Critical analysis of the present budget of

Bangladesh and its sectors impacts

Submitted to: Tanvir M H Arif Assistant Professor Department of Finance & Banking University of Chittagong. Submitted by: GROUP I BBA 3rd year (Final Term) Session 2008-2009

NAME Page no Executive Summary Chapter- 01 Introduction Introduction 01 Rational of the study 01

Objective of the study 02 Scope of the study 02 Methodology of the study 02 Limitations of the study 02 Chapter- 02 Body of the term paper Budget 03 Highlights of present budget 06 Analysis of the budget 07 Fiscal Arithmetic cost & revenue 07 Fiscal Arithmetic NBR Tax 08 Fiscal Arithmetic Non-Tax & Non-NBR Tax 09 Fiscal Arithmetic Domestic & Foreign Financing 10 Fiscal Arithmetic all allocation 11-20 Chapter-03 Findings of the study 21 Conclusion 22 Bibliography 22

Chapter- 01 1.1. Introduction

A budget (from old French bougette, purse) is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods. The purpose of budgeting is to provide a forecast of revenues and expenditures, that is, construct a model of how our business might perform financially if

certain strategies, events and plans are carried out & enable the actual financial operation of the business to be measured against the forecast. Fundamentally, the budget of a government is a summary or plan of the intended revenues and expenditures of that government. In this assignment we tried to show that how Government faces the challenges in the field of budget & how they solve it with completeness & how important it is for the economy.

1.2. Objective of the Study

Primary objective The main objective of the study is to analyze the present (FY12-13) budget of Bangladesh & show its impact on different sectors. Secondary objective: The case study has the following objectives: To know about Budget. To know the nature & practice of Budget. Analyze the FY12-13 Bangladesh budget. Impact of the budget in the economy.

1.3. Scope
There were huge scopes to work in the area of this Report. Considering the dead line, and exposure of the paper has been wide-ranging. The study Critical analysis of the present budget of Bangladesh and its sectors impacts has covered overall scenario of macro economy of Bangladesh. It deals with the financial capability, proper investment & measures these qualities. We got a chance to work on the one of the top most document of the government which supplies the forecast information of a present or selected financial year. By doing the assignment, we are able to know that the importance of budget for the government to assess how the government of a country implement the economic planning. In the assignment we have showed how the budget impacts on different sectors.

1.4. Methodology
We have used the concept of the course, information of the report published by the Ministry of Finance. Sources of Data Here the secondary sources of information were used. The secondary sources are: Books. Websites.

1.5. Limitations
While conducting the report on Critical analysis of the present budget of Bangladesh and its sectors impacts, some limitations were yet present there: Because of time shortage many related area cant be focused in depth. Website in different organization of Bangladesh contains poor information. Recent data and information on different activities conducted by Ministry of Finance are restricted. Lack of latest studies of Ministry of Finance in different sector.

Chapter-2 2.1. Budget

A budget (from old French bougette, purse) is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods. In other terms, a budget is an organizational plan stated in monetary terms. In summary, the purpose of budgeting is to: Provide a forecast of revenues and expenditures, that is, construct a model of how our business might perform financially if certain strategies, events and plans are carried out.

 Enable the actual financial operation of the business to be measured against the forecast. A government budget is a legal document that is often passed by the legislature, and approved by the chief executive-or president. For example, only certain types of revenue may be imposed and collected. Property tax is frequently the basis for municipal and county revenues, while sales tax and/or income tax are the basis for state revenues, and income tax and corporate tax are the basis for national revenues. The two basic elements of any budget are the revenues and expenses. In the case of the government, revenues are derived primarily from taxes. Government expenses include spending on current goods and services, which economists call government consumption; government investment expenditures such as infrastructure investment or research expenditure; and transfer payments like unemployment or retirement benefits.
Non-Development & Development budget: 2012-2013 (TK 1,91,738 crore) Resources coming from

Foreign Grants, Foreign Loan, 6.50% 3.20% Domestic Financing, 17.50%

Non-Tax Revenue, 11.90%Tax Revenue (Non-NBR), 2.40%

Tax Revenue (NBR), 58.50%

Tax Revenue (NBR) Domestic Financing

Tax Revenue (Non-NBR) Foreign Loan

Non-Tax Revenue Foreign Grants

Chart-I: Income segment of Budget (FY12-13) of Bangladesh (In percentage) Chart-II: Expense segment of Budget (FY12-13) of Bangladesh (In percentage) 2.2. Highlights of Present Budget of FY12-13

Bangladesh has found its 42nd budget in this fiscal year known as FY12-13. With lots of hopes Finance Minister Abul Maal A Muhith announced the 42nd Bangladesh National Budget in the parliament on 7th June, 2012 for the year 2012-13. With lots of investment scope & with the priority of power, energy and agriculture sector present government announced their budget. This budget is passed on 30th June, 2012 & implemented from 1st July, 2012 for FY12-13.

