A Set of Proposals for the National Budget FY2014 -...

ASetofProposalsfortheNationalBudgetFY2014

PreparedbytheCentreforPolicyDialogue(CPD)

PreparedundertheprogrammeIndependentReviewofBangladesh’sDevelopment(IRBD)

oftheCentreforPolicyDialogue(CPD)

Releasedtothemediaon20April2013

CPD (2013): A Set of Proposals for the National Budget FY2014 2

Contents

Section1: Introduction:TheContext...........................................................................................................5

Section2: MacroeconomicBackdropintheRun‐uptotheNationalBudgetforFY2014......6

Section3: DeliveryoftheBudgetFY2013..............................................................................................13

Section4: ContinuationofLowInvestmentandItsImplicationforGrowth...........................15

Section5: FinancingofPadmaBridgeProject:ImplicationsforADPFY2014........................19

Section6: CurrentStateofthePowerandEnergySectorofBangladesh..................................21

Section7: SupporttoRuralEconomy.......................................................................................................24

Section8: GlobalEnvironment:ImplicationsforBangladesh’sExport......................................27

Section9: ImplementationChallengesoftheUpcomingBudget..................................................29


CPDIRBD2013TeamDrFahmidaKhatun,ResearchDirector,CPDwasinoverallchargeofpreparingthisreportastheTeamLeader.Lead contributions were provided by Professor Mustafizur Rahman, Executive Director; DrDebapriya Bhattacharya, Distinguished Fellow; Dr Khondaker Golam Moazzem, AdditionalDirector(Research)and,MrTowfiqulIslamKhan,ResearchFellow,CPD.ValuableresearchsupportwasreceivedfromMsKhaledaAkhter,SeniorResearchAssociate;MrMazbahul Golam Ahamad, Senior Research Associate; Mr Kishore Kumer Basak, ResearchAssociate;MrMd.ZafarSadique,ResearchAssociate;MsMehruna IslamChowdhury,ResearchAssociate;MrMashfiqueIbneAkbar,ResearchAssociate;MsMeherunNesa,ResearchAssociate;MrF.I.M.MuktadirBoksh,ResearchAssociate;MsFarzanaSehrin,ResearchAssociate;MsSaifaRaz,ResearchAssociateand,MsUmmeSalma,ResearchAssociate,CPD.MrTowfiqulIslamKhanwastheCoordinatoroftheCPDIRBD2013Team.


AcknowledgementTheCPD IRBDFY2013Teamwould like to register its sincere gratitude toProfessorRehmanSobhan,Chairman,CPDforhisadviceandguidanceinpreparingthisreport.TheteamgratefullyacknowledgesthevaluablesupportprovidedbyMsAnisatulFatemaYousuf,Head and Director, Dialogue and Communication Division, CPD and her colleagues at theDivision in preparing this report. Contribution ofMr A HM Ashrafuzzaman, Senior SystemAnalyst;MrHamidulHoqueMondal,SeniorAdministrativeAssociate;ShameemaNasreenAhsanMallik, Research Associate;Ms SaminaHossain, Programme Associate andMsDwitiya JawherNeethi, Programme Associate, CPD is particularly appreciated. The team also recognises theassistanceprovidedbytheCPDAdministrationandFinanceDivision.


Section1: Introduction:TheContextThe CPD proposals in the context of Budget FY2014 seek to come up with a set ofrecommendations, both in terms of the needed overall fiscal‐budgetary stance as well asproposalsthatconcernsectoralandissue‐specificareas. Inputtingforwardthesesuggestions,theCPDhastakencognisanceoftheevolvingmacroeconomicscenariointhecurrentfiscalyearas it draws towards the finishing line, reviewed the implementation status of the fiscal‐budgetarytargetssetoutinFY2013budgetandhastriedtoanticipatethelikelyscenariothatcould emerge in FY2014 and which will inform the macroeconomic performance andgovernanceinthenextfiscalyear.Theupcomingbudget,expectedtobeannounced in the firstweekof June2013,comes in thebackdropof the fluctuating fortunesexperiencedbytheBangladesheconomyin thecourseoftheongoingFY2013.TheGDPgrowthrateforFY2013whichwasfixedatonepercentagepointhigherthanthatofFY2012,at7.2percent,willperhapsonlymatchthetrendrateofsixpluspercent this year. Core concerns impacting investment levels continued to persist in FY2013resulting in investment stagnation, accentuated further by uncertainties emanating from theongoingviolenceandconfrontationalpolitics.Thesomewhataggressive revenueassumptionshave proved to be unrealistic in the face of repressed investment, declining imports and arestrainedmonetarypolicythatsoughttorein‐inthehighcreditgrowthratesoftherecentpast.Conditionalities under the IMF‐ECF programme have set parameters that constrainedgovernment’s flexibility inpolicymakinginanumberofcriticalareasincludingfixationof fuelprice, levels of subsidy and government borrowing. Slow implementation of majorinfrastructure projects, including in transport and energy sectors, undermined growthpotentials of the economy. A number of incidences including the Padma bridge financingdebacle,andHallMark,BismillahGroupandDestinyscamshaveexposedseriousweaknessesineconomic management and governance. On the other hand, in the backdrop of robustremittance flowsandnegative importgrowth,balanceofpaymentspositionhadcontinued toimprove,with swelling foreignexchange reservesproviding import securityandstabilisation,andevensomeappreciation,oftheexchangerateoftheBDT.Improvedexportperformanceinrecent months, despite the slow recovery in the major European and the North Americanmarkets,hasreinforcedthistrend.Inflationhadstartedtoeasehelpedbyfallingfoodpricesandalsoinviewofdecliningnon‐foodinflation.Byanyreckoning,BangladesheconomywillenteradifficultterraininFY2014characterisedbya number of defining features which are likely to accentuate the downside risks mentionedabove. The ongoing political uncertainty, in the last year of the incumbent government, ifdeepens further,willhaveserious implications for the implementationof the fiscal‐budgetarymeasurestobeproposedintheFY2014budget.TheconsequentdepressedinvestmentscenariocouldnegativelyimpactonrevenuegenerationandoverallGDPgrowth.ThedeparturefromtheMTBFandSFYPgrowthtargetsislikelytocontinueinFY2014inviewoftheemergentsituation.Thus,itwillperhapsbeprudenttosettheGDPtargetmoreinlinewithwhatisrealisticinviewof current and likely scenarios. Rather than going for populist measures this will warrant astability‐centricstancethatdoesnotnecessitateexpansivegovernmentborrowingwhichcouldfuelinflationandresultinfiscaldeficitthatisbeyondreasonablelimit.TheIMF‐ECF,enteringinits second year,will entail significant new commitment on the part of the government along


withthepoliciestobepursuedinlinewithearliercommitment.Financingoffiscaldeficitwillneed to take this into cognisance.Despite signs of upturn in the global economy, the pace ofglobalrecoveryinthecomingyearislikelytocontinuetobeslow,withconcomitantimpactonexportandmigrationfromBangladesh.The emerging challenges anticipated for FY2014 period will call for policy adjustments andprudent target setting with respect to resource mobilisation and expenditure commitments,fiscal deficit and its financing. The fiscal‐budgetary proposals in FY2014 budget ought to beinformedbytheseanticipations.Inthebackdropoftheaforesaidassessment,theCPDbudgetproposalsforFY2014focusonanumberofkeyareas.Theseare:(i) anassessmentofmacroeconomicdevelopments inFY2013andrecommendations for the

neededmacroeconomicpolicystanceforFY2014;(ii) areviewofthestatusofkeydeliverablesofFY2013;(iii) proposals for fiscal‐budgetary recommendations in a number of key areas including

investment,energysector,ruraleconomyandexternalsector;(iv) fiscal‐budgetary implications of different options for financing thePadmabridgeproject;

and(v) anumberofimplementation‐relatedsuggestionswithaviewtoraisingefficacyofrealising

FY2014budgetproposalsatatimeofformidablechallengesandgreatuncertainties.

Section2:MacroeconomicBackdropintheRun‐uptotheNationalBudgetforFY2014

Implementation of the budget, on one hand, has a critical role to play towards themacroeconomicperformanceoftheeconomy.Ontheotherhand,asCPDsuggestedearlier,theperformanceof theeconomywill alsodetermine, toa largeextent, the implementationof theproposed budget1. Hence, the budgetary framework and the fiscalmeasures proposed in thenational budget for FY2014 will need to take cognisance of the prevailing macroeconomicscenarioinFY2013andtheoutlookforFY2014.WhilepreparingtheproposalsforthenationalbudgetforFY2014,thepresentsectionwillundertakeananalysisofthemajorfeaturesoftheeconomyinFY2013.BangladeshEconomyisOff‐Target‐BothintheShortandMediumTermCompared to FY2012 when the previous national budget was announced, macroeconomicsituationbecamemorestabilisedastheeconomymovedtowardsthefinishinglineofFY2013.InJanuary2013CPDobservedthat,thisstabilitywasunderpinnedbyanumberofriskswhich

1 See Bhattacharya, D., Iqbal, M. A. and Khan, T. I. 2010. Delivering on Budget FY2009‐10: A Set ofImplementation Issues. In State of the Bangladesh Economy in FY2008‐09 and Outlook for FY2009‐10.Dhaka:CentreforPolicyDialogue(CPD).


in effect could result in moderate economic growth, investment and employment outcome2.Indeed, the latest available data on major macroeconomic correlates reflect a number ofdisquieting trends.Revenuemobilisationby theNBR, themostdependableperformeramongthemacroeconomic indicators during this government’s regime, has been foundwanting andmaywitnessashortfall (ofTk.3,000crore).Overthefirsteightmonths,duringJuly‐Februaryperiod,growthofNBRrevenuewas15.4percentagainstthetargetof18.8percentforFY2013(Figure2.1).Also,growthofexportearningsduringthefirstthreequartersofFY2013(10.2percent)waswellbelowofitsannualtarget(15.3percent).Ayearago,duringthesecondhalfofFY2012, a set of concerned policies were undertaken towards restraining growth of importpayments.InFY2013,importpaymentscontinuedtofall((‐)7.0percentduringthefirsteightmonths),andgettinganywhereneartheannualtargetof15.0percentisnowoutofquestion.Likewise,thegrowthratesofdomesticcredit(13.4percent)andprivatesectorcredit(14.0percent)areunlikelytomeettheirannualtargets(18.9percentand18.5percentrespectively),astheprivatesectorlostitsappetiteforcredit.

