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When placing his first budget back on June 7, 1980, the finance minister, M Saifur Rahman, quoted a section of the constitution that entrusts the state with the responsibility of reducing inequality between rural and urban life through farm revolution, rural electrification, expansion of education, promotion of cottage and small industries, and improvement of communication infrastructure and public health.
   He prioritised all those areas in the budget for the 1980-81 fiscal year, which also marked the start of the second five-year plan. Higher economic growth, employment generation, keeping essential prices under control and creating employment opportunities were also among his priorities. ‘Poverty alleviation or reduction, a buzzword in the first budget speech of 1972 and coped in every document thereafter, was not left out either.
   Saifur stressed then that the economic growth must be ensured to achieve the goals, setting the GDP growth target at 7.6, agriculture growth at 7.2 and industrial growth at 9 per cent.
   The estimate of revenue receipt has grown almost 20 times, revenue expenditure 24 times and development spending 8 times since then.
   Flashback
   The priorities were more or less the same as Saifur placed his 10th budget on June 10, 2004, setting targets and announcing a wide range of programmes to meet those.
   ‘…priority has been given to sectors involved in poverty reduction and human development such as agriculture, irrigation, labour and employment, rural development, education, health, women, child and youth development, water resources, energy and power, infrastructure, railway and inland water transport, rural infrastructure, telecommunication, foreign investment and export inducing sectors,’ he said in the budget speech.
   He also projected that 55.5 per cent of the Tk 22,000-crore annual development programme will be financed from local resources, and the rest will come in the form of foreign assistance.
   Sixty-two per cent of the development budget and 42 per cent of the non-development budget have been allocated for direct and indirect poverty reducing programmes, he claimed. In FY05 the estimated budget deficit will be 4.3 per cent of the gross domestic product.
   ‘For reducing income-poverty, it is necessary to create large-scale employment opportunities along with actions to directly involve the poor in income-generating activities,’ he told the parliament.
   Saifur had other targets to chase as well. The government is pledge-bound to halve poverty by 2015 in line with the UN Millennium Development Goals. To achieve the goal, the GDP has to grow at 7 per cent annually on an average, while substantial public and private investments will be needed to create jobs.
   He listed a number of programmes. One of them is a three-year rolling plan — ‘Medium Term National Strategy for Economic Growth, Poverty Reduction and Social Development.’
   Saifur pledged that the lenders-driven poverty reduction strategy paper would be finalised by December 2004. He also outlined a medium-term macro-economic framework for achieving pro-poor economic growth. Raising the GDP growth rate to 6 per cent in FY05 and to 7 per cent in FY08 is the main target of the framework.
   He announced a list of programmes and new measures initiated or planned in the areas of agriculture, private sector industrialisation, small enterprises, social sectors, communications, utilities, social safety net, housing for poor, and so on. ‘The main goal of all these policies and strategies will generally be rural development and creation of wider employment opportunities.’
   He was generous to make allocations, of course higher than the previous budget, in most of the areas.
   ‘Comprehensive’ reforms were pledged in economic, administrative and institutional areas to establish good governance and to implement pro-poor economic development strategy. ‘We will implement in an incremental way reforms designed by ourselves in order to achieve pro-poor growth and reduce inequality between the rich and the poor.’
   Achievements
   It is not possible to exactly assess how much of these pledges and targets could be met so far. But sector-wise review of performances could give a broad indication.
   GDP growth
   The GDP growth target for the 2004-05 fiscal year was set at 6 per cent. But figures so far available suggest the economy would grow at 5.3 per cent mainly due to the severe flooding in late-2004 that damaged crops and property extensively.
   At the end of the current fiscal year, the GDP growth rate for 2003-04 was suddenly revised upward to 6.27 per cent from the provisional estimate of 5.52 per cent. Such a large revision of the GDP estimate has surprised researchers and made them doubtful about the whole estimation methodology and MTMF projections as well.
   Poverty reduction
   In its latest report, the Centre for Policy Dialogue has forecast that per capita GDP in FY05 will remain at the previous year’s level between $421 and $424 due to flood impacts and devaluation of taka.
   The preliminary report of the poverty monitoring survey 2004 says the incidence of poverty on the basis of food intake reduced in 2004 to 42.1 per cent from 44.7 per cent in 1999, with an average annual decline of 0.5 per cent. The average rate is lower than 0.8 per cent seen between 1995 and 2000.
   The rate of reduction was about 1 per cent in urban area while it was 0.32 per cent in rural areas, reflecting a widening inequality in rural and urban life.
   Per capita income of the poor increased 4.8 per cent while the increase is 19.4 per cent for the affluent, again mirroring a yawning rich-poor gap.
   So, reducing income inequality and rural-urban gap still remains a distant dream.
   Employment and investment promotion
   Apart from allocating Tk 50 crore for re-employment of retrenched and retired workers, Saifur pledged that about 9 lakh jobs would be created at the sites of closed Chittagong Steel Mill and Adamjee Jute Mills.
   He also announced big allocations against lofty programmes for boosting rural economy and employment through micro-credit ventures. More than 1.20 crore women in Bangladesh now are self-employed through successful utilisation of micro-credit facilities, he claimed in the budget speech.
