers of line ministries in budget
processes;
 Further enhance coordination among Planning Commission, Finance Division and
line ministries;
 Strengthen integration of internal and statutory audit functions with budgeting.
Strategic Mapping and Challenges for the government- Some Comments:
Poverty Alleviation Issues
FY 2006-07 is the first year of the implementation of the National Poverty Reduction
Strategy. The government has finalized the full-blown poverty reduction strategy titled
“National Strategy for Accelerated Poverty Reduction – Unlocking the Potential”. In fact this
is the national document on which all development initiatives and priorities should be
based, designed and implemented to achieve the targets as determined. The budget
proposal contains 56.3% of the total allocation for initiatives and approaches directly and
indirectly related to poverty reduction, this is also a sizeable allocation considering the
priorities to address the poverty with multidimensional approaches. The positive side of the
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11. budget 2006-07 is that it does not create any pressure on general people, social safety net
was widened, agricultural sector was given importance, and local production was
encouraged. In all, the budget was drawn up in a way that the people can’t take it
negatively. Some few measures have taken in the Budget 2006-07 that might have positive
impact on rural economy and poverty alleviation like Tk 1200 crore subsidy to agriculture
and proposed withdrawal of infrastructure Development Surcharge. The exemption of duty
and tax on agriculture machinery, accessories, agri-inputs, fertilizer will help rural Farmers
and non-crop farmers. The increased allocation to Tk. 150 crore for Agro-based Industries
Assistance programme would definitely benefit the small and Medium enterprises.
Allocation that has been increased in the FY2006-07 for ‘Seasonal Unemployment Fund’ and
‘Fund for Housing of Homeless’ is considered insufficient. No commitment or direct
measures were taken for the land less poor that constitutes around 56% of the population.
Through private and public initiatives there must have provisions for creating employment
opportunity for vast segment of the population living below the poverty line in productive
sectors. In FY 2006-07 Tk. 1982 crore set a side for employment generation apart from
additional allocation of Tk. 481 crore for ‘Food- for- Work’. But it requires integration of
policies like export, import, industrial and SMEs policies for smooth growth and investment
to create productive employment opportunities.
Challenging Issues for the Government
Despite some positive measures taken in the FY 2006-07 for poverty alleviation, the
economy of Bangladesh still have to face following tremendous pressures and challenges.
Containing inflationary pressure: Even under normal conditions the most challenging tasks
for the govt. will be to contain the inflationary pressure on the economy, which is now
estimated at around 6.5%. With a view to providing some relief to the consumers it is
proposed reduction in duty on some daily necessities. But much would depend on the
exchange rate situation and the monetary policy of the central bank. The impact of recent
hike in fuel and oil prices coupled with possible inflow of huge election related funds into
the market might make thing really hard for the caretaker and next elected govt. Available
statistics say Bangladesh needs more than 60 percent diesel of its total gasoline
consumption annually to back the agriculture and communication sectors. Farmers will be
affected if the government goes ahead with it’s planned upward oil prices adjustment plan.
The economists said that the government should provide subsidy for the farmers during the
irrigation period so that higher cost of agricultural outputs could not push up the inflation.
Achieving revenue Target: It might be really challenging to achieve a 17 percent growth in
revenues as has been projected in the budget for the fiscal 2006-07 in view of the
continuous fall in revenues flow from a very important traditional source- import duty. The
finance minister has banked on higher mobilization of revenue from income tax and VAT;
but this would depend on reforming the tax administration and activating management.
Public Expenditure Management: To keep the finances in control and to achieve the budget
objectives what is essential is the efficient management of government’s financial affairs. In
attaining expected growth of 7% in FY 2006-07 the Investment – GDP ratio will need to be
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12. raised to at least 30-35 percent from the current 25 percent9. The additional amount of
savings needed to meet higher investment must come in the form of public savings through
the reduction of the government’s current expenditure.
Deficit Financing: There remains a huge uncertainty about how the emerging budget
deficits can be financed consistent with the overall monetary policy. The government has to
borrow Tk 54.34 billion from the banking system to meet the budget deficit in the fiscal
2006-078. That would not be an easy task if the liquidity problem in the banking sector
persists. Besides, such a large-scale borrowing by the government will reduce the
availability of funds for the private sector entrepreneurs and there may be liquidity crisis for
the bank. This has also the potential of dilution the effect of the pro-growth fiscal measures
that have been proposed in the budget. The deficit financing by printing money or from
public borrowing or borrowing from banking system may trigger the inflation. So, the resort
to printing money should be the last one and the public borrowing should be kept at a level
consistent with the GDP growth i. e the ratio of Debt to GDP should remain constant and
borrowing should be for productive investment.