FIGURE2.1:TARGETGROWTHVSACTUALGROWTH

Source:CalculatedfromBB,EPB,MoFandNBRdata.As opposed to the above scenario, there also prevail a number of positive signs in themacroeconomiclandscape.RemittanceinflowduringthefirstninemonthsofFY2013recorded16.6 per cent growth against the annual target of 12.0 per cent (Figure 2.2). FY2013 alsowitnessednoteworthyimprovementinADPimplementation.DuringJuly‐Marchperiod,49percentoftotalADPallocationwasspentwhichwas45percentinFY2012.Expenditureonprojectaid has also seen substantial improvement – 42 per centwas spent during the July‐March ofFY2013 which was 33 per cent during the corresponding period of the preceding year.Consequently,theinflowofforeignaidincreasedtoUSD1.5billionduringthefirsteightmonths

2CPD.2013.AnalyticalReviewofBangladesh’sMacroeconomicPerformance inFiscalYear2013 (FirstReading).CPDWorkingPaper101.Dhaka:CentreforPolicyDialogue(CPD).


of FY2013 which was USD 1.2 billion during the same period of FY2012. The buoyantremittanceinflowalongwithfallingimportpaymentsandimprovedforeignaidinflowpushedbalanceofpayments (BoP)situation intoa safe terrain.During the July‐Februaryperiodbothcurrentaccountbalanceandoverallbalancewitnessedahealthysurplus (USD1.4billionandUSD3.5billionrespectively).ThesurplusesinBoPhelpedtheforeignexchangereservetoreachnewerheights–aboutUSD14.0billionattheendofMarch2013.Concurrently,duringthefirstninemonthsofFY2013theBDTappreciatedby4.6percentagainstUSD.Thismayhavehelpedto stabilize the prices of imported commodities, but created disincentive to exporters. Theinflationary pressure eased to some extent in FY2013, thanks to stable food production,slowdownindomesticdemand,restrainedmonetarypolicyandstrongerBDTagainstUSD.

FIGURE2.2:REMITTANCEGROWTHANDINFLATION:TARGETVSACTUAL

Source:CalculatedfromBBandBBSdata.OutlookforInvestmentisNotPromisingPrivate investment has been a matter of concern for the last four years. In FY2012 privateinvestment as a share of GDP declined to 19.1 per cent from 19.7 per cent in FY2009. Theinvestment situation in FY2013 and outlook for FY2014 does not look promising. Althoughoveralldisbursementofindustrialtermloanincreasedby26.0percentduringthefirsthalfofFY2013, one observes a deceleration of the quarterly growth. Import of capitalmachinery inJuly‐FebruaryofFY2013was(‐)11.2percentlowercomparedtothecorrespondingperiodofthe previous fiscal year. Indeed, this decline was faster than the overall decline in importpayments((‐)7.0percent).ValueofL/Copeningofcapitalmachineryimportduringthefirsteightmonthswashigherthantheprecedingyear(FY2012),butlowerthanFY2011(Figure2.3).Curiously,L/Csettlementfiguresin2013havebeenlargelylowerthan2012.

FIGURE2.3:INVESTMENTRELATEDINDICATORS

Source:CalculatedfromBBdata.


Growthoftheprivatesectorcreditcontinuedtofallinrecentmonths(Figure2.4).Thegrowthrate as of February 2013 is indeed the lowestmonthly growth of private sector credit sinceSeptember 2009. Concurrently, excess liquidity in the banking system is on the rise sinceOctoberwhich pushed callmoney rate downwards in the recentmonths. Over the last eightmonths the excess liquidity increased by more than 50 per cent as it reached to Tk. 61.7thousand crore. As amatter of fact, 40per cent of total liquid assetswas excess liquidity. InMarch2013thecallmoneyratewas7.5percentwhichwas10.6percentinJuly2012.Alltheseindicatorssignifytheslowdownofprivatesectorinvestment.TheFDIinflow(net)duringJuly‐FebruarywasUSD950million(863millioninFY2012)whichisonanaverageaboutUSD120millioninamonth.However,inFebruarynetFDIinflowwasonlyUSD75million.Regrettably,foreignaiddisbursementduring the last twomonthshasalsodeclined.Asa result, itmaybeapprehendedthatthepaceofimprovementinADPimplementationcanfaceasetbackincomingmonths.

FIGURE2.4:INVESTMENTOUTLOOKRELATEDINDICATORS

Source:CalculatedfromBBandERDdata.CurrentPoliticalInstabilitywillAggravatetheSituationFurtherIn connection with a number of entrenched political conflicts, Bangladesh is currentlyexperiencingpoliticalagitationsinvariousformswhicharetransmittingseriousshockstotheeconomy. Indeed, the political instability in Bangladesh, particularly in the run up to thenational parliamentary election is not uncommon. The latest CPD research3 showed that

3CPDorganizedadialogueontheimplicationsofongoingpoliticalinstabilityonBangladesheconomyon13April 2013.This section is benefited from the keynotepaper of the abovementioneddialogue. SeeBhattacharya,D.,Khan,T.I.,Akbar,M.I.,Sadique,M.Z.,Salma,U.andNeethi,D.,J.2013.Bangladesh2013:


continuedpoliticalconflictscauseddeclineindomesticdemand,lowerinvestment,deceleratedtrade activities and escalated social cost. In addition to tangible economic costs, there areintangible losses includingerosionof country’s image.Amajor long term impactarising fromHartalsisfoundtobethelossofcapitalstock.Inconnectiontothis,aCGEmodelexerciseintheBangladeshcontextshowsthata1percentdeclineincapitalsupplycanreduceGDPby0.9percent (Table 2.1). In fact, all major macroeconomic indicators would face adverse impacts.Havingrecognisedanumberofadjustmentmeasuresalreadydeployedbybothgovernmentandnon‐government agents, it is felt that the effectiveness ofmacroeconomic policy instrumentstowardsprotectingtheeconomywillbeweakasinstitutionsremainparalysedduetopoliticalagitations. Hence, the budget implementation in FY2014 will critically hinge on the futurepoliticaloutcome.

TABLE2.1:CGERESULTS

MacroeconomicIndicatorsOutcome

(%changefrombaseyear) InNominalTerms

GDP ‐0.9 ‐8,233croreTaka(FY12)‐1.0billionUSD(FY12)

HouseholdConsumption ‐0.8‐5,487croreTaka(FY12)‐694millionUSD(FY12)

Exports ‐2.4 ‐583millionUSD(FY12)Imports ‐0.8 ‐284millionUSD(FY12)

GovernmentRevenue ‐0.7‐796croreTaka(FY12)

‐101millionUSD(FY12)

GovernmentDeficit 7.12,280croreTaka(FY12)288millionUSD(FY12)

Investment ‐0.1 ‐233croreTaka(FY12)‐29millionUSD(FY12)

Employment ‐0.9 ‐0.5million(2010)Source:Bhattacharyaetal.(2013).IMF‐ECFConditionalities:TheBindingConstraintIn the backdrop of growing balance of payment pressure the government sought IMF‐ECFsupport in March 2012 (USD 1 billion for three years) which is tied to a number stringentconditionalities. In view of the above, the IMF released a new Bangladesh country report inMarch2013beforereleasingthesecondinstallmentoftheloan(USD141million).Amongthe“quantitativeperformancecriteria”twowerenotmetbythegovernment,namelytaxrevenue(floor)andsocial‐relatedspending (floor).Mostof the “structuralbenchmarks”werealsonotmet according to the IMF.Themost notable onewas “submit anewVAT law to theNationalParliamentconsistentwithtaxmodernizationplansandmedium‐termrevenuetargets”byJune2012. As is known, the new VAT law was submitted in July 2012 and had been passed inNovember2012.ThenewVATlawisexpectedtobefullyimplementedfromFY2016.Towardsthis end, the government needs to put together necessary infrastructure and adequatebudgetaryallocation.The IMF seems to have agreed with the government stance to keep the petroleum subsidywithin Tk. 10 per litre instead of “adopting an automatic adjustment mechanism for retail

AssessingEconomicImplicationsofthePresentPoliticalShocks.Dhaka:CentreforPolicyDialogue(CPD).http://www.cpd.org.bd/downloads/Bangladesh2013.pdf


petroleumpricestoensurefullpass‐throughofinternationalprices”.AspertheIMFcondition,thegovernmentwasrequiredtoremovetaxconcessionsandexemptionsintheFY2013FinanceBillequivalenttoatleast0.5percentofGDPinFY2013.AccordingtotheIMF,anestimatedtaxconcessions and exemptions equivalent to 0.3 per cent of GDP were removed. The IMFconditionalitiesalsoincludemonitoringoffertilizersubsidiesandsubsidiestoSoEs.Moreoversixnewconditionswereadded.The formulationofbudget forFY2014willneed tobe in linewith all these conditionalities. However, one can argue that in the backdrop of presentmacroeconomiccircumstancesthisloanisnotnecessary.Whatsoever,ifthegovernmentwouldliketofulfilltheseconditionalitiesthepolicyspaceforthemwillremainlimitedinFY2014.EconomicGrowthOutcome:SlowdownisEvidentTheGDPgrowthtargetforFY2013wassetat7.2percentfollowingthemediumtermtargetofSFYP(Table2.2).TheearlyprojectionsfromanalystsexplicitlyagreethattheGDPgrowthratein FY2013will notmeet its target. The FinanceMinister, however, is hopeful that it will bearound6.4percentthoughthelatestindependentprojectionssuggestthatitmaynotreach6.0per cent threshold. More importantly, as the latest information are made available theprojectionoftheGDPgrowthrateforFY2013hasbecomemorepessimistic.Nevertheless,theeconomicgrowthisexpectedtoremainatasubduedlevelforbothFY2013andFY2014.