   Most of the pledges he made to improve the investment climate have remained unfulfilled.
   Since there is no updated official data available on employment, it is hard to say how many jobs were created but it can said for sure that Saifur’s promise to create 9 lakh jobs did not come true, since the planned industrial estates on Adamjee and Chittagong steel mills sites have not progressed much.
   Erratic supplies of power and gas still remain major concerns for them, while the Chittagong Port, the main gateway for external trade, remains as inefficient and expensive as it has been.
   In his budget speech, Saifur admitted that non-economic factors impede investment and pledged to create a favourable investment climate.
   For the last one year, law and order situation saw an apparent improvement after engaging special forces, but concerns are there how long it will sustain. Establishment of good governance at all levels, as pledged by Saifur, remains distant.
   As for corruption, the country still maintains its top ranking in the perception index of the Berlin-based Transparency International.
   As promised by the finance minister in 2004, the government has established the Anti-Corruption Commission. But it is yet to be made fully functional and truly independent.
   Some flagship companies, including Tata of India, have been progressing towards making substantial investments here. But the companies are more guided by their changed expansion plan matching global phenomenon than lured in by Bangladesh’s investment regime.
   Agriculture
   Agriculture becomes the ultimate saviour for the government taking pride in GDP growth. It is the agricultural growth that helped the government to revise the 2003-04 GDP upward to 6.3 per cent. It is the agriculture that still accounts for one-fourth of the GDP. But when it comes to support this sector, the finance minister clutches his purse tightly.
   In the outgoing fiscal year, Saifur was proud to announce that the allocation on agricultural subsidy and agricultural incentives has been doubled to Tk 600 crore. He also raised cash incentive for export of agricultural products, fruits and vegetables to 30 per cent from 25 per cent. Bangladesh Bank will provide financing as required at 5 percent rate of interest to Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank and other nationalised banks so that they can provide adequate agricultural loan to the farmers at 8 per cent rate of interest.
   However, the supports proved far less than the amount required for covering all aspects of agro inputs and an unexpected expense for post-flood rehabilitation programme. Moreover, there are doubts how much those incentives benefit the marginal farmers due to faulty distribution mechanism.
   The allocations for the agriculture ministry will see a marginal increase to Tk 1,985 crore in 2005-06 from Tk 1,777 crore in 2004-05. The ministry, which for the first time prepared its own budget under a special scheme, terms the increase ‘inadequate’ in view of importance of the farm sector in an economy like Bangladesh in absence of any other sector that could substitute it.
   The subsidy amount may touch Tk 640 crore in the next fiscal year whereas Bangladesh can provide up to Tk 6,600 crore farm subsidy under the rules of the World Trade Organisation, which permits subsidy at 10 per cent of the GDP in agriculture for countries like Bangladesh. The parliamentary standing on the agriculture ministry, too, recently demanded allocation of Tk 2,700 crore as farm subsidy.
   Although the government has given 15 per cent subsidy for electricity consumption in irrigation projects, Saifur declined to provide subsidy for diesel despite repeated rise in the price-level of petroleum products.
   Revenue
   The performance of the revenue sector has been dismal. In the first 11 months of 2004-05, the revenue board earned Tk 25,937 crore, falling Tk 6,253 crore short of the target.
   NBR sources said the total revenue collection was likely to be Tk 4,000 crore less than the budgetary estimate of Tk 32,190 crore, which is likely to be revised downward to around Tk 30,000 crore.
   Even if the revenue earning target for FY05 is met, the revenue/GDP ratio would be 11.2 per cent, making it difficult to achieve MTMF terminal year (2007-08) target of 14.5.
   Tax evasion, widespread corruption and absence of taxpayer’s services are major reasons behind tax revenue shortfall, revenue people guessed.
   ADP implementation
   Taking up a huge development programme with lofty projects and trimming it at the end of the fiscal year has been a fashion for years. And this year has not been an exception.
   The 2003-04 development outlay was slashed to Tk 19,000 crore from its size of Tk 20,300 crore ‘due to slow progress of implementation of some projects’ and to lower budget deficit to 4.2 per cent of the GDP from a level of 4.8 per cent.
   The 2004-05 development programme has been slashed to Tk 20,500 crore from Tk 22,000 as originally planned. The executing agencies could spend less than 50 per cent of the allocations in nine months till March.
   This track record, however, did not hold back the government from venturing for yet another enormous ADP. This time it is Tk 24,500 crore. Approved by the National Economic Council on May 25, the ADP for 2005-06 will have as many as 856 projects and programmes. However, the number, including new and unapproved projects, exceeds 1,350.
   Saifur took both slashing and expanding casually. ‘Even the angels or multinational corporations will not be able to implement development programme by cent per cent.’
   He also defended an inflated ADP with zeal. ‘A public welfare-oriented development programme itself is a polls-centric one. The nation should have some ambition.’
   Crude realities ahead
   The 2005-06 fiscal year appears to be a difficult year for Saifur to balance his book. With the general election likely in just over one and a half year, the government has ventured on with a gigantic development outlay.
   At the same time, it will have to remain extra cautious in taking tax measures in fear of losing popularity. Yet, the next budget would see tax hikes both directly and indirectly.
