A fork in the path: growth or contraction?by Rashed Al Mahmud Titumir
ADP allocation in agriculture, rural development, rural institutions and water resources were increased in the past three years. However, questions have been raised about its implementation. The largest allocation has gone to non-development sectors, leaving a meagre amount for development spending. Whereas it is essential to increase development allocation to raise productivity and profitability, reduce instability, and increase resource-use efficiency, 85 per cent of the total agriculture-related budget was allocated for non-development sectors in FY2009-10, 84 per cent in FY2010-11 and 85 per cent in FY2011-12.
The incumbent government has pledged enhanced availability of subsidy and credit for the agricultural sector. A simplification of the lending procedure for farmers has been proposed. Subsidy in agriculture has been increased to more than 2.5 times, 2 times, 2.5 times and 2 times (revised budget 2011-12) in FY2008-09, FY2009-10, FY2010-11 and FY2011-12 respectively as compared to FY2007-2008. Consequently, the target for agricultural credit disbursement and recovery has increased. The credit target for the agriculture sector increased by 22.74 per cent in FY2009-10, 34.52 per cent in FY2010-11 and 47.13 per cent in FY2011-12 compared to FY2008-09.
Chemical fertilisers are one of the main inputs for crop production in Bangladesh. The subsidies on chemical fertilisers follow an increasing trend in the agriculture budget allocation. It is also found that the rate of subsidy in the agriculture sector increased significantly after the fiscal year 2001-02. In 1999-00, a small portion of the subsidy (15%) was allocated to chemical fertilisers, whereas in 2007-08 it reached 66 per cent. Subsidy on chemical fertilisers has increased by 51 per cent in the past 8 years due to special attention on increased food production. Similar trends can also be seen in the past three budgets.
Bangladesh still has a very low level of nutrition as a whole. According to the World Bank, in 2008 approximately 33 million of the 150 million people in Bangladesh could not afford an average daily intake of more than 1,800 kilocalories. For people in most of the developing countries, the daily kilocalorie intake average is 2,828 kilocalories. Therefore, it is imperative to increase food production in order to meet the growing demand. At the same time, the price needs to be within an accessible limit for the poor while a fair price is offered to the local farmers.
DUE to shortage of gas and electricity, the industrial sector, especially medium and large industries, has been adversely affected. In January 2012, the quantum index of medium and large-scale manufacturing industries was 603.69 which was only 0.83 per cent higher than that of previous month.
Disbursement and recovery of industrial term loans has increased gradually since FY2000-01. In FY 2010-11, disbursement and recovery of industrial term loans stood at Tk 321,632 million and Tk 250,158.9 million respectively. These were 31.34 per cent and 29.58 per cent higher than those of the previous fiscal year. If the current trend prevails, in FY2011-12 the disbursement of loans might reach Tk 348,092.1 million which will only be 8.22 per cent higher than that of FY2010-11. This might be the second lowest growth in the past 12 years.
As a proxy for measuring investment, imports of capital goods and other intermediate goods can be used since the sector is dependent on imported machineries. The growth rate of total imports came down to 7.54 per cent in July-February of FY2011-12 from the corresponding period of the previous FY2010-11. The shortage in supply of foreign exchange and the depreciation of the taka, coupled with liquidity problems of banks along with tightening monetary measures by the central bank, have caused the decline in import orders during this period.
Growth of any sector depends on availability of road, electricity, gas, etc. However, the scenario of the past three years has been dismal in this regard. The shortage of electricity and gas connectivity has not only hindered the existing industrial production but deterred new investment.
In a developing country like Bangladesh, maintaining growth and price stability are the major challenges of macroeconomic policymaking where industrialisation is a crucial precondition for rapid and sustainable economic development and social advancement. Diversification of growth can be achieved by accelerating diversification of markets and products.
A CREDIBLE and realistic demand forecast is necessary for any country. The Power Development Board has no clue about actual power demand and consumption. The actual demand for power is much higher than what the board states. In 2009, when the present government took over, the reported demand was 5,500 megawatts against a total generation of 3,500MW. If in three years demand grew by 1,500MW it would be 7,000MW and if the government has added 3,000MW the generation should be 6,500MW. If all the figures are correct, 500MW of national deficit must not create any panic. But if it is not so, there must be something wrong somewhere.