TABLE2.2:GDPGROWTH:TARGETVSPROJECTIONReporter ProjectedGrowth(%)

GrowthinFY12 6.3TargetforFY13 7.2CPD,January2013 <6.3BangladeshBank,December2012 6.1‐6.4WorldBank,October2012 <6.0IMF,March2013 5.8ADB,April2013 5.7WorldBank,April2012 5.8Source:Collectedfromvarioussources.TheProposedMacroeconomicStanceforBudgetFY2014As was anticipated at the halfway through to FY2013, Bangladesh economy is settled formacroeconomicstabilitywithmoderatedeconomicgrowth.Regrettably,evenrealisationofthis“secondbest”ambitioncriticallyhingesonthepossibilityofovercomingtheenduringpoliticaluncertainties. Inviewof thediscussedmacroeconomicscenario, thebudgetaryframeworkforFY2014 requires to take amore pragmatic approach. Such a stance should be informed by anumberofconsiderations.First, the allocation for public expenditure needs to be consolidated as much as possible.Towards this, the FinanceMinister will have to confront the political demand for a populistbudgetaryallocationintherun‐uptotheforthcomingnationalelection.Itwillbeunfortunateifthe financing plan of the PadmaBridge project creates a detrimental impact on the resourceavailabilityforotherdevelopmentprojects.Second, the target for revenuemobilisation shouldalsonotbeoverambitious. If the economycontinues to suffer, itwill take toll on the revenue collection aswell. Hence, efforts towardsrevenuemobilisationshouldgetgreateremphasis.Nodoubtthat,therevenuecollectioninthe


form of telecom3G license feewill be an important factor. In connectionwith this, onemayrecallthat,duringthetimeofpoliticaltransitionin2006and2007,Bangladesheconomyfacedsignificantillicitfinancialoutflow4.In2010,theamountofillicitfinancialoutflowwasestimatedto be USD 2.4 billion which was only 0.7 billion in 2009. This outflow arose from transfermispricing, trademispricingandmoney launderingandhas a significant revenue implication.Therecentlyestablished “TransferPricingCell”under theNBRneeds tobe fully functionalatthe earliest. Bangladesh also requires a strong and well‐equipped specialised institution toconfront this issue in the near future where a number of public institutions (e.g. NBR,BangladeshBankandothers)willneedtoactinacoordinatedmanner.Third,containingfiscaldeficitinFY2014withinacomfortablelevelwillbenecessary,butmoreimportantly, it is the financingstructure thatdemandscloseattention.Borrowing target fromsalesofNSDcertificateneedstobefixedatamorerealisticlevel.Cautionisalsocalledforwithregard to the issuance of sovereign bond. Given the importance of the issue, the incumbentgovernment is better off to defer this initiative for the next government. In contrast, effortstowardsgreaterutilisationofforeignaidshouldbethehighestpriority.Fourth, as has been mentioned above, in the present circumstances it will be difficult torevitalise the private investment through pursuance of macroeconomic policy instruments.Nevertheless, the budget needs to consider providing greater access to credit and betterinfrastructuretoprospectiveinvestors.Towardsthisend,priorityshouldbegiventothethrustsectorsidentifiedunderthepresentindustrialandexportpolicies.Fifth,ensuringadequateincentives(forbothinputandoutput)tofarmersisessentialfrombotheconomic and political perspectives. Close coordination and cooperation among variousgovernmentagencieswillbeof critical importance in thiscontext.Thiswillalsobehelpful tostabilisetheinflation.Sixth, the successful implementationof the forthcomingbudgetwill requirea complementarymonetarypolicy.ItisnowurgentlyrequiredtostabilisethevalueofBDTandavoiditsfurtherappreciation.Thepresentmoneysupplysituationisabletoaccommodatemoreaccumulationofforeign exchange reserve. Indeed, the additional foreign exchange reserve may prove to beusefullaterifthePadmaBridgeisdecidedtobeconstructedwiththedomesticresourcesonly.Seventh, in all likelihood the targets of the SFYP for macroeconomic correlates will becomeirrelevantinFY2014.Forexample,thetargetsfortheGDPgrowthrateandgrossinvestmentasashareofGDPforFY2014are7.6percentand31.0percentrespectively.Under thepresentmacroeconomic circumstances attaining these targetswill not bepossible. Surely, there is noeconomicsensetofixthemacroeconomictargetsatanoverambitiouslevel.Inviewofthis,itisnecessarytoconsolidatethemacroeconomictargetsforFY2014accordinglyandstreamlinethetargetsforthesubsequentyears.

4 See CPD. 2013. Analytical Review of Bangladesh’s Macroeconomic Performance in Fiscal Year 2013(FirstReading).CPDWorkingPaper101.Dhaka:CentreforPolicyDialogue(CPD).


Section3: DeliveryoftheBudgetFY2013RevenueEarningsTherevenueincomestructureintheBudgetforFY2013was80.3percentfromNBRtax,3.3percentfromnon‐NBRtaxand16.4percentfromnon‐taxrevenueaccumulatingthetargetofTk.139,670croreastotalrevenueearnings.NBRisplayingthemajorroleinrealizingtherevenueearnings target set for FY2013. In the current fiscal year, after FY2009,NBR revenue growthmayonceagainwitnessashortfall.ThisanxietywasalreadyexpressedbyCPDinitsreviewoftheeconomyinJanuarythisyear.Duringthefirsteightmonths(July‐February)ofthecurrentfiscal, the growth of NBR revenue was 15.4 per cent against the target of 18.8 per cent forFY2013 (Table 3.1). This will require a growth of about 23.5 per cent during the last fourmonths(March‐June)of thegoing fiscal.Supplementary importduty isonemajorconcern forNBR revenue collection that not only failed to achieve growth target but also registered anegativegrowthduringtheabovementionedperiod. Importwassubstantially lowduringtheJuly‐February period of FY2013 (‐7.0 per cent growth of import payments) which hassignificantlyaffectedtheexternalrevenuecollectionoftheNBR.AmongthecomponentsofNBRrevenue collection, only the collection of direct tax is in the right track towardsmeeting thetarget.Non‐NBRrevenuecollectionisalsolaggingbehindfromitstargetsetforFY2013.Despiteofremarkableperformanceinachievinghightargetsinrecentpast,NBRmayfinditdifficulttoattain the targetsset forFY2013duetosluggish importaswellasslowingdownofeconomicactivities.

TABLE3.1:NBRANDNON‐NBRREVENUECOLLECTION

ParticularsActualGrowthFY12

AnnualGrowth

TargetFY13

AchievedGrowth

Jul‐FebFY12

AchievedGrowth

Jul‐FebFY13

RequiredGrowth

Mar‐JunFY13

ExternalTotal 11.89 13.79 13.72 6.20 26.75

ImportDuty 14.75 16.06 17.48 2.80 38.00

VATImport 10.07 8.17 8.95 12.02 1.79

SuppImport 9.05 25.46 17.57 ‐0.76 78.92

LocalTotal 22.92 17.28 17.08 13.56 22.65

VATLocal 22.64 12.61 16.32 19.76 2.83

SuppLocal 22.82 23.95 16.49 2.67 56.14

TotalDirectTax 22.65 26.23 26.65 30.79 21.84

IncomeTax 22.79 24.95 27.17 30.85 19.34

Total 18.96 18.85 18.13 15.36 23.53Source:NationalBoardofRevenue(NBR).RevenueExpenditureHigher interest payments went beyond its budget allocation during FY2012 and continuedduring the first fivemonths (July‐November) of FY2013with a growth rate of 41.1 per centcompared to the same period of previous fiscal (Table 3.2). During this period, net non‐developmentexpenditurerecorded24.0percentgrowthcompared to thematchingperiodofthepreviousfiscalwhilethetargetgrowthforFY2013wasonly13.0percent.Thisimpliesthatthe growth of net non‐development expenditure needs to be restricted to only 7.5 percent


during the rest of themonthsof FY2013. Net expenditure set in budget for FY2013wasTk.191,731 crore in which Tk. 136,731 crore is allocated for non‐development and otherexpenditure and the rest is for the Annual Development Programme (ADP). The FinanceMinisterinhishalfyearlybudgetstatementmentionedthatthenetexpenditureuptoDecember2012was 33.3 per cent of total allocation, and ADP expenditure is 23.3 per cent of its totalallocation.Non‐developmentexpenditureduringJuly‐December2012registereda0.6percentgrowthcomparedto thesameperiodofFY2012.BasedontheFinanceMinister’sspeech, it isexpectedthattherevenueexpenditurewillexceedthetargetsetforFY2013.