   There has been a pressure from the lending agencies to tighten the monetary policy. Implementation of a new pay scale will scale up the revenue spending. To meet the yawning non-development expenditure, Saifur will have to set a bigger revenue earning target for the next fiscal as well. However, given the performance in 2004-05, it can be well assumed that the target would be missed since the factors behind this year’s dismal picture in earning fronts look set to remain as usual.
   So, the easy option seems to be cutting the development outlay to size at the end of the day as Saifur will have to make both ends meet.
   Forget about the pledges and projections he would make in the budget speech. There is none to question him even if all those remain unmet.
   Saifur saw a lot in his long career that spanned over three decades touching two centuries. He is not bound to explain to anyone, even if fortune favours him to place his 12th or 13th budget.

With the prevalence of tax evasion, widespread corruption and absence of taxpayer’s services, largely responsible for a revenue shortfall of about Tk 4,000 crore in the current fiscal, quarters apprehend that a repetition of another large shortfall is likely in the next fiscal if comprehensive reforms are not undertaken in the revenue department.
   Forecasting a decline in import revenue due to liberalised import regime, finance minister M Saifur Rahman relied heavily on income tax and value added tax. He also stressed on streamlining revenue administration.
   ‘We have to make our revenue administration and management efficient, more effective and modern by ensuring good governance, transparency and accountability,’ Saifur said in his budget speech, referring to reform programmes that had already been initiated to reorganise the national board revenue, simplify tax laws, expand tax base, prevent corruption and curtail discretionary power of tax officials.
   Revenue receipts for the current fiscal, 2004-05, has been estimated at Tk 41,300 crore, which is 16.7 per cent higher than that of the revised budget of the previous year. The revenue target was set with a projected 17 per cent growth in the last fiscal. Domestic resources are expected to finance the Tk 22,000 crore annual development programme as originally estimated.
   While expenditure, both development and non development, has been estimated at Tk 57,248 crore, up by 16 per cent from revised budget of the previous year, the deficit, to financed by domestic and overseas borrowings, is estimated at 4.3 per cent of the gross domestic product.
   In the first 11 months of the current fiscal the revenue board earned Tk 25,937 crore, Tk 6,253 crore short of the original and Tk 4,063 crore of the revised targets.
   The revised target is likely to be slashed from Tk 32,190 crore to Tk 30,000 crore, according to sources.
   The sources in the revenue board said revenue collection is likely to be Tk 4,000 crore less than the original and over Tk 1,500 crore less than the revised targets.
   A high official of the board told New Age that yet another ambitious revenue target — likely to be 19 per cent higher than the revised target for the current fiscal year —has been fixed at the dictate of the International Monetary Fund.
   According to the sources, tax revenue target has been set at Tk 35,500 crore, 18.66 per cent or Tk 5,500 crore higher than the revised target of the current fiscal.
   The board official termed the revenue target ambitious and warned of yet another shortfall in 2005-06. ‘Institutional capacity building along with fresh drives to generate more revenue is mandatory to translate the target into reality.’
   Sources outside the revenue board believe that the government must contain corruption in the tax department besides conducting an institutional overhaul if it wants to meet the target.
   The customs wing topped the list of target shortfall followed by value added tax and income tax wings of the revenue department based on the revenue performance of July-May period, a member of the revenue board told New Age.
   It is alleged that a section of unscrupulous businessmen with the blessings of the ruling parties have long been evading customs duties, value added tax and income tax.
   ‘Some of these people are lawmakers themselves, who care little and sometimes warn us of dire consequences if any lawful action is initiated to prevent their tax evasion,’ said a commissioner of the customs department. ‘Ministers, lawmakers and the hierarchy of the ruling party often pressure us for undue facilities to certain importers.’
   Besides, widespread corruption, particularly customs corruption is another reason for a persistent shortfall in revenue collection in that department, said sources.
   The International Monetary Fund has long been suggesting that the government put in place a code of conduct for revenue officials to contain their corruption.
   The World Bank in July 2004 in a report, ‘Bangladesh Development Policy Review: Impressive Achievement but Continuing Challenges’ said corruption erodes up to 20-25 per cent of the collected revenue.
   ‘Corruption in customs is a source of substantial leakage of revenue, often through collusion between importers and customs personnel. Estimates of such leakage have been 20-25 per cent of collected revenue,’ says the report.
   In 2001, a World Bank-financed report under the export diversification project of the commerce ministry suggested that the government should retrench all customs officials and make fresh recruitment to get rid of pervasive corruption.
   Of late, the incumbent chairman of the revenue board, Khairuzzaman Chowdhury, has initiated an action against corrupt tax men as he has already taken stern action against one member and another customs commissioner for their alleged corruption.
   He also asked all revenue employees to submit their wealth statement in a bid to contain the widespread corruption.
   In the absence of a fully computerised system for full database management, any attempt or strategy for increased revenue generation is seriously impeded, said sources.
   The multilateral lending agencies including the World Bank and the International Monetary Fund have long been asking that the revenue board be reformed. The government, despite its repeated assurances, have failed to initiate any such measures, said the sources.
   The components — which the government agreed to carry out — include strategic management programme, changing the current structure, prioritising strategic planning, human resource development and introduction of information technology at the board of revenue.
