Introduction

We often see the finance minister carrying a black briefcase. We

have also seen it on June 10, 2010. There is a story, better to say,
a history behind it.

The history of carrying a briefcase is 150 years old. Its colour is

red. In 1868, the then British finance minster came to the House
of Commons to deliver the budget speech. Suddenly he
remembered that he had left his red briefcase at home by
mistake. After this incidence, it became a tradition that the
finance ministers would carry a briefcase on the day of budget
presentation, with an explicit display of the briefcase to the mass
people. Now, carrying this briefcase has become a parliamentary
culture in ours as well as in the other countries.

The National Budget for the fiscal year 2010-2011 was presented
in the parliament on June 10, 2010. The budget was approved by
the parliament on June 30, 2010, although in absence of the chief
opposition BNP. The Speaker of the National Parliament Mr. Abdul
Hamid presided over the session while the budget for the running
fiscal year amounting Taka 1, 32,170 crore was passed. The
Annual Development Programme amounts Taka 38,500 crore and
the revenue expenditure amounts Taka 93,670 crore.

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Basic Information of the Annual Financial
Statement
Budget: 40th, declared on June 10, 2010

Presenter: Finance Minister Abul Mal Abdul Muhith

Budget to be in effect: From July 1, 2010 to June 30, 2011

Total amount: Taka 1, 32,170 crore

Aggregate income (including revenue earning and

donation): Taka 97,656 crore (12.5 % of GDP, 73.9% of the
budget)

- Revenue income: Taka 92,847 crore

- Foreign donation: Taka 4,809 crore

Aggregate expenditure: Taka 1, 32,170 crore (16.7% GDP)

- Expenditures include revenue expenditure, food account,

loan and advance (net), structural adjustment expenditure
and development expenditure.

Overall deficit (including donation): Taka 34,514 crore (4.4%

of GDP, 26.1 % of
budget)

Overall deficit (excluding donation): Taka 39,323 crore (5%

of GDP, 29.8 % of
budget)

Managed Finance: Taka 34,514 crore

- Foreign debt : Taka 10, 834 crore

- Internal debt :Taka 23, 680 crore

Aggregate GDP: Taka7, 80,290 crore

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Projected facts: GDP growth – 6.7%

Inflation – 6.5 %

Positive Aspects in the Budget

In a service-sector based developing economy like Bangladesh

and with regard of its budgeting tradition irrespective different
regimes, it is obvious that there will be fewer aspects eligible to
be mentioned as positive, although these should be enough in
number considering the growing nature of the whole economy.
However, the budget for 2010- 2011 fiscal year have the following
aspects to be laudable:

Measures related to Tax:

- Effort towards revenue generation from domestic sources

has been continued. This is evident from the various new
moves to broaden the tax net of both income tax and VAT.

- Taxable amount and income tax slabs have remained

unchanged;

- Introduction of tax on income from trading of shares in the

stock exchange;

- Tax at source from real estate developers at the time of

registration;

- Tax holiday for industries engaged in manufacturing solar

panel, energy saving bulb and contraceptives

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 - Several measures to expedite reforms in the tax
administration.

- Reduction of interest rate of bank loan, from 15%-16% to

12%, used for importation of daily essential food items.

- Introduction of LTU (large taxpayers unit) at Chittagong,

simplification of tax return form shrinking its size to only two
pages.

- Tax-card for regular, proper and highest taxpayers (limited

in number) that rewards them in getting invitation in the
state-organized ceremonies, VIP treatment during travelling
in plane and any other public transport or during stay in the
hospitals.

Safeguard Duties:
For the indiscriminate huge importation of some products, the
local industries face loss. There is also the scope to tackle this
under the rules and regulations promulgated by the World Trade
Organization (WTO). But this has been avoided in Bangladesh
since long. Finally, a new set of regulations regarding this issue
has been declared on June 7, 2010 and amalgamated in the
budget. Besides this, a Safeguard Authority has been established
to look after these issues. The Safeguard Authority will be headed
by the Chairman of the Tariff Commission.

Separate Budget for Ministries and Departments to deal

Gender Issues:

Gender budgeting for ministries and departments has been

increased from four to ten in this fiscal year. Allocation has been
scaled up from Taka 9,660.08 crore (for 2009-2010) to Taka

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12,516.76 crore (for 2010-2011) for ten ministries and
departments.

The ministries and departments are: Agriculture ministry, Disaster

Management and Relief department, Education ministry,
Environment and Forest ministry, Fishery and Livestock ministry,
Health and Family Welfare ministry, Land ministry, Rural
Development and Cooperatives department, Social Welfare
ministry and Water Resources ministry.