TABLE3.2:REVENUEEXPENDITURE(JUL‐NOVFY13)

DescriptionActualGrowthFY12

GrowthTargetFY13

AchievedGrowthJul‐NovFY13

RequiredGrowthDec‐JunFY13

PayandAllowances 4.8 9.9 11.0 9.0GoodsandServices 6.0 21.0 18.0 21.9InterestPayments 28.9 15.7 41.1 3.7SubsidiesandCurrentTransfers 15.2 6.5 23.8 ‐1.9BlockAllocation ‐38.0 815.6 ‐2.3 1172.5Non‐DevelopmentRevenueExpenditure 13.9 12.8 23.2 7.5AcquisitionofAssetsandWorks 7.4 16.9 56.1 8.0NetRevenueExpenditure 13.6 13.0 24.0 7.5Source:CalculatedMoFdata.AnnualDevelopmentProgramme(ADP)ExpenditureundertheADPhasshownimprovementduringthefirsteightmonths(July‐March)of FY2013 in contrast the past few years.During the abovementionedperiod49per cent oftotalADPallocation(Tk.55,000crore)forFY2013hasbeenutilisedwhichis3percentagepointhigherthanthecomparableperiodofFY2013(46percent).BetterdisbursementofprojectaidhashelpedtoimproveADPexpenditureinthecurrent fiscal.DuringJuly‐FebruaryofFY2013,42percentoftotalprojectaidhasbeendisbursedwhilethiswasonly33percentinthesameperiodofFY2012.Thishasalsohelpedtomaintainahealthybalanceofpaymentintheabovementioned period. The implementation status of the ADP of the top tenministries/divisionswith large allocation (72 per cent of total ADP allocation) shows that about 56 per cent ofallocation for those tenministries/divisions has been spent during July‐February of FY2013.Among these, implementation by M/O Health & Family Welfare, M/O Railway and M/OIndustries was, however, below par. Power division, Roads division and Local GovernmentDivisionarethebetterperformersintermsofADPutilisation.ThePowerDivisionhasallocationforconcludingandcarry‐overprojects thatmayhavehelped it toutilizeabout68percentofADPallocation.Aspastexperiencessuggest, it is tooearly tocommentonthestatusofADPutilizationwhichwillbecompletedbytheendofthecurrentfiscal.Inmostcases,theutilisationofADPallocationhas failed to achieve the target. However, it is expected to have better financial compositioncomparedtoFY2012intermsofprojectaiddisbursement.Itmayhappenthatthegovernmentwoulddeferfewprojectsattheendofthefiscalthatmayaffectnextfiscal’sbudget.


BudgetDeficitOnthebasisofdatafromthefirstsixmonthsofFY2013,itcanbestatedthatbudgetdeficitanditsfinancingareinlinewiththetraditionaltrend.Therevenuecollectionmayfaceshortfall inview of slow NBR revenue collection. However, if ADP allocation is not fully utilised, it mayprovide some cushion to the revenue collection shortfall. Domestic borrowing was a majorconcern throughout FY2012 as a result of poor project aid disbursement. Thismay not be aconcern for the current fiscal since disbursement of project aid remained satisfactory up toDecember202.Concernsremain,however,asthenetsaleofNSDcertificatesisrunningbelowthe expected level till date. Therefore, the government needs to paymore attention towardsmanagingthedeficitfinancinginthelatterpartofthefiscal.

Section4: ContinuationofLowInvestmentandItsImplicationforGrowth

Investmentinthecurrentfiscalyearisexperiencingasluggishtrendaswasobservedinthelastyear.Asetofnewissuesandconcernsalongwithafewofthelastyear’sareresponsibleforaweak investment scenario. Under such adverse situation, accelerating investment both inprivateandpublicsectorswillbechallengingforthegovernmentinthenextfiscal.4.1StateofProductioninFY2013TillNovember2012,QIPoflargeandmediumscalemanufacturingindustrieshavemaintainedadouble‐digitgrowththankstobetterperformanceofkeyindustriessuchasfoodandbeverageindustry and jute, cotton and wearing apparel industry. But a number of domestic market‐orientedindustriescouldnotattainthatlevelofgrowthperhapsduetounfavourablebusinessenvironmenttillthattime(November2012).Thismayhaveaggravatedfurtherinthefollowingmonths due to political unrest. Low or negative rate of growth of import of industrial rawmaterialsandintermediateproductsispartlyareflectionofweakdemandoftheseproducts.4.2StateofDomesticCreditinFY2013Unlikelastyear’shighgrowthofdomesticcreditparticularlyledbythepublicsectorcredit,thegrowthofdomesticcredit in thecurrent fiscalyear (July‐January2013) isbelowthe targetedlevel. Slowgrowthofprivatesectorcredit(14.8),intheabsenceofpublicsector’s ‘crowdout’effect,indicatesthatthereisalowlevelofdemandforcapitalintheongoingandnewventures.Thisisperhapslinkedtoweakbusinesscompetitivenessemergedfromtheuncertaintiescausedbypoliticalunrestandeconomicadversities.PrivateSectorCreditA large part of private sector credit is disbursed to agriculture, off‐farm,manufacturing andservicerelatedactivitiesincludingSMEs.Disbursementofworkingcapitalandtermloanintheabove‐mentionedsectorshasregisteredamoderatelevelofgrowthduringFY2013.Incaseofindustrialtermloan,highgrowthindisbursementofcreditisrelatedtosignificantriseintermloaninlargescaleenterprises.Termloanforsmallandmediumindustriescouldnotmaintainthehighgrowthmomentumobservedduringthelasttwoyears.Ontheotherhand,therateof


repaymentofindustrialtermloanhassignificantlydroppedsinceFY2011whichcausedariseinoverdueandevendefaultloans.Inthisconnection,about30percentdropofSMEcreditinSCBsis partly because of their liquidity shortfall and high rate of default loans. Microcreditinstitutions, thoughmaintained a double digit growth in credit disbursement this year, couldnotreachthehigherlevelofpreviousyears.Thestructureofcredittotheprivatesectorappearstobechangingovertheyears.Theshareofadvancestomajorrealsectorssuchasmanufacturing,servicesandagriculturerelatedactivitieshas been systemically decelerated while that of trade, construction, transport and otheractivities has systemically increased. Advances to the agriculture sector have furtherconcentratedtocropproductionfollowedbylivestockandfisheries,butwithreducedshareofstorage andmarketing and others. Lower share of advances to themanufacturing sector hasaffected most of the related activities, except a few (including food and beverage and non‐metallic products). Despite a small share of the service sector in overall advances, long termfinancingparticularlyinhospital,IT,hotelandrestaurantandotherserviceshasmaintainedastabletrend.Creditfortradehasconcentratedtowholesaleandpartlyretailtradeandimportfinancing.PublicInvestmentPublicinvestmentinmajorministries/divisionshasregisteredaconsiderableriseduringJuly‐January FY2013. It is difficult to predict whether such pace of growth would sustain in thefollowingmonths given the disruption of activities caused by the political unrest. Because ofviolence andpolitical unrest, significant damages occurred in roads, power stations, railwaysandotherservices.Keepingtheseinfrastructuresintacthasbecomeoneofthemajorchallengesforthegovernment.Public sectorprojects, currentlybeing implemented,under theministries/divisionsofpower,roads, energy and mineral resources and industries have direct and immediate impact infacilitatingandenhancingprivateinvestment.However,theperformanceofanumberofthoseprojects during the Jul.‐January 2013 was mixed. Necessary allocations of fund for thoseprojects as well as their timely implementation are critically important which should bereflectedthroughadequateallocationintheupcomingbudgetforFY2014.4.3FDIandInvestmentintheCapitalMarketFDI inflowhasshowedanupturn in thecurrent fiscalyear(USD950million in July‐February2013 against USD 863 million in the corresponding period of FY2012) despite variousuncertaintiesandchallenges.Ifthecurrentrateofgrowthcontinuedintheremainingmonthsofthisyear,FDIwouldcross lastyear’s total inflow(USD1.1billion).According to theBoardofinvestment(BOI),anumberofconstraintshindermoreFDIflowinthecountry.Theseincludepoorinfrastructure(lackofsufficientland,inadequatesupplyofgasandelectricity),hightaxes,port inefficiency andweak supply chain (Moazzem2012).Given the scarcity of capital in thestock market, increasing portfolio investment could be a suitable source for raising funds.However,portfolioinvestmentduringJuly‐February2013was11percentlowercomparedtothatinthesameperiodofthepreviousyear.Inthecapitalmarket,atotalofsevencompanieshaveoffloadedsharessofarintheFY2013toraise Tk.3.4 billion for various kinds of manufacturing and service related activities. This


amountof investmentintheprimarymarket isalmosthalfofwhatwasatthesameperiodofthe previous year.However all IPOs in FY2013 received subscription requestwell over theirinitialoffers.4.4ReasonsforSlowdownofInvestmentInvestmentslowdowninFY2013isrelatedtoanumberofeconomicandnon‐economicfactorswhich include,amongothers,highrate forbankborrowing,moderatelyhighrateof inflation,lessprivateconsumptionperhapsduetodecelerationinthegrowthofrealincome,appreciationofTakaagainstUSDandpoorsupplyofenergyandpowerin theindustrialsector.Prolongedpoliticalunrestwithdestructionof capital goods, roads, rails, coveredvanandobstructionofmovementofgoodswithinandoutsidethecountryseriouslydamagedthesupplychainswhichhavedetrimentalimpactondomesticmarketorientedandexport‐marketorientedindustries.4.5ProposalsfortheNationalBudgetFY2014DomesticCredita) ThereisascopeforfurtherriseinsupplyofdomesticcreditevenbeyondtheMTBFtarget

setforthforFY2014.Lowergrowthofcreditduetoweakdemandhasleftahugeamountofmoney unutilized in FY2013. As a result, the effective rate of growth for domestic sectorcredit forFY2014wouldbeashighas25.5percent.Thus, theCentralBankshouldallowexpansionofcreditbeyondthetargeted levelofgrowthof17.2percent inFY2014takingintoaccountitsinflationaryimpactandabsorptivecapacityoftheeconomy.

b) Disbursement of private sector credit to different economic activities should facilitate

restructuringof theoveralldistributionofcredit.Moreshouldbedisbursedtoagriculturesectorparticularlynon‐cropsectors,manufacturingparticularlySMEsandvariouskindsofservicerelatedactivities.

