The New Nation - Internet Edition

UNB, Dhaka

Unnayan Onneshawn (UO), a local development think tank, on Friday said the proposed budgetary measures will not help achieve the poverty reduction target of the present government.

In its budget response, the UO said that the huge government borrowing will create adverse impact on the macro-economic balance and in the long run it would jack up the inflation.

"As per the budgetary proposal the government has to rely heavily on borrowings - external and domestic - to meet the budget deficit that is set to Tk 34,358 crore or 5 per cent of GDP, which is the highest in Bangladesh."

It said the huge deficit financing would certainly have macroeconomic impacts. Besides, the proposed budget estimated a revenue generation of Tk 79,461 crore that will be a difficult task to achieve.

The UO said uncertainty on future investment still looms large as the proposed measures do not follow any comprehensive investment strategy, nor it has strategic link between growth and poverty reduction, though prima facie it looks that the size of public investment as well as incentives to the private sector are expected to help increase future investment.

It said though there are some measures in the budget for expanding the social safety net, but it would not be enough to bring down poverty to 25 per cent by 2013 as envisaged by the government in its election manifesto.

"One of the reasons is that the number of additional poor that will incorporate into the government social safety-net programme for the next one year is far less than the number of people that required to be graduated out of poverty each year to achieve the target.

Outlining the negative impact of the huge government borrowing proposed in the budget, the UO said if the government borrows from the commercial sources, this would definitely crowd out private investment impeding the government's objective to increase investment and disturb the money market due to increase in credit demand.

It said excess money supply to meet the borrowing would reduce the value of money relative that of goods and services as there would be too much money to chase few goods and services creating inflation.

It said since the current fiscal has already run down with high public borrowing, especially that from the domestic sources, an even higher budget deficit would clearly worsen the public debt situation.

"In fact, the country is effectively caught in a 'debt trap' whereby a high existing level of outstanding debt implies a high level of interest payments which lead to a large budget deficit in the subsequent years that has to be financed correspondingly by large borrowings which add to the debt and so on."

The UO said the result is increasing growth in debt and budget deficits which creates fundamental macro economic imbalances and has a number of unfavourable consequences including the 'crowding out' of the private sector and a decline in private investment through rise in interest rates and a rise in the current account deficit in the balance of payments.

On government's pledge to vibrate the agriculture and rural sector, it said decrease in agriculture subsidy is unexpected when the government pledged to ensure self-sufficiency in food. When farmers are struggling with increasing cost of production and deprived of fair prices, decrease in subsidy is a shocking blow.

The UO noted that though the government stressed rural development, except for 'one house one farm' programme', the budget offers no other specific measures for rural development.

Besides, the budget for rural development and LGED is proposed combining development and non-development components, which may not capture actual development programme in rural area. While political interference has dominated in project selection in the past, corruption and ineffective local government remain major hurdles, the UO said.