   The agencies also suggested outsourcing experts from the private sector to inject dynamism, to increase taxes, which is said to be the lowest in the world as a proportion of the GDP, said sources.
   The government is yet to decide on outsourcing and amalgamating the customs and value added tax departments into a single entity given the strong opposition in both departments.
   The finance minister M Saifur Rahman is expected to announce the overall reform programmes of the revenue board in his budget speech.

It has long been stressed that the country’s economy must grow at seven per cent per year to halve poverty by 2015. Substantial investment, both in public and private sectors, is required to attain that growth, stress quarters concerned. It is reasoned that higher growth will eventually create jobs and reduce income-poverty.
   Since the private sector has been the major employer, it needs a favourable environment, adequate infrastructure, reliable utility services and a consistent policy regime to increase its rate of investment.
   The last budget put due importance on private investment growth.
   ‘Increasing private investment will remain a challenge…We hope, investment-friendly environment will be further consolidated as a result of improved infrastructure, financial sector reforms and introduction of e-governance by the Board of Investment,’ said M Saifur Rahman, minister for finance and planning in his budget speech.
   He also identified the non-economic factors hindering investment growth and stressed that law and order needed improvement, corruption had to be curbed and good governance established.
   ‘The government is fully aware of these non-economic factors… and will continue its efforts to improve the non-economic environment,’ said Saifur, pledging establishment of an independent Anti-Corruption Commission soon. Since confrontational politics and lack of security impede the improvement of both economic and non-economic factors determining the investment climate, Saifur sought sincere cooperation of all political parties and civil society groups.
   Apart from allocating Tk 50 crore for re-employment of retrenched and retired workers, Saifur pledged that about 9 lakh jobs would be created at the sites of the Chittagong Steel Mill and Adamjee Jute Mills that had bee shut down.
   He also announced large allocations for lofty programmes to boost the rural economy and generate employment through micro credit ventures. Over 1.20 crore women have self-employed through successful utilisation of micro-credit, he claimed in the budget speech.
   Most of Saifur’s pledges remain unfulfilled till date. Although there were no official data on employment, Saifur’s promise to create 9 lakh jobs did not come to fruition because the planned industrial estates at the jute mill or the steel mill site are yet take off.
   Achievements, or lack thereof
   While facilitation of private sector investment received much importance, the IMF-dictated contractionary policy is perceived as a disincentive for investors. Erratic power and gas supply still remain major concerns, while the Chittagong port, the main bottleneck for external trade, remains as inefficient and expensive as it was.
   Law and order saw an apparent improvement after engaging the Rapid Action Battalion, but doubts remain over its sustainability. Establishment of good governance at all levels also remained a mere dream.
   As for corruption, the country still maintains its top rank in the perception index of the Berlin-based Transparency International.
   As promised by the finance minister in 2004, the government has established the Anti-Corruption Commission. But it is yet to be made functional and independent.
   Nevertheless Saifur, who earned the sobriquet of ‘economic liberator’ for opening up Bangladesh’s economy, may boast of having increased foreign investment.
   He can indeed claim that foreign companies including the Indian conglomerate, Tata, and other companies from the United States and Saudi Arabia have expressed their interest to invest billions of dollars. According to the data of the investment board foreign direct investment increased by 60 per cent in 2004 from 2003.
   The Bangladesh Bank’s figures also show an upsurge in industrial credit and import of industrial raw materials and machinery implying higher investment.
   The Ministry of Industries’ statistics say industrial growth is likely to hover around 9 per cent against the target of 10 per cent.
   Concerns/recommendations
   Economists and chamber leaders believe that liberal investment regime alone will not woo investors unless infrastructure improves and corruption decreases.
   A sudden policy shift towards tightening credit flow at the fag end of the current fiscal took many by surprise.
   A possible discontinuation of, or restriction on, the tax holiday scheme would also be perceived as bad news for potential investors.
   Saifur emphatically announced that the scope of laundering black money would be done away with from this fiscal.
   He cited ethical reasons for discontinuing the scheme, but it would also block investment, however miniscule the amount may be, of untaxed money in the formal sector. There are concerns over alternative destinations of black money if such a measure is initiated.
   Experts blame frequent policy shifts, in addition to poor infrastructure and widespread corruption are the main factors discouraging investment.
   Frequent changes in monetary and fiscal policies frighten investors, especially the foreign ones. Abrupt changes in policies hamper long-term investments and influence new investment decisions negatively.
   Apart from reducing corporate tax, the foreign investors’ chamber demanded elimination of restrictions and policy contradictions with regard to taxing foreign investors.
   ‘Various restrictions and policy contradictions add to the cost of business in Bangladesh and lessen its prospects as an attractive investment destination,’ the chamber said in its budget proposal.
   Zaid Bakht, director of research of the Bangladesh Institute of Development Studies, severly criticised the combination of expansionary fiscal policy and contractionary monetary policy.
   While poor public investment will hardly accelerate growth, IMF-dictated contrationary policy discouraging private investment, will have a negative impact on over all investment, he said.

The target population is yet to receive quality services although the government spent large sums in social sectors, including education and health in the current fiscal.
   Economists, academicians and development activists believe that the government should ensure quality-spending, instead of allowing plunder and abuse of funds, during the next fiscal.