However, maximum generation has failed to reach the installed capacity over the years. In FY2000-01, the total installed capacity was 4,005MW and maximum generation was 3,033MW. Both installed capacity and maximum generation have slightly increased over time. Installed capacity as well as maximum generation has increased at a decreasing rate compared to FY2002-03. The growth rate of installed capacity was higher in FY2010-11 (11.38 per cent) whereas the growth rate of maximum generation was higher in FY2007-08 (11.08 per cent).
The real demand for electricity could not be met due to the shortage of available generation capacity. A good number of generation units have become antiquated and have been operating at reduced capacity. As a result, their reliability and productivity are also poor. Besides this, a shortage in the supply of gas has resulted in some power plants being unable to utilise their generation capacity. Therefore, load-shedding has increased over the years.
The average maximum demand for electricity was 3,970MW in 2007 which has increased to 4,833MW in 2011 (May) with an average increasing rate of 216MW per annum. Under the business as usual scenario, the average demand should stand at 5,696MW by 2015. The average generation was 3,378MW in 2007, which increased to 4,103MW in 2011 (May) with an annual average increase of 181MW. Continuation of this rate indicates that the average generation would be 4,828MW by 2015, which is far from the vision of 11,500MW generation by 2015. This increased demand over generation has resulted in increased load shedding. Additionally, the average load shedding has increased to 656MW in 2011 (May) with an average rate of increase of 35MW per year starting from 2007. If this increasing rate remains the same, the average load shedding is expected to stand at 795MW by 2015.
The government has proposed an allocation of Tk 83,110 million (development and non-development combined) for FY2011-2012. This allocation is 15 per cent higher than the revised budget of the last fiscal year (2010-11). However, allocation for the power sector is not properly utilised and managed. The reduction in the revised budget has occurred at a time when the government is committed to ensuring electricity for all by 2021.
Ensuring power supply to all is largely dependent not only on budgetary allocation but also on proper implementation. One of the major problems of the ADP is its poor implementation status. In the current fiscal year (FY2011-12), 59 per cent of the total allocated ADP was implemented during the past eight months (July to February) and the remaining 41 per cent (i.e. Tk 29,189.3 million) has to be implemented within the next four months. Under the business as usual scenario, another 29.5 per cent of the allocated ADP might be implemented in the remaining time of this fiscal year.
It is relevant to remember that the government in February 2011 hiked the power tariff by 5 per cent while it increased bulk price of power by 33.57 per cent in November 2011 to reduce government subsidy to the power sector. Furthermore, retail electricity price has been adjusted upward on average by Tk 0.30 or 6.25 per cent per unit and the hike will take retroactive effect from March 1, 2012. If the government tries to reduce the subsidy in the power sector by increasing the price of power (as suggested by the IMF-MEFP), it will definitely lead to an acceleration of inflation and bring more suffering to the public.
Providing access to affordable and reliable electricity to all citizens by 2021 is a befitting national goal of the government. Despite considerable thrust on reducing the gap between the demand and supply of electricity, a significant number of people still do not have access to electricity. However, 49 per cent of its population has access to electricity. Therefore, it may be quite ambitious to provide affordable electricity to all by 2021. Nonetheless, achieving such a target within the time limit is a fundamental challenge for the country.
IN BANGLADESH, the public health system does not exist at a satisfactory level. The doctor-population, doctor-nurse, nurse-population ratios are still far away from acceptable levels. Additionally, spatial inequality and soaring price of essential food commodities make it difficult to achieve the desired targets related to health. Although there are some progresses in the health sector, challenges are there.
The reduction in subsidy in the health sector will make it more difficult to get minimum health services to the poor people. Furthermore, soaring price of essential food commodities can compel the people to reduce the quantity and quality of their food as well as change their consumption patterns. This is likely to have serious short- and long-term health and nutritional impacts on the citizens, resulting in lower achievements of health-related indicators.
Infant mortality is a key indicator that shows a country’s health situation. Bangladesh has made good progress in reducing infant mortality over the past few years. Infant mortality has decreased from 58 per 1000 live births in 2000 to 39 per 1000 live births in 2009 with an annual reduction rate of 3.6 per cent at the national level. This rate of decrease was 1.8 percent in urban areas and 3.9 per cent in rural areas. The possible reasons for the slower improvement in case of infant mortality in urban areas compared to rural areas might be the rural-urban migration. More specifically, poor rural people are moving towards urban areas for various income-generating activities and living in slums or other areas (like footpath, railway station, roadside, etc).