2.3. Budget Summary

(in core) Description Revenue and Foreign Grants Revenues (Statement I) Tax Revenue NBR Tax Revenue 1 Non-NBR Tax Revenue 2012-13 1,39,670 1,16,824 1,12,259 4,565 22,846 6,044 Total Expenditure Non-Development Expenditure Non-Development Revenue Expenditure (Statement III) of which Domestic Interest Foreign Interest 21,604 1,698 12,179 358 19,568 0 60,137 1,225 2,473 55,000 1,439 1,91,738 -46,024 -4.4 1,11,675 99,496 1,45,714

Non-Tax Revenue Foreign Grants/1 (Statement V)

Non-Development Capital Expenditure/2 (Statement IV) Net Outlay for Food Account Operation (Statement VIII) Loans & Advances (Net)/3 (Statement VIA) Structural Adjustment Expenditure (Statement VIA) Development Expenditure Development Programmes Financed from Revenue Budget/ Non-ADP Project (Statement VA) Annual Development Programme (Statement IX) (Statement IV)

Non-ADP FFW and Transfer/5 (Statement X) Total Expenditure : Overall Deficit (Including Grants) : (In percent of GDP) :

Overall Deficit (Excluding Grants) : (In percent of GDP) :

-52,068 -5.0

Description Financing Foreign Borrowing-Net Foreign Borrowing (Statement V) Amortization (Statement IX)

(in core) 12,540 20,398 -7,858 33,484 23,000 18,400 4600 10848 7,400 3,084 46,024 Total financing

Domestic Borrowing (Statement VIB) Borrowing from Banking System (Net Long-Term Debt (Net) Short-Term Debt (Net)

Non-Bank Borrowing (Net) National Savings Schemes (Net) Others/6 (Statement VII)

Memorandum Item:

GDP

10,41,360

EXPLANATORY NOTES:

1. Grants have been grouped together with government revenues as they

are unrequited receipts from development partners;

2. Expenditure for acquisition of assets, acquisition of land, construction and

works, and investment in shares and equities etc. have been included in NonDevelopment Capital Expenditure;
3. Loans and Advances to state-owned enterprises/autonomous bodies and

government employees minus repayment of loans and advances have been shown as Loans and Advances (Net);
4. This group includes some development programmes that are financed

from Revenue Budget but not included in the ADP;

5. Transfer of sale proceeds from food grains received under the agreement

with development partners & part of Food For Works (FFW) programme which are not included in the ADP have been shown under this category;
6. Net increase/Decrease in the Public Accounts of the Republic (excluding

National Savings Schemes) has been included in this group.

2.4. Analysis of the Budget

The present Budget of Bangladesh for the year FY 12-13 has been presented at a time when the Bangladeshi economy is heading towards a high growth trajectory, albeit certain challenges such as elevated inflation, high Current Account Deficit (CAD), and moderating growth of industrial production, lack of capital investment, poor level of power & energy, low level of liquidity, etc. At the current juncture, what was required from the Budget was to address the issue of inflation and support growth momentum, while maintaining the focus on fiscal consolidation and continuing ahead on the reform agenda. Increased allocation of planned resources towards infrastructure projects along with the proposals to direct foreign funds and private saving towards infrastructure sector will unlock much of the growth potential of the sector. Although the continued force on infrastructure along with power & energy, agriculture and education sectors is expected to provide significant impetus to economic growth in the medium-term, measures to control inflation in the immediate future were missing in the budget announcements. On the fiscal deficit front, the budgeted fiscal deficit is 4.4% of GDP (including grants) where 5.0% of GDP (excluding grants) for FY12-13. This indicates government will face lot of trouble in near future. This can be reduce through increasing Tax revenue, reduce debt service liability and etc. 2.4.1. Fiscal Arithmetic (Revenue) for FY12-13 In FY 2012-13, total revenue has been estimated Tk.1,45,714 crore in which tax revenue and non-tax revenue are Tk.1,16,824 crore and Tk. 22,846 crore respectively which is 22 percent higher than the previous fiscal year. In prevailing economic situation it is difficult for government to collect the targeted revenue. In FY 2010-11, the collection of total revenue, tax revenue and non-tax revenue, was Tk. 98,457 crore, Tk. 82,321 crore the previous fiscal year). 2.4.2. Fiscal Arithmetic (Cost) for FY12-13 For FY12-13, total expenditure is budgeted 1,91,738 crore Taka as compared to the revised estimates (RE) of 1,61,213 crore Taka for FY11-12. As in the last budget, the Non-development expenditure received a major boost with an and Tk. 16,136 crore respectively (22.43 percent, 26.86 percent and 3.92 percent respectively up on