District Budget:

Although Bangladesh is small in the size of land mass, but it is a

large administrative unit in terms of the population. Budget for
district-wise development work has been proposed for six
divisional districts, namely, Dhaka, Chittagong, Rajshahi, Khulna,
Sylhet and Barisal, following a model of district budget practiced
in neighbouring Nepal. The newest division Rangpur is not
included in this scheme.

Agricultural Insurance:

With a total 8.6% allocation (Taka 11,409 crore) of the total

budget for the Ministry of Agriculture, agricultural insurance has
been introduced for the first time in Bangladesh. Despite the
unsuccessful history of a pilot project in the same area, this
scheme has been taken to encourage the enhancement of
agricultural production, as climate change has been posing
increasing threat to agriculture. The exact amount to be used for
agricultural insurance is not yet specified.

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Bangladesh Climate Change Resilience Fund:

In continuation with the provision of $ 110 million for the fund

determined in the last fiscal year, the present budget allocates
Taka 700 crore for the recovery of damages caused by climate
change.

Increase of price of Compressed Natural Gas (CNG):

To ease the over-arching traffic congestion, especially in the

capital city, the unit price of CNG is going to be increased with a
supporting policy of increase in import duties on private cars.

Negative Aspects in the Budget

A budget of a developing economy is not and cannot be expected
to be all good. The budget for the fiscal year 2010-2011 in
Bangladesh is no exception in this regard. There are several
explicit drawbacks in the budget. The mentionable ones are:

Apparent Higher Allocation for Energy and Power Sectors:

The energy and power sector has got the highest priority claimed
by the finance minister actually means the increase in the amount
of allocation. The amount is Taka 1,804 crore more than that of
the last fiscal year. But this increase does not necessarily mean
the enhancement of national resilience through strengthening
BAPEX and Petrobangla, nor does it mean establishing new power
plants, let aside the enrichment of study and research in this
sector. So, what for the increased amount is?

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In the last fiscal year, the total allocation for energy and power
sector was Taka 4,310 crore. At the end of the fiscal year, it was
found that an amount of Taka 524 crore remained unspent.
Where there are many vacant posts in BAPEX-Petrobangla,
necessary instruments are not regularly bought, training-research
etc. has been pending only with the excuse of short of fund, how
could it happen? Nevertheless, the whole country had to face
severe power crisis during the last several months and the
government had a wider scope to make proper use of this
unspent amount to face the same crisis in the running as well as
in the coming pick-demand season.

But the government made no serious intervention in this matter

rather approached to much expensive and more unreliable “rental
power plant”, signing contracts with some foreign companies,
without any bidding. Avoiding BAPEX for the drilling of gas fields
and assigning foreign companies instead, would necessarily
require a higher amount, several thousand crore Taka in the
coming years. The increased amount for this sector in the present
budget aims at supporting this. Moreover, the price of gas and
electricity will also be increased in the shortest possible time after
the budget, just to aid the huge amount to be payable to the
foreign companies.

No Change in the Limit of Tax-free Income:

Despite an average inflation of 6.89% up to March 2010 of the

fiscal year 2009-2010 [Bangladesh Economic Survey, 2010] and
an average inflation of more than 10% [according to business and
media sources] , there is no change in the tax-free limit of income
in the present budget. It seems that the government believes the
poor are more taxable than the rich.

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Scope for Whitening black Money:

In contrary to the sustenance of tax-free limit of income, the

present budget still retains the scope of whitening the black
money. But it is done in disguise of “Bangladesh Infrastructure
Investment Fund”, a scheme designed for the physical
infrastructure development of the country. The present budget
provides that paying 10% tax as an investment in the fund, black-
money holders will not need to answer about the source of the
money. This arrangement has been made just adding an extra
clause 19(C) in the income tax ordinance.

Tax on the Profit of Savings Certificate of the Pensioners:

In budget speech for the fiscal year 2009-2010, the finance

minister said that the prime and substantial purpose of the
budgeting activities will be the establishment of social justice and
ethics in society. In light of this, he excluded the income from the
profit of the savings certificate of the pensioners from taxation
considering it an element of ‘social safety-net’. It was widely
appraised. But the present budget takes a “U-turn” in this regard,
most probably owing to the influence of specialists advocating
open market monetary/fiscal policy.

Decreasing the rate of profit (1.5% -2%) on the savings certificate

of the pensioners and imposing tax on this income will contribute
to the budget very insignificantly. According to the National
Bureau of Savings, the sale of pensioners’ savings certificate up
to April 2010 amounted to Taka 6,334 crore. The profit amount on
this becomes Taka 473 crore on a rate of 12.5 %. So, it becomes
only Taka 47.3 crore after tax cut at source on a rate of 10%.
Taka 47.3 crore is surely a very small amount comparing to the
total budget of Taka 1, 32,170 crore. But this amount is a confirm
decrease in the income of the pensioners which is not
insignificant to their living standard.