PublicSectorc) Inviewoftheslowdowninconsumptiondemandandemploymentgeneration,investment

inthepublicsectorneedstobeacceleratedinthenextfiscalyear.Publicinvestment,whichhas immediate impact on private investment and employment generation, should befacilitated.ThusADBprojectscurrentlyunderdifferentphasesofimplementationundertheministries/divisionsofpower,roads,energyandmineralresourcesand industries,shouldbeallocatedfundsaspertheirrequirements.

d) Implementationofanumberofprojectsundertheministryofindustryshouldbeexpedited

given their importance for local and foreign investment. The government should allocatenecessary funds for building SEZs in selected areas, garment palli atMunshigonj, leatherindustrialparkatSavar, ITParkatKarwanBazarandindustrialparkforlightengineeringsector.

e) Withaviewtoimproveoccupationalhealthandsafetyinindustriesparticularlyingarment

factories, revenue and ADP allocations for the ministry of labour should be significantlyincreased.Thisfundwillbeusedforthedevelopmentofthedirectorateoflabourforfactoryinspectionandwillbeusedforsettingupregionalinspectionofficesasperthemasterplan.Necessaryallocationwillberequiredfortheimprovementofmonitoringoperationsofthe


factory inspectors which include improvement in logistic facilities and rise of theirallowances.

PrivateSectorf) With a view to improve the competitiveness of small firms at domestic and international

marketstaxfreeturnoverlimitshouldbeincreasedfromthecurrentlevelofTk.24lakhtoTk.40 lakhs.Considering theadversebusiness condition, truncatedVATsystem forSMEsshouldbecontinuedinthenextfiscal.

g) ThePPPofficehascompleteddetailedfeasibilitystudy(DFS)ofsevenoutof38projectsof

which three are related to infrastructure development. To initiate the implementation oftheseprojects,necessaryallocationshouldbemadeavailableinthenextbudgetparticularlyforDhaka‐AshuliaExpresswayandTwojettiesattheMonglaPort.

h) Taxholidayfacilityshouldnotbediscontinuedacrosstheboardwithoutproperassessment

of impact and implications of those facilities for enhancing competitiveness of respectiveindustries.Besides,suchfiscalmeasureshave‘strategic’importanceforpotentialindustriestoenhancetheircompetitivenessatdomesticandinternationalmarkets.Inthisconnection,proposalsplacedbyanumberofindustriesforcontinuationoftaxholidayshouldbetakeninto due consideration which include poultry, IT, light engineering, chemicals andpharmaceuticalsetc.

i) In the previous budgets, in the guise of various investment‐promoting measures,

undisclosed income was allowed to be legalised. Considering the negligible success inmobilizingadditionalresourcesinthepastandtheattendantmoralhazard,thegovernmentshouldnotprovideanysuchspecialtaxmeasureinanyformintherun‐uptothenationalelection.

j) Thepotentialdomesticmarketorientedindustrieswhichhavestrategicimportanceshould

get fiscalandbudgetarysupport.Hence,duties (i.e. importduty, supplementaryduty,AITand VAT) imposed on finished products and intermediate products in support of localindustriesshouldbecontinuedinthenextfiscalyear.Similarly,exemptionofVAT,currentlyprovided to selected domesticmarket oriented industries, should be extended after theirexpiration(e.g.motorcycleindustryinJune2014).

k) In order to retain export competitiveness under the weak global demand situation, the

government should consider reviewing a number of support measures applicable forexport‐oriented industries. These include special allotment of gas connection to newprojectsandexpansionofexistingones,subsidizedcredit(atarateoflessthan5percent)forbuildingdormitoriesforworkers,specialallocationforworkers’trainingparticularlyforoccupationalhealthandsafety issues,extensionofbond license for threeyears insteadoftwoyearsetc.Similarly,twelveexportorientedindustrieswhicharecurrentlyenjoyingcashincentivesshouldcontinuereceivingthatfacilityinthenextfiscal.

l) In order to enhance industrial production, government shouldmake special allotment of

newgasandelectricityconnectionforSMEsandgasbasedindustrialunits.


m) To promote long term investment by institutional investors, government may announcepreparationofaCodeofConductforlongterminvestment.

n) TheADBfundedprojectforcapitalmarketdevelopmentshouldbeimplementedasperthe

projecttimeline.Activitiesincludesettingupadvancedmarketmonitoringsoftware,settingup a separate tribunal, human resource development in the SEC and finalising FinancialReportingAct.

Section5: FinancingofPadmaBridgeProject:ImplicationsforADPFY2014

With the demise of the prospect of restoration of the World Bank loan for the PadmaMultipurposeBridgeProject(PMBP)on29June2012,thegovernmentis largelyleftwithtwoother costlier options to finance this single largest infrastructure project in Bangladesh: first,financingthroughcommercial loans,andsecond, resortingtoself‐financing.However,onecanalso think of a mixed basket of finance including domestic resources and various types offinancingfromtheexternalsources.Whatsoever,thegovernment,tilldate,seemstohaveoptedfor self‐financing by allocating substantial domestic funds in successive ADPs starting fromFY2014.ThePMBPwasbroughtintothepurviewofpublicfinancethroughtherevisedADPofFY2008.ThetotalcostoftheprojectwasestimatedtobeTk.10,162crore,with68percentattributabletoproject aid.As thePMBP remainedundernegotiationwithprospective external financiers,theallocationsandexpendituresinsuccessiveyearswererathernegligible.AsTable5.1reveals,allocationsvariedfromaslowas0.16percentofthetotalADPto2.89percentinFY2011.InFY2012, the comparable allocation was only 1.50 per cent. These low figures are largelyexplained by the absence of operationalisation of the loan agreement with the developmentpartners.

TABLE5.1:ALLOCATIONANDEXPENDITURERELATEDTOPADMAMULTIPURPOSE

BRIDGEPROJECT

FY ADPProjectCost*(Takaincrore)

Allocation(Takaincrore)

Expenditure

Taka Aid Total Taka Aid Total Taka Aid TotalFY08 RevisedADP 3,281 6,881 10,162 36 0 36 0 0 0

FY09OriginalADP 3,281 6,881 10,162 65 0 65 287 0 287RevisedADP 3,281 6,881 10,162 317 0 317 287 0 287

FY10OriginalADP 3,281 6,881 10,162 700 0 700 200 0 200RevisedADP 3,281 6,881 10,162 338 0 338 200 0 200

FY11OriginalADP 3,281 6,881 10,162 300 908 1,208 316 0 316RevisedADP 3,281 6,881 10,162 318 720 1,038 316 0 316

FY12OriginalADP 4,258 16,250 20,507 480 1,707 2,187 202 207 409RevisedADP 4,258 16,250 20,507 162 453 615 202 207 409

FY13OriginalADP 4,258 16,250 20,507 572 232 804 9 34 43RevisedADP N/A N/A N/A N/A N/A N/A N/A N/A N/A

Source:CalculatedfromIMEDdata.*Theprojectwas initially taken in1 January2008 (inRADPFY08)with totalproject costofTaka10.2thousandcrore.InADPFY12theprojectcostwasrevisedtoTk.20.5thousandcrore.


Itmaybeobservedfromtheabovetablethat,althoughtherehasbeenallocationinthePMBPovertheyears,theexpenditurepatternhasbeensluggish.ByscrutinisingtherevisedADPsoverthe consecutive years, it canbe observed thatwhile91per cent of the allocated financewasutilized in FY2009, the proportion has come down in recent years – with 59 per cent ofexpenditureinFY2010,30percentinFY2011and67percentinFY2012.HavingestimatedtheoverallcostofthePMBPatTk.10,162croreinFY2008,thiswasrevisedupward in FY2012 to Tk. 20,507 crore, making the total cost almost double the originalestimation.WhileforeignfundforthePMBPwasyettobereleased,anamountofTk.207crorefrom foreignsourceswasutilisedunderADPFY2012.This foreigncurrencyallocation,a loanprovidedbytheWorldBank,possiblyunderwrotetheprojectpreparatorycost.TheADPforFY2014isreportedlyestimatedtobeTk.65,600crore.WiththecancellationoftheWorldBankloanandotherrelatedexternalfinancing,theGoBhascometoadecision,withtheintentionofself‐financingtheproject, toallocateTk.6,852crore inthenextADP, i.e.33.4percentofthePMBPcost.ThecomparableforeigncomponentisapaltrysumofTk.60.8crore(0.30percentoftheprojectcost).IthasalsobeenreportedthatTk.7,800crore,Tk.5,000croreandTk.300crore i.e.38.04percent,24.38percentand1.46percentrespectively,of theprojectcosthavebeenallocatedoverthenextthreeyears(FY2015,FY2016andFY2017).The PMBPwill account formore than 10 per cent of the total outlay in the next year’s ADP.Indeed,theprojectwillabsorbaround57percentofthetotalincrementalallocations.Inotherwords,thenon‐PMBPincrementalallocationisonlyTk.4600crore.Enhanced allocations of domestic resources in the ADP for FY2014 will have significantimplicationsfortheallocativeprioritiesunderthenextthreetofourADPs.AsalargeshareoftheadditionalADPresourceshastobeallocatedtothePMBP(morethan50percentannually),verylittlewillbeleftforotherprioritysectorsintheareasofphysicalandsocialinfrastructure.Furthermore, one will need to assess a fuller macroeconomic implication encompassingexchange rate, inflation and other aspects of the economy as the government converts thedomesticcurrencyortakesloanfromtheforeigncurrencyreserve.This may create serious resource constraints for expanding capacities of essential publicservicesinthefaceofgrowingdemand.Underthecircumstances,thegovernmentwillbewelladvised to do the following two. First, the GoB should strengthen domestic resourcemobilisation to finance theunder‐resourcedother essentialpublicpriorities. Second, theGoBshould explore possibilities for concessional or low cost foreign financing to substitute theearmarkeddomesticresourcesandreleasethoseforothercompetingdemands.ForeignFinancingAsmentionedearlier,fundingfrommixedsourcescouldbeapossibleoptionatanypointintheimplementation of the PMBP. With diminished prospect of foreign aid, the government isconsideringthefloatationofSovereignBondsfor5‐10yearsattherateof5.5percenttoraiseUSDonebillion.Theproposalmightseemquitechallengingastheexperienceofneighbouringcountrieswoulddemonstrate.The third internationalSovereignBondofferedbySri Lanka in2011 had a yield rate of 6.25 per cent. Sri Lanka’s rating is B+ by Standard& Poor’s Rating