   Most of the money allocated for the social sectors was spent mostly to appoint officials, teachers, doctors and staff, construction and refurbishing infrastructure and providing still-to-be-used equipment for hospitals.
   ‘Although the government increased its allocation in social sectors including education, quality has not been ensured thanks to the widespread mismanagement,’ the president of Bangladesh Economic Association, Qazi Kholiquzzaman Ahmad, told New Age Tuesday.
   Most of the money allocated for the sector was spent for construction salaries, he said. ‘The government did nothing to ensure quality education.’
   Quoting a survey report of the Campaign for Education, a coalition of non-governmental organisations working to ensure primary eduction for out-of-reach children, Qazi said, only two per cent children receive quality primary education.
   He said there are doubts over the official figures of literacy. ‘The government claimed that literacy rate is 62 per cent. But according to the organisation, it is below 50 per cent.’
   ‘There should be a thrust to generate employed for the jobless,’ he said, adding that the finance minister believed that there is no unemployment.
   The director of Campaign for Education, Rasheda K Chowdhury, told New Age on Tuesday, ‘Allocation per child has not increased although the government increased total allocation in education.’
   ‘The government was reluctant to spend money to make schools children-friendly, providing teachers’ with quality training or making the text-books improved and attractive.’
   But Rasheda praised the government for providing stipends to girl-students. ‘It is a success story being followed by other countries.’
   Sushil Ranjan Haoladar, a professor of the health economics of the Dhaka University, told New Age on Tuesday that increased allocation for most of the social sectors, including health, was merely hype. ‘Merely increasing the number of hospital beds and appointing doctors, unwilling to stay at rural health centers, do not ensure better healthcare for poor patients.’
   ‘The efficiency of health services must be improved to provide better treatment,’ he said adding the influence of the Bangladesh Medical Association and such other trade unions should be decreased.
   The government allocated Tk 7,680 crore — Tk 940 crore more than the revised budget allocation of 2003-04 — for education in the current fiscal.
   In health, the government allocated Tk 3,732 crore — Tk 810 crore more than the revised allocation of 2003-04 — for revenue and development combined.
   The government also allocated Tk 634 crore from non-development budget to further expand micro-credit programme for employment generation of the hard-core poor.
   Among other government measures to increase social security since July, 2004, monthly old-age allowance was raised by 10 per cent to Tk 165 and the number of beneficiaries increased by 2 lakh reaching 12 lakh.
   Allowances for the widowed, deserted and destitute women were raised by 10 per cent to Tk 165 and the number of beneficiaries increased by 1 lakh reaching 6 lakh.
   The other measures to increase social security included providing Tk 65 crore for rehabilitation of acid burnt women and the physically handicapped, Tk 148 crore for housing of the homeless, 5.3 lakh tonnes of food and Tk 168 crore to be distributed through different programmes among the poor.
   Some lawamakers, however, alleged that there were ‘political motives’ behind the process of selecting widowed, deserted and destitute women.
   ‘I do not know how and by whom, the widow, deserted and destitute women were selected,’ Hafizuddin Ahmed, a Jatiya Party lawmaker, told New Age Sunday.

With the new budget being placed in parliament today, expectations run high in all spheres of public life including the stock exchanges.
   The stock exchange barometers remained flat during the last few weeks as like the general index of the Dhaka Stock Exchange or All Share Price Index of the Chittagong Stock Exchange varied little in the last few weeks.
   When asked, stockbrokers and dealers had a common reply. ‘Everybody is waiting to see the budget. Nobody dares buy or sell bulk volume in advance.’
   The capital market is betting that the national budget will open up investment opportunity for private sector, which would presumably lead to an increased number of companies registering with the stock exchanges, and tax rationalisation for corporate earnings.
   The market observers are hoping of a ‘market-friendly’ budget that could pull up the market.
   They also hope that income tax rates, both direct and indirect, will be rationalised in line with the recommendations.
   ‘There are some taxation and structural issues that need to be addressed in the budget for the increased flow of investment,’ said Salahuddin Ahmed Khan, chief executive officer of the Dhaka Stock Exchange.
   A snapshot of fiscal measures related to capital market in 2004-05 shows that although there were no substantial incentives for the capital market, there were nothing to discourage operations of the market either.
   But Saifur’s pledge to continue lowering the interest rate regime and an option for whitening black money in the last budget boosted market prospects.
   The market was buoyant throughout the current fiscal except a few hiccups near the end of the current fiscal.
   On the corporate front, the stock exchange demands to widen the corporate tax differential between listed and non-listed companies to 15 per cent so that more companies are encouraged to go for public listing.
   In the current budget this measure remained unchanged at 30 per cent for listed companies and 37.5 per cent for non-listed companies. However in case of failure to pay dividends or payment of less than 10 per cent dividends would require the company to pay taxes similar to those of the non-listed companies.
   In the upcoming budget, a 10 per cent rebate has been sought for newly listed companies to encourage more companies to be listed with the bourses.
   In the last current fiscal the corporate tax for banks, insurance companies and financial institutions remained unchanged at 45 per cent.
   The new proposal is to reduce tax of such institutions, with almost 50 per cent of market capitalisation, to give the investors an incentive with an expectation of higher dividends.