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Absence of Anti-corruption Strategy and Good
Governance:

The budget speech does not address the government’s stance

about anti-corruption and strategy for the establishment of good
governance. It is somehow skipped which is not desirable from an
elected government having this issue deeply emphasized in their
election manifesto.

Heavy Reliance on lending from Banks:

The present budget aims at lending greater amount form the

banks, which is 81% greater than that of the revised budget of
the last fiscal year. This will necessarily create an upward
pressure on the bank interest rate, ultimately worsening the
stagnant private investment situation.

Aspects that are not made clear:

The budget speech was much lengthy this time. Excluding the
appendix, the 92-page budget contains the expression of
satisfaction as well as an overall description of the economy by
the finance minister. But the description of the revenue activities
is limited in the last 13 pages and revenue related matters in
more 19 pages. How would the budget affect the life in the next
fiscal year is the prime interest of the mass people. People have
nothing to do with the total amount, revenue account,
expenditure account or development account in the budget. In
this sense, the budget is not clear enough to address the issues

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like tax increase or decrease, new areas to be taxed etc. which
are the main anxiety in the mass people.

• Increase of income-tax cut from 3% to 5% at source in the

import of goods is not made clear in the appendix of the
budget.

• The amount of Value Added Tax (VAT) applicable on the

retailers has been increased. In Dhaka and Chittagong city
corporation areas, it will be Taka 6,000 instead of Taka
4,200 per annum. In the other city corporation areas, the
amount has been increased from Taka 3,600 to Taka 4,800.
In the district cities and municipalities, the amount has
been increased from Taka 2,400 to Taka 3,600. For the rest
of the country, the increase is from Taka 1,200 to Taka
1,800. In case of advance trade VAT (ATV), the increase is
from 2.25% to 3.00% and VAT for traders has been
increased from 1.5% to 3.00%. But all these information are
not mentioned in the budget speech, may be the finance
minister expects only a circular from The NBR would be
worth in addressing this issue in a market system where the
retailers and the whole sellers regularly take part in a blame
game while price of the essentials frequently rise
unnaturally high.

• Whitening of black money has been given another chance in

disguise of investing in an infrastructure development fund.
The finance minister did not say anything about it but it is
carefully adjusted in the Income Tax Ordinance, adding a
clause 19(c) to it.

The Budget and the Country Scenario

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Although there have been enormous amount of plans and indexes
regarding economic development, the number of poor people has
not been decreased. Billions of Taka has been spent by the
government and NGOs in thousands of projects but the result is
not that good in the elimination of poverty. 75% of the whole
population still lives in mud and bamboo made dilapidated
houses. Lighting at night is still done with kerosene lamp in
almost half of the total number of families. 60% people do not
have any radio or television set for entertainment. Less than one-
third students complete the primary schooling.

This picture has been explored in the “Basic Opportunities

Evaluation Survey” done by the Bureau of Statistics in March,
2010. According to this survey, the percentage of population
below the poverty line is 41.20. The percentage of poor people is
31.9 and the percentage of hard-core poor is 9.30.

The rate of annual economic growth has reached to 6% six years

ago. Considering this as an achievement, we are still left with the
question that how the benefit of this growth has been distributing
among the citizens. Especially, the chronic increase of income
and regional discrimination urges more concentration on wealth
and resource distribution policies.

An overall assessment of budgeting in Bangladesh has come out

in a seminar titled “Bangladesh Economic Status and Analysis of
Budget 2010-2011” on June 19, 2010. In the seminar, renowned
economist Rehman Sobhan opined that, “Quantities are
emphasized by most of the people in terms of the implementation
of ADP. But the outcome of ADP implementation should be the
concern now”.

Another economist Wahiduddin Mahmud said, “The economic

growth rate should be increased up to 8% in the next six years.
But the traditional way of budgeting will not help in this regard. It

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needs creative policies”. He also added that Brazil, China and
other fast growing economies adopted their own creative policies
in recent time and thus ensured higher and sustained growth.

The View of the Finance Minister:

The finance minister Abul Mal Abdul Muhith has taken strong
position in favour of the expansion of areas and rate of tax. Being
the chief guest in a seminar titled “Bangladesh Economic Status
and Analysis of Budget 2010-2011” on June 19, 2010, the
exchequer of Bangladesh was quoted as “ The number of rich
people has increased in the country but the revenue collection of
the government has not increased proportionately. So, the
domestic manufacturing sector should be habituated to pay
taxes”. He also added that, “The ready-made garment factory
owners earn almost 13 to 14 billion dollars per year. But tax
collection from this sector is very little. Everybody should pay
taxes thinking about the welfare of the society”.