ServicesandB1byMoody’s–bothgiveapositiveoutlookandbotharelowerthantheratingofBangladesh.Ontheotherhand,interestonIndianandPakistanigovernmentbondsare9and12percentrespectively.ItmaybenotedthatIndiahashigherratingandPakistanhaslowerratingthanBangladesh5.Thus,itisreasonabletoassumethatthisisnotonlythecreditratingswhicharetakenintoaccountbytheinternationalinvestors,butalsoothermacroeconomicattributes.Having said this, even if the floatation of sovereign bonds is possible at 5.5 per cent, thereflectionsonthecountrywouldbefatallyunderminedinthecaseofunder‐subscriptionofthebondsgiventheviolenttransitionthecountryisgoingthroughatpresent.However, two other commercial borrowing options are currently on the table. One is theMalaysianproposal,withregardtowhichaMemorandumofUnderstanding(MoU)wassignedin2012.AnamountofUSD2.3billionisproposedascreditintheMalaysianproposal.Withthepaymentperiodbeing26years,thepayableamountagainstthiscreditwillbeequivalenttoUSD5.2billion.TheotheristheChineseproposal,whichofferedUSD1.95billionworthofloanwith20yearspaybackperiodandnointerestobligation.Ascredibledetailsarenotavailableaboutthese loan offers, one is constrained to make any comment, although on the face of it theChineseofferseemsmorepreferable.However, to thegovernment’sgreatrelief, itwasable toopen its forexaccount for thePMBPwiththeUSD200milliongrantofferedbyIndia.ThegovernmentindicatesthatitwillfloattherequestforproposalforthemainstructureofthePMBPbyJune2013.Thisrequestwillbesenttotheearliershort‐listedcontractors–althoughitis not clear whether they are still interested or not to undertake the task.Whatsoever, it isapprehendedthatreputedfirmsmaynotfeelinteresteduntilacrediblefinancingpackagehasbeenputtogether.

Section6: CurrentStateofthePowerandEnergySectorofBangladesh

Power and energy sector has been under pressure for long tomeet the growing demand forelectricityandgastoundertakeeconomicactivities.Duringthelastfouryears,bothpublicandprivatesectorshavemadesignificantinvestment,buthavebeenunabletoincreasetheaccesstoenergytosignificantlevel.Inthiscontext,anumberofconcernsariseonthissectorregardingthe quality of investment, timely completion of different projects and efficiency of themanagementofconcernedauthorities.

5TheratingofBangladesh,accordingtotheStandardandPoor’sRatingServices,isBB‐TheratingofIndia,accordingtotheStandardandPoor’sRatingServices,isBBB‐TheratingofPakistan,accordingtotheStandardandPoor’sRatingServices,isB‐


6.1StateofSupplyofElectricityinFY2013The power sector has witnessed a substantial investment over the last four years whichimprovedthestateofelectricitysupply inthecountry(from3267MWin2009to6080MWin2012), but thatwasmuch less than the targeted level.6 Actual generation (6261MW) is waybelowthetotalinstalledcapacity(8988MW)resultinginagapofabout2600MW.7Currently,powerisgeneratingthroughthreedifferentsourcessuchasBPDB,IPPsandQRRs.Abouthalfofthe total share isgeneratedbyPDB’spowerplantsand theresthalf isgeneratedby IPPsandRPPspowerplantsalmostequally.Sincethecostofpowergenerationandthesellingpricearedifferentamongvarioussources(highestforQRRsandlowestforBPDB),theuseofparticularsourceofelectricityhasan implication forgovernmentexpenditure. In thiscontext, therehasbeen a negligible change in the sourcing pattern in the current fiscal year although thegovernment has earlier announced to reduce the share of QRRs in the overall supply ofelectricity.Despiteefforttodiversifythefuelusepattern(fromgastonon‐gasfuel)littlechangehasoccurredovertheyears,exceptafewincaseofuseofHFO,furnaceoilandcoalbasedpowerplants.8Withtheexpansionofoperationduringthelastfouryears,managementinthepowersectorhasbecomecomplexandmaintainingitsefficiencyisachallengingtask.OneofthemajorconcernsisthefailuretoensuretimelyimplementationofnewpowerplantsunderIPPswhichaffecttheoverallsupplyofelectricity.Asaresult,existingsourcesparticularlyhigh‐costQRRshavebeenusedmoreforadditionalsupplyofelectricity.Asperthecontract,variouspunitiveactions(e.g.monetary punishment as per the contract) against the IPPs/QRRs for their failure to timelyimplementationofprojectswerenotproperlyenforced.9Poor implementationofanumberofIPPs is found to be associated with lack of capital, inexperience in business and inadequatesupplyofgasetc.Alargenumberofhouseholdsandindustrialandcommercialunitshavebeenwaiting for long to get the electricity connection. This has happened initially due to lack ofelectricity supply and laterHighCourt’s stay order against providingnew connectionswhichhasbeenwithdrawnrecently.6.2StateofSupplyofGasinFY2013Thegassectorofthecountryisincrisisbecauseofrisinggapbetweensupplyofanddemandforgas for different economic activities. During FY2013 (tillDecember 2012) total supply of gaswas11,345mmcmwhichwas10.8percenthighercomparedtothatinthepreviousyear.10Atpresent, 45per cent of gas is suppliedbyPetrobangla and the rest by the IOCs.11 In fact, theoverallgassupplyisdependentupontwomajorsources‐BGFCL(35percent)andChevronof

6Atpresentatotalof98powerplantsareinoperationwithagenerationcapacityof8988MWwhichwas20percenthighercomparedtothecorrespondingperiodofthepreviousyear(16April,2012).7Recently,thisgapwasreducedbecauseofhigherrateofgrowthofelectricitysupply(about40percentbetween16April2012and16April2013).8Powergenerationisoverlydependentongas(morethan75percent).9Under such circumstance, reductionof theburdenofQRRs is gettingdifficult. In contrast someQRRsdespitetheiralllimitations(shortlived,highoperationalcost,andoldmachineriesetc.)haveapproachedtheBPDBtoconverttheirplantsasIPPs.10Thesupplysituationwoulddeterioratefurtherwhengas,supplyfromSanguoffshoreplant(share0.11percentoftotalsupply)wouldbestoppedduetolackofsufficientextractablegasreserve.SupplyfromSanguplanthasdroppedby33.6per centwithinaweek inApril2013and is apprehended tobe shutdownshortly.ThiswilladverselyaffectthesupplyofgasparticularlyintheChittagongregion.11GrowingdependenceonIOCshasreducedtheshareofPetrobanglaintheoverallsupplyofgas(from55percentin2008to45percentinDec2012).


IOCs (49 per cent) – accounting for 84 per cent of total supply which indicates highconcentrationinthesourcesofsupply.Aspartofexploringgasinoff‐shoreblocks,recentlyheldtendersforbiddinginfiveblockswerenotsosuccessful–threeblocksdidnotgetanybidder.The initiative for settingup anLNG terminal for importedLNG (about4million ton)hasnotadvancedmuchdue to the failure ingettingaqualifiedcontractor. It isevident thatalternateoptionsarenotsopromisingatpresent.The distribution of gas in different economic activities is directed by the government. As aresult,asignificantpartofgas issuppliedtopowerplants(about55percentof totalsupply)with a view to meet the priority demand in the power sector. The supply of gas to othereconomicactivitieshastobeadjustedaccordingly.Forexample, thesupplyofgasto fertilizerplantshassignificantlydeclinedandatpresentallfourfertilizerunitshavebeenshutdowninordertodiverttheirgassupplytothepowerplants.6.3PricingofEnergyTariffs of electricity, gas and petroleum products have been revised several times under thetenureof thepresentgovernment ‐petroleumproductsby five timesandelectricitybyseventimes. Adjustment of tariffs has been undertaken in order to reduce the pressure of hugesubsidyprovidedforgeneratingdiesel‐basedpowergenerationwhichisashighas51percentoftotalsubsidy.Ontheotherhand,risingtariffshaveadverseimpactonfirm’sandhousehold’sincome. According to CPD (2012), an increase in petroleumprice by 7.8 per cent is likely toreducehouseholds’ incomeby0.4 to1.9per cent,households’ consumptionby0.5 to2.0percentandfirm’sincomeby0.5to1.9percent.12Hence,increasingsupplyofelectricityathighergeneration cost has to be traded‐off with higher tariffs resulting in burden on household’sincomeandconsumption.Pricingofenergy isalso tiedwith the IMF‐ECFconditionalities(seeSection2).6.4BudgetProposalsa) Itisexpectedthatthegovernmentwillimmediatelyallocatenecessaryfundsforrepairing,

refurbishmentandotherworks torestart thepowerstationswhichweredamagedduetopoliticalviolence in last fewmonths. Ifnecessarythegovernmentshouldmakenecessaryallocationoffundinthenextfiscaltoundertakethoseurgentworks.

b) The government should stick to its master plan by putting more emphasis on timelyimplementation of BPDB and IPP projects (22 projects will be completed in FY2014: 10BPDBand12IPPs)withaviewtoreducetheshareofpowersupplyfromQRRswhichwillreducefinancialburdenaswell.13Similarly,timelyimplementationofnon‐gasbasedpowerplants such as dual‐fuel power plants and combined cycle power plants have to beimplementedonaprioritybasis.

c) TheadministrationoftheministryofPowerandBPDBshouldbestrengthenedinorderto

ensuretimelyimplementationofprojects,collectionofcharges/fines,andputtingpressuretoIPPs/QRRsforsupplyofelectricityasperthecontract.