   The market trend shows that banking and financial sector was dominant throughout the fiscal in terms of dividend payment and profitability. Thus it is proposed to lower the corporate tax to 40 per cent.
   The other positive side of last year’s budget was that advance income tax on the profit from government bonds was reduced to 20 per cent from a range of 25-45 per cent.
   The market players think that since this is an easy way for the government to borrow, the taxes should be cut down to 10 per cent to woo investors.
   Capital gain tax on transfer of stocks and shares of foreign/joint-venture private companies has been reduced to 10 per cent from 15 per cent.
   Since it is mandatory for conversion of broker/dealer business into corporations from the existing proprietorship form, brokers and dealers request for exemption of tax on capital gain and 50 per cent reduction of stamp duty.
   There have also been indirect tax incentives for textile and jute sectors for the last couple of years as income tax was reduced to 15 per cent in 2004-05 from 20 per cent and 37.5 per cent respectively.
   However, market players believe that the market has benefited little from this as these companies had dismal performance in terms of paying dividends over the years.
   The fact shows that of 46 companies in the two sectors, 38 were listed in categories B and Z, which pay dividends of less than 10 per cent or no dividends at all.
   On the negative side, market observers think any new taxes either on the corporate sector or on the brokers/dealers may have negative impacts.
   Nevertheless, the general feeling around the bourses is that Saifur, who will be placing the 11th budget of his career, will actually place a budget that would be beneficial for the capital market.

The government has increased its budgetary allocation for agriculture to Tk 1,985 crore for the next fiscal from the current Tk 1,777 crore. The current outlay was Tk 867 crore higher than the allocation in the previous revised budget.
   However, the agriculture ministry — charged with preparing its own budget among other ministries — terms the increase ‘inadequate’ considering the importance of agriculture sector, especially the farm sector.
   In the current budget, the government also doubled farm subsidies to the tune of Tk 600 crore, which was, however, far less than the amount required to cover all the inputs. A large portion of the subsidies were then spent to meet the expenses of an unexpected post-flood rehabilitation programme.
   The subsidy amount may touch Tk 640 crore in the next fiscal, which would presumably turn out to be insufficient, considerin the constraints of the current fiscal. The parliamentary standing on agriculture ministry also demanded an allocation of Tk 2,700 crore as farm subsidy.
   Although the government has given 15 per cent subsidy for electricity consumption in irrigation, the finance minister, M Saifur Rahman, declined despite repeated price hikes of petroleum products.
   ‘This year, we seek area-wise allocations of cash support instead of making a wholesale demand for farm subsidy. We would like to strengthen our research, introduce newer varieties and provide wide-ranging assistance for overall development of this important sector,’ the state minister for agriculture, Mirza Fakhrul Islam Alamgir told New Age.
   However, the mid-term budget framework, which gave the agriculture ministry the authority to prepare its own budget, has tied up the ministry’s hand by making projected allocations of Tk 2,200 crore for 2006-07 fiscal and Tk 2435 crore for 2007-08.
   In addition to 67 projects under the annual development programme, the agriculture ministry undertook 16 programmes during the fiscal. The ministry expects 93 per cent implementation by June 30.
   Eighty-two development projects at an aggregate cost of Tk 1,625 crore under the agriculture ministry have been included in the annual development programme for the next fiscal.
   The percentage of amount earmarked for agriculture development projects in the 2005-06 annual development programme constitutes 4.53 per cent of the development programme for the next fiscal, compared to 3.14 per cent in the current fiscal.
   Apart from this, the government also chalked out 30 projects under the programme for extension and development of fisheries and livestock during the same fiscal. Its implementation stage is unavailable.
   An amount of Tk 546 crore was allocated in the combined development and revenue budget for fisheries and livestock in 2004-05 fiscal.

The minister for finance and planning, M Saifur Rahman, in his 10th budget, offered some incentive packages for export-oriented industries while widen room for import-oriented trade in the current budget.
   The current budget reduced income tax for the textile sector from 20 per cent to 15 per cent to provide support for backward linkage industry in ready-made garments. It was meant to be a cushioning of sorts for the industry which was expected to reel after the quota phase-out as stipulated by the multi-fibre arrangement.
   The outcome of the incentive, as reflected in garment export, appears positive.
   Exports in the knitwear sector — a major consumer of products like yarn — recorded a robust growth of 38 per cent in July-March while the woven sector posted a 3.7 per cent growth during the same period.
   Withdrawal of value added tax collection from insurance, shipping bill and C&F agent’s commission relating to 100 per cent export-oriented industries including garments have also helped the sector to continue its output. The budget also exempted customs duty and value added tax for selected textile machinery to support textile production.
   Reduction of the income tax for jute to induce private sector investment, however got a lukewarm response, probably because the farmers did not have enough incentives to grow jute. Export earnings from the raw jute and jute goods have dropped both in terms of value and volume.
   Cash subsidy for export of agricultural commodities increased to 25 per cent and increased allocation for the promotion for agro-based industries to Tk 100 crore from Tk 50 crore. The tax incentive has had a positive impact as export of agricultural commodities doubled in the nine months of the current fiscal.