allocation of 1,11, 675 crore Taka,

where it was 1,00,985 crore Taka in the

FY11-12 RE. The development expenditure, however, is budgeted to register a great increase compared to the revised estimates of FY11-12. 2.4.3. Fiscal Arithmetic (Domestic Financing) for FY12-13 Overall budget deficit will reach to Tk. 52,068 Crore, which is 5.0 percent of GDP out of which Tk. 33,484 Crore from internal sources. Of domestic financing, Tk. 23,000 Crore will come from the banking sector & Tk. 10,484 Crore from the non-banking sources. Impact: The current Govt. is trying to meet up the maximum portion of budget deficit around 60% from its internal sources that are from within the country. At the same time the Govt. has started taking huge amount of loan from the banking sector which is too alarming situation for our economy to control. 2.4.4. Fiscal Arithmetic (Foreign Financing) for FY12-13 This is the combination of both foreign loan & foreign grants of the budget. Foreign loan is refundable financing where foreign grant is not refundable. Overall budget deficit will reach to Tk. 52,068 Crore, which is 5.0 percent of GDP. foreign financing, Tk. 12,540 Crore will come from the foreign loan. The present budget proposes to collect 20,398 Crore Taka from the foreign loan section where 7,858 Core Taka will be paid in the budget for FY 2012-13. Impact: The amount of foreign loan has been increased compared to FY 11-12 RE which indicates that poor economic situation. A positive signal from the Govt. is that the rate of paying back loan amount has increased which indicates that Govt. is trying to finance the budget deficit from the internal source thats may reduce the countrys dependence on foreign loans. At the same time the Govt. is getting more subsidies from foreign countries like World Banks climate fund which is made by developed countries.

2.5. Budget for sectors and impacts

2.5.1. Agriculture

Allocation for agriculture and allied sectors in FY201213 national budget (Nondevelopment and development) is Tk. 14,457 crore, which is 0.77% higher than the revised budget of FY201112 and 15% higher than that of the proposed budget of FY 2011-12. Agriculture and allied sectors allocation as a percentage of total in FY2012-13 is 7.54%, while the figure stood at 8.90% in the revised budget of FY 2011-12 and 7.65% in the proposed budget of FY2011-12. Percentage of agricultural expenditure as a percentage of total expenditure has been on a decreasing trend since FY2009-10. Impact: The amount of subsidy in agriculture sector has decreased which is a positive sign for our total economy because we are dependent on agriculture. This decreasing expense of subsidy may help to reduce the amount of deficit of the total budget. At the same time the poor farmers may face financial problem because govt. reducing subsidy which may result in less production of agriculture goods. Govt. also taken the policy of one house one firm, developed farmer club for the purpose of making the country self sufficient in food by 2013. 2.5.2. Power & Energy Although government are trying solve the issue about the power sector but failed to conduct that that due to system defective. Total allocation for the power sector in FY 2013 is 7901.3 crore Taka which is 9.6% higher than RADP 12 and 58.2% higher than ADP 12 Six new projects with an allocation of Tk.3290.9 crore 33 projects without any allocation, earmarked for financing through foreign funds (Projected cost 46664.2 crore) Implementation of different power sector projects: mixed To be completed on time: rehabilitation and modernization of Ghorasal Thermal Power Station and Construction of Chandpur 150 MW C. Cycle Power Plant. Delayed projects: 820 MW peaking power plant; Bheramara combined cycle plant (360 MW).