12However,risingfuelpriceshascontributedtogovernment’savings(by0.2percentto0.3percentofGDP).13Thegovernmenthasextendedthecontractperiodforsevenquickrentalpowerplantsbyayear.


d) Considering the adverse consequences on income of households and firms due to rising

petroleum prices aswell as the stable condition in the global petroleum prices in recentmonths, the government should try to avoid upward revision of tariffs of petroleumproductsinthenextfiscal.

e) Thegovernmentshouldputthehighestefforttodevelopthegassectoraccordingtothegas

sectormasterplan.Inthiscontext,offshoreblockswhichareyettogetsuccessfulbiddersorwhich are yet to advertise for public tender, should immediately place for bidding andexpedite the process further. Petrobangla should put high importance on theimplementation of fast track gas field development projects with effective strategy andpropermanagement.

f) Like the ‘Electricity Development andMaintenance Fund’ the governmentmay set up aseparate fund titled ‘EnergyDevelopment Fund’ for thedevelopmentof the gas sectorbyusingaportionofrevenueearnedfromthesalesofpetroleumproducts.ThisFundcanbeutilized in enhancing refining capacity, facilitating transportation and supporting theemergencyimports.

g) Aspartofpromotingalternatesourcesofenergy,special incentivescouldbeprovided for

settingupsolar‐basedpowerplantsatthehouseholdlevel.h) The government should reconsider its decision to temporarily suspend the operations of

four fertilizerfactories inordertodivertthegassupplyfromthosefactoriestothepowerplants, particularly in view of the fact that at least one factory (e.g. Ashugonj fertilizerfactory)hasbeenoperatedprofitably.

Section7: SupporttoRuralEconomyIn order to improve the socio‐economic and livelihood conditions of the rural poor, nationalbudgetmakes financial allocations and proposes severalmid‐term budgetary and short‐termstop‐gapmeasurestominimizethegapbetweenrural‐urbaneconomy.Sectroralandministry‐wiseallocationsaremadeintheformofsupportforsocialsafetynetprogrammes(SSNP),inputsubsidyandpricesupportprogrammes.InFY2013,bothSSNPandtheagriculturesectorreceivedlowerallocation.AllocationforSSNPswasTk.22,751crore,whichwas11.87percentoftotalbudgetand2.18percentoftotalGDPinFY2013.This allocationwas lower thanFY2012 (13.79per cent of total budget and2.51percent of GDP).14 In addition, an amount of Tk. 14,457 crore was allocated in FY2013 for 14 13 new programmes have been added to the ongoing SSNPs for FY13, while 6 previous SSNPprogrammes will be discontinued in FY13. 43 ongoing programmes will receive lower allocationscomparedtoFY12.Fordetails:http://cpd.org.bd/downloads/CPD_Budget_Reaction_FY13.pdf


agricultureandalliedsectorsinthenon‐developmentanddevelopmentbudget,whichwasonly0.77 per cent higher than the revised budget of FY2012. The budget also allocatedTk. 6,000crore as agricultural subsidy which was 7.7 per cent less than the allocation in the revisedbudgetforFY2012.TheimplementationstatusofSSNPsduringthecurrentfiscalyearcouldnotbe discussed here due to unavailability of data. However, official resource management andeffectiveimplementationofSSNPsareissueswhichneedcontinuousattentionofpolicymakers.Inthisregardre‐nationalisationofSSNPrulesandregulationswouldreducetheoverlappingofprogrammes andwaste of resources. There is also a need for a ‘Social Protection Policy’ forensuringsupporttoalargersectionofneedypeople.WhiletheprogressofSSNPsintheFY2013isyettobeknown,informationontheperformanceoftheagriculturalsectorareunavailable.InFY2013,theDepartmentofAgriculturalExtension(DAE)has setAus,Aman,Boro andwheatproduction targets at 2.37MMT, 13.3MMT, 19.03MMTand1.03MMTrespectively.BangladeshBureauofStatistics(BBS) finalizedestimatesofAusproductionat2.16MMTwhichis7percentlowercomparedtotheproductionoflastyear.Thegovernmenthasalsosetatargettoprocure1.6MMTfoodgrainsduringthecurrentfiscalyear. About 0.70MMT ricewas procured during the last Boro harvesting season in FY2013.Moreover,duringthesameperiod,264.0 thousandMTwasprocuredagainst the targetof0.3MMT. InFY2013, the governmenthas aplan todistribute2.77MMT foodgrains.As ofMarch2013, a total of 1350 thousand MT has been distributed through Public Food DistributionSystem(PFDS).During thisperiod,103.2 thousandMTweredistributed,mainly throughTestRelief(TR),FoodforWork(FFW)andOpenMarketSales(OMS).15Atthesametime,thepublicfoodgrainstockstoodat1150.8thousandMTthatislowerthanthestockofthepreviousyear(1357thousandMTinMarch2012). Incaseofpricesof foodgrain, it isobservedthatprice ishigherinMarch2013comparedtothepreviousyear.ProposalsforthebudgetofFY2014intheareaofruraleconomyshouldbebasedontheabovecontext.SocialSafetyNeta) ConsolidationofSocialSafetyNetProgrammes(SSNPs) inneeded in termsofprogramme

allocation and selection of target areas and groups. There should be coordination amongconcernedministries forproper implementationofprogrammes. In this regard, resourcesshould be allocated for a centralweb‐based database is necessary tomanage the overallintegrityofon‐going,continuedandnewSSNPs.

b) Geographical distribution of SSNPs’ coverage areas is highly concentrated in thewesternregionsofthecountry.Priorityshouldbegiventothemorevulnerableareasandextremepoor,basedonthereportoftheHouseholdIncomeandExpenditureSurveys(HIES)2010.Special safety net allocation should also be made for the poor and marginalized chardwellers.

c) InordertoachievearesourceallocationforSSNPstothetuneof3percentofGDPby2015,as stipulated in the SFYP, higher allocationswill be necessary in thenext fiscal year. Therequiredannualaveragegrowth in safetynet allocations for thenext twoyears (FY2014‐

15Fordetails:http://www.nfpcsp.org/agridrupal/sites/default/files/fortoutlook120.pdf


FY2015)willbearound32.47percent.Basedonthisestimate,asafetynetbudgetofaroundTk.30,200crorewillbeneededinthebudgetforFY2014.

AgricultureandFoodSafetyd) Inputsubsidyandpricesupportprogrammesforfarmers/growersshouldbecontinuedin

order to maintain the growth momentum of the agricultural sector. Given that suchmeasures put pressure on government’s fiscal expenses, the government should improvetheallocationefficiencythroughclosemonitoringofthedistributionmechanism.

e) Improvedmarketingstructureandpracticesareessentialtoensurefairmarketpricesatthe

consumerlevelandhelpfarmers/growersingettingaminimumprofitfortheiragriculturalproducts. Hence, more funds should be allocated for the Department of AgriculturalMarketing (DAM) to provide improved marketing services and ensuring fair marketpractices.AnAgriculturePriceCommissionshouldbesetupwhichwillmonitorpricesandsetafloorpriceforagriculturalcommodities.

f) TheGoBhasplannedtoinitiatecropinsuranceforfarmersonapilotbasisinanumberof

Upazilas to protect farmers from climatic shocks. This initiative should be broadened forothersub‐sectorssuchaspoultry,livestockandfisheriesinFY2014.

g) Constructionofpublicandprivatecoldstoragesforpotatoandpotatoseedsinthebumper

producing areas should be given priority. Uninterrupted power supply should also beensured in those areas. Moreover, fund should be allocated for providing training andtechnical assistance to farmers/growers on using alternative storage systems. Policysupport shouldbegiven for theestablishmentofexportorientedpotato‐based industries,suchaspotatoflex,chipsetc.

h) More funds should be allocated for agricultural research towards improving flood and

droughttolerantvarietiestoincreasetheagriculturaloutput,especiallyintheSouthernandNortherndistricts.

i) TheNationalAgriculturalPolicyshouldbefinalizedwithguidanceonforeigninvestmentin

capital‐intensiveagro‐basedindustries.j) Inviewof recentbird flu attack, exemptionon income tax at5per cent andextensionof

existingtaxholidayfacilityforpoultryandfisheriesownersshouldbecontinuedtoachieveself‐sufficiencyofthesesectors.

k) Funds should be allocated for establishing Food Safety Authority/Commission to develop

required food safety regulations and harmonize domestic practices with internationalstandards.