   Withdrawal of value added tax at import and manufacturing stages of the leather industry, however, did not receive any significant return as export volume decreased by 14 per cent in nine months while its value increased by 7 per cent.
   Reduction of import duty on CNG-run buses to 7.5 percent resulted in the entry of a large number of such buses into the market mostly from China. But, bus fare remains high.
   Increase in supplementary duty on grey cement to 25 per cent from 15 per cent has discouraged import of cement little as reflected in the import figures. In the July-April period of the current fiscal, letters of credit worth $7.8 million were opened while it was $8.7 million during the same period of the previous fiscal.
   Reduction of supplementary duty on sugar to 15 per cent from 40 per cent has pushed sugar import higher. In July-April, letters of credit opened for importing sugar increased by 20 per cent over the same period of the last fiscal.
   Overall, elimination of value added tax and development surcharge at import stage on different food items has also increased import of food products.

Economist Hossain Zillur Rahman has observed that concentrating on employment generation and strengthening local government would be the two major challenges for the next budget if it is to keep in line with the Poverty Reduction Strategy Paper.
   At the same time, Zillur said a change in the budget preparation mechanism, now very bureaucratic and non-transparent, should be brought about.
   ‘As the PRSP is yet to be finalised, there is limited scope for the PRSP agenda to be reflected in the national budget,’ Zillur told New Age.
   ‘But, some strategic agenda of the PRSP will have to be reflected in the coming budget if the government wants to make the PRSP the focal point of all socio-economic activities in the long run,’ he said.
   He said employment is at the top of the seven strategic agenda fixed in the PRSP and so it is widely expected the finance minister will frame his budgetary measures to promote employment generation.
   ‘Focusing on the rural economy would be a major step in reducing poverty, and the budget can point the way by strengthening local government,’ he added.
   Zillur said the government has shown ‘contradictory behaviour’ on local government. ‘On the one hand, the government says it wants to will bolster the rural economy, but on the other hand the finance minister has expressed his reservations on local government,’ he said.
   ‘How can you expect to boost the rural economy without an effective local government?’ he asked.
   Zillur also rejected certain ministers’ allegations that representatives in the local government are ‘thieves’. ‘The resource allocated for the local government is very small and they have little to do with these resources,’ he said.
   On the budget preparation process, Zillur said the PRSP has suggested forming a technical committee to review different project proposals before including them in the annual development programme.
   ‘The idea is to sieve out projects that are not too high on the priority list in order to check wastage of resources.’
   Zillur also said the budget should have an ‘in-built mechanism’ to track budgetary allocation for different sectors. ‘Already there is a move to have a unified development and revenue budget,’ he said.
   He pointed out that the ‘bureaucratic mindset’ is the major hindrance to making the budget preparation process transparent. He, however, expressed hope that qualitative changes would be brought in soon to make the process more dynamic and accountable.
   Replying to a question on whether he expects the coming budget to be election-centric or not, Zillur said that would be a matter of whether the government abides by certain budget discipline.
   ‘A political government will always try to satisfy voters through different policy measures and the practice is prevalent all over the world,’ Zillur said. ‘But we have to watch whether the budgetary steps go against macroeconomic stability or not.’
   He said if the budget allows projects under suppliers’ credit or excessive bank borrowing to finance the bulk of development programmes, then it would be breaking discipline.
   In this connection, he said ‘block allocation’ is a disturbing feature of the budget and should be withdrawn.

The investment scenario in the next fiscal is likely to be gloomy claims economist Zaid Bakht of the Bangladesh Institute of Development Studies.
   He claimed that most public investment would be politically motivated ahead of the general election scheduled to be held in January 2007, while private investment may fall by the wayside on the back of the IMF-dictated credit-squeezing policy.
   ‘Given the fact that the government has only this budget to declare before the next election, it is most likely that the quality of public investment will be poor as most of the spending will be politically motivated,’ he said.
   ‘The IMF-driven sudden policy shift towards higher interest rate, on the other hand, will definitely have an adverse impact on private investment,’ Zaid said, apprehending that a possible withdrawal of tax-holiday would also have a negative impact on investment.
   According to the Bangladesh Bureau of Statistics, the investment-GDP ratio is projected to increase to 24.02 per cent in 2004-05 compared to 23.15 per cent four years back.
   The trend shows that the share of private investment has increased to 18.53 per cent of the GDP from 16.78 per cent whereas public investment declined from 6.37 per cent to 5.9 per cent of the GDP during the period.
   Zaid said higher credit flow as well as increasing import of capital machineries in 2004-05 reflects that private investment demand got a boost with a lower interest rate regime.
   ‘Did we really need a contractionary monetary policy [to contain inflation] at this moment when the economy only began to steady?’ he asked.
   He said, ‘Obviously high inflation [6.72 per cent in March] is a concern. But it did not reach that alarming a level so that you have to tame it at the cost of investment.’
   ‘We have kept the inflation figure in single digit. I say this is an achievement,’ he said citing that even in Pakistan inflation peaked to double digit figures.
   Zaid said the present inflationary pressure stemmed from supply shocks like increasing trend of price in the international food market and oil prices and severe flooding in 2004. ‘The government should have addressed some of the supply shocks if it really wanted to contain inflation.’