In a poor country like Bangladesh, everything would not go with

the expectation of the finance minister. In spite of that, making a
balance between will and ability enduring pressures from various
quarters and finally adjusting the financial accounts to prepare a
budget is the prime responsibility of the finance minister. The
present government has prepared a primary script for the sixth
Five Year Plan. This plan projects the destination of Bangladesh
economy after ten years.

In this regard, the GDP growth rate has been estimated to scale
up to 8% after five years in 2013-2014 fiscal year. There is also
estimation of scaling up the GDP growth up to 10% and 12% in
2017 and 2021 respectively.

Now, if we are to scale up the GDP growth to 8% in 2014, the

contribution of investment in GDP should be 36% - the finance
minister opined. It means, we have to add more 12% investment

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with the present ratio to GDP. In this 12%, state investment will
be 4% and the private investment will be 8% - this is the
estimation.

To increase the state investment, the revenue income should be

increased through enhancement of skill and improvement of
collection management of the tax administration. About the
private investment, the finance minister expected that Foreign
Direct Investment (FDI) and Public-Private Partnership (PPP) can
pave the way to increase the rate of investment.

But the fact is that, owing to energy and power crisis

accompanied by infrastructural weaknesses, the Bangladeshi
investors are suffering a lot and this situation can hardly attract
adequate FDI. On the other hand, the government could not
finalize the PPP policy in the last one and half a year.

How the finance minister and the government resolve this

deadlock is going to give us the real picture of the economy in the
coming years.

Bangladesh Political Culture and Budgeting

There is a book titled “Legislative Oversight and Budgeting: A
World Perspective” published by the World Bank. This book
contains many research and survey reports. One interesting thing
is that, there is a common phenomenon throughout the countries.
What the government presents in the budget, it is approved
unchanged. Among 41 countries that were surveyed, 34%
countries approve the budget keeping it the same as the finance
minister proposed. US Congress is much powerful, they can have

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a new budget prepared, but they did not do it or actually they did
not need it. 63% of those 41 countries make very trifling changes,
resulting only 3% up-down in the budget. What is observable is
that the whole world is pursuing towards the practice of a
‘shadow budget’, which is presented before the parliament much
ahead of the final budget.

The former British Prime Minister Gordon Brown introduced the

“Pre-Budget Statement/Report” (PBR) in 1997.

The World Bank directed a survey on pre-budget statement in 36

countries including Bangladesh, India and Nepal. 18 countries
among these 36 present a PBR in their parliament four months
before the final budget is presented. The fact is that low income
countries like ours are lagging behind in this regard. Still, 21% of
the low income countries can make the PBR four months before
the final budget. The irony is that Bangladesh is not in that 21%.
What is more frustrating is that there is no attempt or drive to
introduce the practice of PBR. Rather we see many compromises
in such necessary matters related to transparency and
accountability.

We have to understand how much imprudent our political parties

are in terms of national interest. Continuous non-cooperation and
hostile attitude fueled by the theme ‘winners take all’ have been
leading us to an artificial, baseless debate of how national
development can be achieved.

The book published by the World Bank says how the budget will
be and how much transparent it will be depend on the analytical
capacity of the parliamentarians. Only a few of our
parliamentarians are well-known in showing this capacity.

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Conclusion

The government has been sustaining the economy by adopting

extended fiscal policies. As a result, the GDP growth has crossed
over 5.5% despite smaller private investment. But adopting the
extended expenditure measures, the government has also taken
higher burdens. Salaries of government employees have been
increased besides the continuous provision of subsidies in
different sectors. The government has also borrowed from selling
savings certificates at higher interest. That is why the finance
minister has to present a huge budget.

Besides the increase in public expenditure, the increasing

remittance flow has contributes to the increase in consumption
expenditure. The World Bank opines that the GDP growth has
been relying on consumption expenditure in the last three years.
Actually, our economy has been powered and sustained by three
forces since years – the farmers and peasants, the readymade
garment workers and the foreign wage earners.

From an overall view, it seems that the GDP growth may range
from 5.5% to 6.1% in the new fiscal year. It will result from mainly
the increase in aggregate consumption expenditures. Because,
the upgraded pay-scale for the government employees will be
fully implemented in this fiscal year. Besides, the subsidies for
fuel, energy and fertilizer will also increase along with the
strengthening of the social safety net programmes. All these will
exert an upward effect on the GDP. So, the question remains for
the task of strengthening the manufacturing sector by enhancing
investment. And this is the biggest challenge for the finance
minister.

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