Impact: Developing power plant for meeting up electricity may be a good but initiative

these plants are dependent on oil, coal etc which is more expensive and will reduce the amount of our natural resources. So government must concentrate on less expensive plant on long term basis like air based plant, solar based plant, nuclear plant etc. Government already reduced tax on solar plant products, started conversation with China & Russia for nuclear plant for support in long term. 2.5.3. Industrial & Economic Total allocation for the industrial sector in ADP13 is 2066.7 crore taka which is 113.3% higher compared to the RADP12. However, one single project accounts for 70.2% of total allocation(i.e. Shahjalal Fertilizer Project). Poor project implementation remains a major concern. Out of 18 projects under the industrial sector to be completed in 2013. 15 projects will most likely not be completed on time (implementation rate: 18%89%). Projects on strengthening and modernization of BSTI and establishment of SARSO will not be completed on time (only 10% of four projects will be spent at the end of FY13). Various projects related to strengthening national database under the BBS received special focus during FY 2013. A number of trade support programme is currently underway which will be continued in FY13. A comprehensive trade policy commensurate with the industrial policy should be adopted soon. Garment Industry Park proposed to be established under the PPP should be initiated soon so that it is completed as per the timeline (June, 2015). Impact: * Proposed rise of SD on imported fabric (20% to 45%) is likely to make domestic textiles more competitive. Although different project has been taken but

necessary allocation is required for land and infrastructure development. For different steps taken by the govt. will increase the aggregate amount of export along with the support of ICT. An effective policy is needed to form a framework to avoid clash between the owner and worker of the industry. 2.5.4. Education & Information Technology The Finance Minister has proposed an allocation of Tk. 21408 crore in the budget for FY 2012-13, development and non-development combined, for the Ministry of Education and Ministry of Primary and Mass education. This allocation is 11.17 percent of the national budget of FY 2012-13 and 8.09 percent and 16.6 percent higher than that of the proposed budget and revised of FY 2011-12 respectively. It is a matter of fact that the overall allocation in education sector in FY 2011-12 could not pave the path for achieving the targets due to poor implementation status.

Impact: The government is trying to develop skill manpower. For this instant they will introduce compulsory computer & technical education for secondary level by 2013. Government also taking other steps but to make real man power the government must influence research sector in university level. Government must take initiative to manage its loan for the betterment of our economy. 2.5.5. Health Allocation for FY13: Tk. 9,333 crore (4.86% of total budget) where as the allocation for FY12 was Tk. 8869 crore (5.4% of total budget). About 0.90% in

terms of share of GDP; lower than previous years 1% share of GDP. In the current ADP, 7.54% of total allocation has been proposed for the health, nutrition, population & family welfare sector to improve the health quality of poor city dwellers, primary health care service is being provided through 27 urban maternity clinics, 167 urban health centers and 656 satellite clinics. Moreover, 30 percent of this services delivered free of cost.

Impact: Steps has been taken by government is good but the government must try to provide health benefits to the rural area and poor people because they are still deprived of health benefit of the government. 2.5.6. Gender In FY13, gender related expenditures Tk. 50,344 crore which is about 26.26% of total budget. In FY12, it was 26.4% of total budget. Allocation for Ministry of Women and Child Affairs is 0.68% of total budget in FY13. In FY12, it was 0.78% of total budget. Gender budget for 25 ministries is presented this year. Last year, it was for 20 ministries. New Initiatives for Women Entrepreneurs: Desk for women entrepreneurs in all bank and nonbank financial institutions. At least 15% of refinancing scheme is allocated for the women entrepreneurs.

Collateralfree loan programme up to Tk. 25 lakh for women. sum allocation of Tk. 100 crore for the women entrepreneurs.

Lump

General Initiatives for Women: Allocation for allowance of Tk. 331.20 crore for 9,20,000 widows and divorced/abandoned women (Tk. 300 /month). Continued VGD progarmme for women (monthly 30 kg of food grains). Draft Hindu Marriage Registration Act 2012 has now been framed. Income threshold for women Tk. 2,00,000 instead of Tk. 1,80,000. Diminishing share of children in the budget: Investing in children is equivalent to investing in the future. Allocations going for children declined over the years. 3.6% of total budget in FY13 (this was 4.1% in FY11, 4.6% in FY06). 0.7% of GDP in FY13 (this remained unchanged at 0.7%). Figures include both development projects and safety net programmes from nondevelopment budget. Projects concerning children directly and indirectly are included in the calculations. For example, projects for maternal health are included as these can indirectly affect the childs health. 2.5.7. Local Government & Rural Development The allotment for this sector in budget of FY 2012-2013 is TK.14,215 crore (7.4% of total budget). This amount will be sub-divided into three sectors 1. Local Government Division- TK. 12,433 Non-Development- TK. 1618 crore Development- TK. 10815 crore