   The economist expressed his doubt about whether a contractionary approach towards credit flow would really be favourable to the economy when the finance minister has already hinted at an ambitious budget for the next fiscal.
   ‘Squeezing credit expansion alongside lofty fiscal expenditure will make things worse,’ said Zaid, an expert on industrialisation and fiscal and monetary policies.
   The next budget is going to be election-centric, he claimed, as this practice is also seen in most countries in the world and Bangladesh is not an exception.
   ‘So we cannot expect quality investment from the government. Most of the spending will be election-oriented that lacks long-term vision,’ he said extrapolating the experience in the past years.
   Moreover, given the ambitious annual development programme, he said any government borrowing from the banking system would crowd out private investment.
   ‘This policy combination would only dampen GDP growth without improving the inflationary pressure,’ he said reasoning that most of the public expenditure would go into unproductive purposes.

The president of the Federation of Bangladesh Chambers of Commerce and Industry, Abdul Awal Mintoo, feels that those responsible for the failure or negligence to implement the national budget should be subject to punishment.
   ‘The budget document, that is the finance bill, is a law when the parliament passes it. And it is the responsibility of everyone concerned within the government to abide by this law, or else punitive measures should be taken against those violating the law,’ he told New Age in a pre-budget interview.
   Serving his second term at the helm of the country’s apex trade body, Mintoo has been advocating for a Fiscal Responsibility and Management Act that could ensure transparency, efficiency and accountability in budget making and implementation.
   ‘It does not make any sense to make hue and cry every time just before the budget session. All aspects of the budget should be made accountable to the parliament and eventually the people,’ he said.
   The federation president criticised the ‘awful performance’ in implementation of the annual development programme and the repeated practice of slashing down its size at the end of the fiscal.
   ‘Our officials have a Pakistan-time mindset of not spending the budgetary money. If you don’t spend the allocated money, the budget does not contribute to national economic activities and does not increase the gross domestic product, depriving the nation of economic benefits,’ he explained.
   Asked about budgetary measures that could attract more investment, the business leader maintained that ‘psychological incentives’ like tax holiday should be meant for particular sectors such as agriculture and backward linkage industries or for backward areas.
   Mintoo also sees a ‘clear mismatch’ in the expansionary fiscal policy vis-ŕ-vis a contractionary monetary policy and stressed the need for ensuring coordination between the two policies. ‘Unless coordination between the two is ensured, it will not be possible to get optimum results from the budget,’ he pointed out.
   About the common suspicion of the coming budget being an election-centric one, he pointed out that a political government has the right to make a budget giving priority to its economic agenda.
   ‘But making allocations on the basis of politically-motivated considerations or geographical distribution of resources in view of constituencies is unjust and no government should do it,’ he added. ‘We are for equitable distribution of resources.’
   At the same time, he said he favours ‘affirmative measures’ for minimising the gap between relatively more developed and backward areas of the country.

The national budget for the 2005-06 fiscal should contain guidelines and necessary allocations for the development of infrastructure to widen the country’s exports, the president of the Dhaka Chamber of Commerce and Industry, Sayeeful Islam, told New Age.
   He is also of the view that the government’s emphasis on export diversification, integrating policies on industries as well as export and import to successfully face the post-MFA challenges should be reflected in the budget.
   ‘This budget should be called the SME (small and medium enterprises) budget,’ Sayeeful said, adding that special incentives should be given for the promotion of the SME sector.
   Sayeeful said the coming budget should include policies and allocations focusing on building infrastructure such as rail, road and port, bringing parity in the facilities being provided in and outside the export processing zones, delivering a clear vision on human resources development, giving priority to technical education and using the government agencies for export promotion, including privatising certain functions of them.
   ‘A major impediment to our industrial growth is the lack of technically sound human resources and that is because of absence of proper vocational training. Certain budgetary measures in this regard can change the entire culture of human resources development,’ he said suggesting that institutions that would invest in human resource development should be provided with incentives or their tax be written off.
   He felt that certain light should be shed on the budget for promoting e-governance so that the information and communications technology (ICT) sector, which has been a failure in Bangladesh so far, can be rejuvenated in a public-private partnership.
   However, instead of raising the tax rates, the Dhaka chamber president favoured checking revenue leakage to tighten collections. ‘We lay emphasise on reducing the system loss in the tax collection so that the government’s revenue earning can automatically increase to an optimum level,’ he added.
   He mentioned that his chamber has put forward a suggestion to the National Board of Revenue urging it to undertake an online self-assessment scheme for paying tax and expressed the chamber’s readiness to provide technical support for registration online.
   Sayeeful underlined the need for giving special focus on the light engineering sector and also agriculture and agro-processing. He cited the example of the poultry sector that flourished in the country within a span of just over a decade ‘from almost zero’.
   In order to exploit the potentials of the agro-processing sector, he recommended the government’s facilitation in the form of standardisation and quality control that could help in expanding Bangladesh’s exports of agri-products.
   Regarding cargo facilities for exporting perishable items, like vegetables and flowers, he pointed out that the government should announce a strategic decision and take measures for developing packaging industries.
   When asked about political consensus on economic issues that could make budget implementation more effective, the DCCI president
   said, ‘Major political parties should forge consensus at least on the economic issues so that business does not
   suffer.’