Although Bangladesh has made some progress in reducing maternal mortality but it is still one of the highest in the world. The maternal mortality ratio has decreased from 4.44 per 1000 live births in 1996 to 3.37 per 1000 live births in 2006 with an annual reduction of 2.4 per cent at the national level. On the other hand, it has decreased from 4.50 per 1000 live births to 3.75 per 1000 live births in rural areas during the same period with an annual reduction of 1.7 per cent and the annual rate of reduction of 4.8 per cent in urban areas during the same period. More specifically, it is observed that reduction of maternal mortality in urban areas has occurred with a faster rate than that of the rural areas.
Ensuring better health facilities is largely dependent not only on the proper budgetary allocation but also on the proper implementation. Public allocation for the health sector is not adequate and is not properly utilised and managed. In the budget of FY2011-12, the proposed allocation for the health sector was Tk 88,890 million (including development and non-development budget), which was 5.43 per cent of the total budget. Still, it is far from the proposed allocation (from 7 per cent to 12 per cent) of the total budget mentioned in the draft national health policy.
THE gap between actual budget allocation in education and the target of the government articulated in the MTBF is on the rise and might grow sharply in the upcoming years. Though the government has set education as a prioritised sector, education budget as a percentage of the national budget has decreased in the present fiscal year compared to the previous fiscal year. The public expenditure on education as a percentage of the GDP has decreased in the current FY compared to the last fiscal year. Excessive subsidy to the power sector is crowding out ADP allocation for the education sector. FY2011-12 has witnessed a downward trend of ADP allocation in the entire social sector in the national budget and it might be continuing. It is a matter of fact that the overall allocation in the education sector in FY2011-12 might not pave the path for achieving the targets due to poor implementation status.
With a view to attaining 100 per cent net enrolment at primary level by 2011 and 100 per cent adult literacy by 2017, and making degree-level education free by 2013 following the guidelines of the National Education Policy 2010, the finance minister proposed an allocation of Tk 19,806 crore in the budget for FY2011-12, development and non-development combined, for the Ministry of Education and Ministry of Primary and Mass Education. This allocation is 12.11 per cent of the national budget of FY2011-12 and 9.14 percent higher than that of the revised budget of FY2010-11.
In 2011-12, the education budget of Bangladesh is Tk 19,806 crore and the GDP is Tk 787,495 crore. Thus, public expenditure on education as a percentage of the GDP is 2.2 per cent. In FY2011-12, public expenditure on education as a percentage of the GDP is 10 percentage points, less than that of FY2010-11.
The excessive subsidy to the power sector is crowding out the ADP allocation on social sectors particularly in the education sector. FY2011-12 has witnessed a downward allocation in the social sector in the national budget. The education sector was provided with an allocation of Tk 4,543.26 crore in the ADP in FY2011-12 that is 2.2 per cent less than that of the proposed ADP and 4.96 percent less than that of the revised ADP allocation of FY2010-11. Total expenditure in education from July to March 2012 is Tk 2,626.5 crore that is only 57.81 per cent of the total allocation. However, implementation of the ADP was only 57.81 per cent during last nine months exhibiting the poor ADP implementation status in the education sector in FY2011-12.
THE concept of gender budgeting was first initiated from the fiscal year 2005-2006 with a view to shaping the government’s policies to address women’s needs and to achieve gender equality in broader perspectives.
With the purpose of initiating a budget process, the upcoming budget declaration must take an insight on pathway towards effective and appropriate gender responsive budget. Adequate allocations for women together with proper implementation mechanism in the national budget are essential prerequisites in achieving the targets of gender equality and equity.
To be continued
Rashed Al Mahmud Titumir is chairperson of Unnayan Onneshan, a multidisciplinary think-tank based in Dhaka. This is the first chapter of the book titled, Growth or Contraction? State of Bangladesh Economy and Development, 2011–2012, published ahead of the declaration of the national budget for the coming fiscal year by Shrabon Prokashoni, Dhaka.
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