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A Rapid Assessment of National Budget 2019-20 June 2019

The Unnayan Onneshan (UO), an independent multidisciplinary think-tank, finds that the proposed budget for FY 2019-20 lacks measures necessary to address the looming macroeconomic imbalances.

“Widespread imbalances in revenue, financial and external sectors and disproportionate burden on the income and welfare of the common people are creating challenges and sloppy condition for the economy with an impending crisis which is looming large,” says the organization in its rapid assessment of the proposed national budget for the FY 2019-20.

There is revenue imbalance with rising expenditure and falling income, which is leading to increased deficit. The significant gap between targeted revenues and collected revenues is making the economy prone to severe debt crisis since loans are getting unsustainably higher.

The rate at which import payment increases do not match the rate of export earnings, which is creating a current account deficit. The amount of external loans is increasing but these are not being repaid now. When repayment will start, it will negatively affect the overall balance of payment, which may also slide the economy into a debt trap,” added the report.

Suggesting that the official figure of GDP growth rate is grossly overestimated and noting that the governments in many developing countries tend to engineer growth statistics to inflate the performance of the economy, the Unnayan Onneshan cites a recent study on India by its former chief economist Arvind Subramanian, which states that the country’s actual GDP growth rate is 2.5% lower than the official estimation.

“If a similar study is done in Bangladesh, GDP growth rate will be lower by 2.5% to the level of 5-6%, which is the auto-pilot growth rate for Bangladesh, given the consumption level maintained by remittance from migration to cities and abroad”, the report said. Considering stagnant remittance income and declining consumption, the current official rate of GDP growth is nothing but highly inflated masking the real scenario of the economy, added the report.

Referring to the heavy dependence of the tax structure on Value Added Taxes (VAT), the Unnayan Onneshan says that the burden of this indirect tax is on the ordinary people while tax exemption and tax evasion for the upper classes have become the norm. “The ordinary taxpayers are working as the main sources of debt repayment and development,” adds the report.

Even though the general public carries the burden of taxation, they are not getting satisfactory public services, the Unnayan Onneshan points out that the quality of education and health is highly substandard and other services like safe drinking water, sanitation, rural electricity and related public service facilities are far from being adequate.

The Unnayan Onneshan notes of a disturbing trend of deceleration in the rate of reduction of poverty. According to the BBS, the reduction in poverty has slowed down to 1.2 percentage points during the period of 2010-2016 from 1.7 percentages points of the period of 2005-2010.

The organization measures the income elasticity of poverty, which indicates the magnitude of the effect of per capita income growth in reducing the rate of poverty in percentage terms, and finds that the country has experienced lowest rate of decline in poverty despite a higher rate of growth in income among South Asian countries.

Referring to the worsening unemployment rate, the Unnayan Onneshan notes that large number of people are losing their income which has implications for the reduced standard of living. Currently, there are 1 lakh 29 thousand job vacancies for the job seekers in the industrial sectors against 20-22 lakh job seeking people. The HIES data show that the rate of calorie intake has decreased by 5%, making it 2210 kilocalorie in 2016 from 2318 kilocalorie in 2010.

Turning to inequality, the Unnayan Onneshan observed that the rate of income inequality is increasing at an alarming pace. In 2016, the Gini coefficient has risen to 0.483 from 0.458 in 2010. In 2016, the share of income of the poorest 10% of people has decreased to 1.01% which was 2% in 2010.

“Inequality has widened on the back of the gap between return on capital and return on labour on the one hand and the persistent primitive accumulation in different sectors of the economy on the other”, adds the report.

Pointing to the dismal state of the increased default loan, the Unnayan Onneshan says that the tax money is paid by the ordinary people to resolve the fiasco of the banking sector that disproportionately benefits the wealthy and powerful groups.

Questioning the allocation pattern and about the quality provision of expenditure in the development sector, it observes that the state finances are being usurped by the clientele.

It asks for a vigilant look into the falling investment demand since any further decline in the private investment is assumed to significantly slow down the economy.

“Macroeconomic stimuli are required to ensure pro-poor growth by generating employment opportunities in the economy. Besides, an increased allocation of resources and implementation of development programmes in health and education sectors must be ensured, while the social safety net programmes have to be transformed into of a sustained system of social security”, suggest the research organisation.

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