2. Rural Development & Cooperative Division- TK. 1,112 crore Non- Development- TK. 244 crore Development- TK. 868 crore

3. Ministry of Chittagong Hill Tacks- TK. 670 crore

Non- Development- TK. 251 crore Development- TK. 419 crore

Local Government Government has rightly recognized that there is no alternative to strengthening the local government system for successful public service delivery. The Budget FY2013 talks of steps taken to make the Union Parishad and the Upazila Parishad effective with the enactment of the Upazila Parishad Act 2011. However, the present government could not make much headway with respect to reforms during the current tenure. FY201213 budget did not come up with a more transparent system for intergovernmental budgetary transfers. Additionally, the FY201213 budget does not deal with property tax base reforms in order to strengthen the financial autonomy of city corporations and municipalities. FY201213 Budget should have proposed a timeline and institutional framework for designing modalities with the objective of moving towards a district budget. Rural Development & Cooperative Division: This is one of the most important sectors for our economy. Because 80% people of our country live in village. So, if we want to develop our country, we have to develop our villages. Development of villages requires availability of electricity & gasses, and proper transportation system which require a huge amount of money. But I think the allotted amount is not enough to ensure the development of villages. So the amount should be increased. 2.5.8. Social Safety Over the years, governments have proposed budgets for social security and welfare sectors. For the FY 2012-13, the government has proposed Tk. 109,810 million for social security and welfare sector. If the trend is examined, it can be seen that the proposed allocation for the social security and welfare sector has a negative revision in most of the period during FY 2006-07 to 2012-13. By calculating weighted mean, it can be predicted that the proposed Tk. 109,810 million in FY 2012-13 may remain approximately Tk. 108,321 million as revised

allocation. A large number of programmes have been initiated over the last few years in order to uplift the livelihood of poor people. Government has initiated different safety net programmes for improving social security and to protect the poor. In order to do so, there are cash transfer programmes, social empowerment programmes, food security programmes and micro credit programmes as well.

Impact: The existing cash and food transfer programmes in safety nets may reduce starvation rate of limited number of people in some specific times but for improving social security situation (in its comprehensive sense) more specific measures addressing long term vulnerability must be taken. Moreover, the problem of limited scale and population monitoring. coverage of SSNPs may initiate problems of leakage and misallocation which may go undetected because of inadequate programme

2.5.9. Miscellaneous Expenditure Government 12. Chapter-03 Findings and conclusion 3.1. Finding of the Study The intension of this study is to know about Critical analysis of the present budget of Bangladesh and its sectors impacts. The major findings of the overall study are discussed below: Analysis of the budget of FY12-13 compare to last fiscal year. Segmentation of Income and Expense. Impacts of different decision Financial arithmetic of different sectors Know about the amount of budget deficits & its financing sources. Financing tendency of the government during this fiscal year. 3.2. Conclusion Budget shows the government revenue & expenditure (Investment) project for a given fiscal year (FY 12-13). It has 20 sectors including revenue & expenditure. Every sectors & government sanction for these sectors are based on experience current need, social needs & economical needs. Most of the case the sanction is governments policy variable. Through budget we can know in which sector government emphasis most that is the most important sector to the government. This is also based on mathematical mechanism used by the economist & financial analyst. In budget its shows that people are willing to pay VAT for development of the country which represents a good trend of our economy. The amount of Non Tax revenue has increased that may bring strong economy. In budget FY12-13 the government has increased in some sectors and decreased in some other sectors rather than the previous year FY11-12 actual budget. But the above allocation in some cases is higher than the reversed proposes a total allocation of 11.7% for FY2012-13 for miscellaneous expense. This rate is higher than from the budget 9.3% of FY11-

budget of FY11-12 RE. The current Govt. is trying to meet up the maximum portion of budget deficit around 60% from its internal sources that are from within the country. Taking huge amount of loan from the banking sector is alarming situation for economy. A positive signal is that the rate of paying back loan amount has increased. Bibliography Articles 2012. Web Sites 1. www.mof.gov.bd 2. www.en.wikipedia.org 3. www.nbr-bd.org Abul Maal Abdul Muhith; Budget Speech; FY 2012-13. (Ministry of The Daily Star, Budget Special published on friday, June 08, Finance, Government of the peoples republic of Bangladesh).