Section8: GlobalEnvironment:ImplicationsforBangladesh’sExportTheworldeconomyisstillstrugglingtorecoverfromthemultiplecrisesdespitetheeconomicupturnvisibleinearly2013.TheWorldBank(2013)hasestimatedalowergrowthratefortheglobal economy, at 2.4 per cent for 2013 and 3.1 per cent in 2014. The World TradeOrganisation(WTO,2012)alsodowngradedtradeforecastto2.5percentfrom3.7percentfor2012andfrom5.6percentto4.5percentin2013.WhilsttheUSeconomyissettocontinueitsrecoverytogrowat2.0percentin2013and3.0percentin2014,theEUzoneisprojectedtopostnegativegrowthof0.2percentin2013.SincetheUSAandtheEUremaintwoimportantmarketsforBangladesh,exportdemandforBangladeshigoodsislikelytobeimpactedbytheseprojections with their consequent impact on import demand. Better growth projection foremergingcountriesfor2013,however,transmitsgoodsignalforBangladesh.Aftertheinitialslowdown,Bangladesh’sexporthaspickedupinrecentmonths–exportgrowthstood at 10.16 per cent during July‐March; however, this was well below the 15.3 per centgrowthtargetenvisagedforFY2013.Whilstapparelsexportshavebeenshowingrobustgrowth,except leatherandfootwear,allothermajor itemshaveseennegativegrowthinthefirstninemonthsof FY2013. In theUSmarket export growthhasbeen5.3per cent over the first ninemonths, whilst in the EU the growth was 7.9 per cent. The slow economic recovery in thedeveloped countries is likely to have negative implications for Bangladesh’s exportsperformance. It is interesting to note that Bangladesh’s export growth in othermarkets (i.e.barring the USA and the EU) was a robust 18.57 per cent over the corresponding period ofFY2013mainlythroughSouth‐Southtrade.Inviewofthegrowthprojectionfor2013and2014intheUSAandtheEU,Bangladesh’smajorexportmarkets,andtheemergingopportunitiesofSouth‐South trade, appropriate fiscal‐budgetary measures will be needed in the budget forFY2014tomaintainrobustexportperformanceinthenextfiscalyear.ProposedBudgetaryMeasuresa) The three year export policy (July 2012 – June 2015) approved by the government has

expandedthrustsectorstoten.Thebudgetshouldhaveadditionalallocationsinsupportofthenewthrustsectors(e.g.tourism,furnitureandplasticproducts).

b) The three year export policy plans to set up a national data bank containing detailedinformation on import, export, tariffs etc. Adequate allocations should be made in thebudgetforsettingupthisdatabank.

c) Bangladesh’spreferentialmarketaccessunderGSPschemehascomeunderquestionintheUSA, also in the EU and Canada, because of non‐compliance with labour rights, lack ofconduciveworkenvironmentandweaknessesinensuringworkers’safetyatworkplace.Inview of this, there is a need to allocate adequate resources to oversight institutions,particularlythelabourdirectorate,towardsendowingitwiththerequiredhumanresourcesand raising its operational capacity. The incentive structure for the export‐orientedenterprises may also be tuned to the compliance enforcement status of the particularenterprise.


d) The5percentcashincentiveforthebackwardlinkageindustriesinthetextilesectorshouldcontinueinFY2014.

e) Thegovernmentshouldtakeaninitiativetosetupa ‘TechnologicalUpgradationFund’ formodernising the export industry. Such a fund, set up in India some years back, has beenplaying an important role in helping firmsmodernise,move up the value chain and raiseproductivity.

f) SME apparel exporters are now given special incentives if they export to non‐traditionalmarkets.Aspertheearlierplan,thiswassupposedtobecontinuedinFY2014at2percentoff.o.b.value.Allocationsshouldbekepttowardsthisinthebudget.

g) The government has taken thepolicy to create ‘ExportDevelopment Fund’ to expand theexportbasketofBangladesh.‘ExportDevelopmentFund’shouldbeendowedwithadequateallocationintheupcomingbudget.

h) ThereisaneedtorealisetheincreasingopportunitiesofSouth‐SouthtradeforBangladesh.In recent years the share of S‐S trade inBangladesh’s total tradehas seen some rise, butmore comprehensive efforts are needed. It is proposed that a ‘S‐S Market DevelopmentFund’ should be set up which will be dedicated to undertaking comprehensive plans topromoteS‐Strade;thefundmaybejointlymanagedwithprivatesectorexporters.ThisfundcanalsobedeployedtorealisethepotentialopportunitiesemanatingfromtherecentDF‐QFmarket offer by India. This could also bemergedwith the proposedExportDevelopmentFund.

i) There is an urgent need to set up BSTI offices and laboratory at land ports, specially inBenapole, Hilli and Banglabandha ports. Allocation of necessary funds for neededinfrastructure, laboratory equipments and manpower are required towards these tradefacilitation measures. This will also help implementation of the Mutual RecognitionAgreements(MRAs)withIndia(andperhapswithMyanmaraswell).

l) Establishment of the Active Pharmaceutical Ingredient (API) Park has been inordinatelydelayed.Budgetshouldmakethenecessaryallocationoffundstowardsimplementationofthisneededinitiative.

m) Given the growing importance of the ICT sector as an export‐oriented sector and itsidentificationasa‘MostPrioritizedSector’intheexportpolicy2012‐2015,thesectorneedsto be accorded special attention under the Equity Entrepreneurship Fund (EEF). In thisconnection, completion of the Hi‐Tech Park at Kaliakair, well behind schedule, should begivenpriority.

n) Cashincentives,rangingfrom2.0to20.0percent,areprovidedtoselectedpotentialsectorsincludingtextile,frozenfish,agriculturalproducts,shipbuildingandlightengineering.Someemerging sectors such as ICT related export sectorsmay also be included in this schemegivenitspotential.


o) In pursuance of the new Export Policy, a fund should be allocated to rejuvenate thetraditional industries such as handloom industries. Since the new export policy hasclustered thesesectorsas ‘specialdevelopmentalsector’,adequatebudgetaryallocation isneededfortheirsupport.Itmaybenotedthat,theIndiangovernmenthasrecentlyinitiatedaSchemetitledFund forRegenerationofTraditional Industries (SFURTI)underwhich100traditional industry clusters (of khadi, village industry and coir) would be taken up forcomprehensivedevelopmentover5years.

p) The government,with a view to reducing the costs associatedwithmigration ofworkersoverseas, is currently in theprocess of signingG2G contractswith anumberof countriesincluding Malaysia and Bahrain. To deal with this work appropriately, the Bureau ofManpower, Employment and Training (BMET)will need to be significantly strengthened.Adequateprovisionshouldbemadetowardsthisinthebudget.

Section9: ImplementationChallengesoftheUpcomingBudgetThe upcoming budget for FY2014 will be particularly constrained by the implementationchallenges. Someof these challengesare structural innature andmayaggravate furtherovertime. The erosion of the institutional capacity of the development administration is a case inpoint.Atthesametime,someofthechallengesreflectcontextualrealitiesofthecurrenttime.For example, given that the duration of the budget is largely overlapping with electoraltransition, a successor government would implement the fiscal programme designed by itspredecessor.Inviewoftheabove,onemaygroupvariousimplementationchallengesofthebudgetforFY2014underthefollowingthreebroadheads.

1. Fiscalchallenges2. Externalchallenges3. Governancechallenges

Allthesethreeriskswillbeunderpinnedbyunfoldingpoliticalhostilitiesafflictingthecountry.1. FiscalChallengesThefiscalchallengesincluderisksrelatingtobothrevenueandexpendituresides.a) Resource Risk. If a gap emerges between the projected revenue envelope and the actual

expenditure, itmay constitute a resource risk for the country. Such a riskwould becomereal,ifrevenueintakedeceleratesandforeignaiddisbursementslowsdown.Thisyeartherevenue collection has already been below target, while the foreign inflow improvedreasonably (see Section 2). However, the resource risk will not be significant if thebudgetarytargetsarenotoverambitious.

b) Expenditure Risk. There may be risks on the expenditure side if the revenue and ADPexpenditures are too much frontloaded. This may happen, if the outgoing government


resorts to profligacy during the early part of the next fiscal year in thewake of nationalelections.Suchatrendwillalsoentaildeteriorationofexpenditureeffectiveness.

2. ExternalChallengesA significant part of Bangladesh economy is integrated with the global economy. Thus,implementation success of the national budget also depends on the conduct of the externalfactors, such as foreign aid, foreign direct investment, exports, commodity prices andremittances.Export remains conditional to global recovery, particularly that of the Euro Zone. The recentslowdown in imports has resulted in low intake of import duties. FDI had also been slowingdownintherecentmonths.WhilekeepinguptheimprovedODAwillbeimportant,continuedrobustremittanceflowwillalsobecritical.3. GovernanceChallengeWhiletheimpactofweakeconomicgovernanceonbudgetimplementationisanenduringissue,currenttensions inthepoliticalarenacould furtheraggravatetheeconomicanddevelopmentmanagement. Indeed, in Bangladesh, governance challenges accentuate as the countryapproaches the national election. It has been historically observed that when the nationalelectionsapproach,developmentadministrationentersintoastateofparalysisasofficialsoptforfencesitting.Furthermore, ongoing violent political agitations are adversely affecting the economicenvironmentincludingtheinvestmenttrend.CPD,inoneofitsrecentresearchpapers,hasspeltoutthenegativeimplicationsoftheongoingpoliticalagitation.Ifsuchhostilitiescontinueforalonger duration, if not intensify even further, they are going to seriously jeopardise thesuccessfulimplementationoftheupcomingbudget.

A Set of Proposals for the National Budget FY2014 -...

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