Maintaining forex reserve: The govt. will need external credit desperately - in spite of a
healthy growth in export earning and inward flow of remittances – to maintain the forex
reserve at a satisfactory level.
Implementation of Development projects: The implementations of development budget
remain a great challenge for the government. In this respect the standard and quality of
projects must be ensured keeping with national priority. For example, Subsidy in agriculture
or highest allocation in education sector will be of no use if the subsidy is not given at the
right time to the right users or education sector projects are poor in standard. So, govt.
should pay attention to the quality of the projects, carry out capacity building, and give
emphasis on enforcing effective monitoring. The implementation of the Development
budget remains a challenging task for the govt. due to large number of new unapproved
projects including low-priority projects included in the development budget.
Accounting policy: Indeed, it is necessary to comment again that the Government
accounting system is at present based mainly on cash inflow and outflows. The accrual
principle of inunciated in the Generally Accepted Accounting Principles (GAAP) playing
practically no role therein. Further, no recognition is given to assets held and liabilities owed
in the accounts except those relating to public sector enterprises. As a result, a statement of
the financial position of the government at any point of time cannot be drawn. Yet budgets
should be guided by the rule that the net worth of the government should not fall. This net
worth cannot be calculated without following the GAAP.
Concluding Remarks
The budget has been drawn up amid much limitations and pressure. There is the pressure of
the election. There is donor pressure. There is the pressure from the rise in fuel prices. And,
again there are the expectations of the PRS and MDG to be met. If the budget is to be based
12

13. on realistic projections and strike balance between estimated revenue income and overall
public expenditure, as the tricky exercise demands, and also pragmatic and workable, then
the government has, surely a tough task in implementing the budget for the FY2006-07. The
Implementation of Budget 2006-07 is considered under most likely socio-economic
condition. In this regard political stability and efficient fiscal management system is pre-
condition. The cost of ‘Poor Governance’ and political programmes like ‘Hartal’ is so high for
the economy. The cost of Hartals to the economy was estimated about 3 to 4 percent of
GDP (UNDP, 2005). In addition to that Hartal/strikes/road seize programme impose
considerable psychological stress, insecurity, uncertainty of routine work and aboveall
rigorous negative impression to the foreign investors and thus country loses her image. So,
irrespective of any political affiliation/opinion, every section of the society must have
positive role to carry out the economic activities of the country without interruption with an
ultimate objective of fulfillments of expectations as set out in the FY 2006-07. In
implementing budget it should be kept in mind that it is made not only to forecast revenue
but also to control expenditure. Resource mobilization can be effected not only by
increasing taxes but also by reducing expenditures. There is also no denying that political
events of the coming days would shape up much of the economic future of the country.
Many donors do not hide their surprise over the resilience of the Bangladesh economy in
the face of so many negative things such as poor governance, corruption, and poor physical
infrastructure. Bangladesh could have really emerged as a South Asian tiger had there been
only one factor in place – that is good governance. So, together with economists’ ingenuity,
we need bold political visions because only the later can ensure the successful application
of the former. Let us hope sooner or later, sooner rather than later, we shall be on the track
that will lead us to our cherished goal.
(Note: This is not an official documents or opinion it purely an academic discussion)
Endnotes
13

14. 1
The Business Bangladesh, Vol - 3, issue 9. June 2006, “ Challenging inflation pressure” p20.
2
The Business Bangladesh, Vol - 3, issue 9. June 2006, “ Finance Minister defends own move” p26
3
The Business Bangladesh, Vol - 3, issue 8. May 2006, “Editorial”
7
4
Government of Bangladesh, Ministry of Finance, Minister ‘Ministry of Finance and Ministry of Planning’
Budget speech 2006 –07, date: June 08, 2006. Para24 of page 14.
5
Government of Bangladesh, Ministry of Finance, Minister ‘Ministry of Finance and Ministry of Planning’
Budget speech 2006 –07, date: June 08, 2006. p 10-15.
5
5
6
Government of Bangladesh, Ministry of Finance, “Medium-Term Budget Framework 2006/07-2008/09”
p01-28.
7
National savings Directorate (NSD) and Bangladesh Bank (BB)
9
The Business Bangladesh, Vol - 3, issue 9. June 2006, “ Views on Budget” p31.
8
Probe, a weekly English Magazine of Bangladesh, Vol – 4, Issue 51, Date: June 15-22, 2006 “Budget for
FY’07 on track, but Challenges daunting” page 16-17.
9
The Business Bangladesh, Vol - 3, issue 9. June 2006, “ Views on Budget” p31.