macroeconomic situation in bangladesh

Members’ Conference on

ByMd Shahadat Hossain FCA

Council Member-ICAB

Published by

The Institute of Chartered Accountants of BangladeshDhaka, May 15, 2014

An Analysis on MacroeconomicPerformance of Bangladesh

Members’ Conference on An Analysis on Macroeconomic Performance of Bangladesh

By Md Shahadat Hossain FCA

Council Member-ICAB

Published by

The Institute of Chartered Accountants of Bangladesh

Dhaka, May 15, 2014

About the Key Note Speaker

Mr. Md. Shahadat Hossain FCA was born in 1965. He completd his Master in Accounting from University of Dhaka. He became Associate Member of the ICAB in 1993 and Fellow Member is 1998. He is a partner of Shahadat Rashid & Co., Chartered Accountants.

A Council Member of ICAB since 2007, Mr. Hossain was the Vice President of ICAB in 2009 & 2011, Secretary of Dhaka Regional Committee (DRC)-ICAB in 2004 and Chairman of Technical & Research Committee (TRC) of the Council ICAB in 2011. He has been working for different standing and non-standing Committees of ICAB for the last ten years and also worked in the Governmental and Public sector Enterprises Accounting Committee of the Board of South Asian Federation of Accountants (SAFA).

He took part in the Board of Directors of Bangladesh Cable Shilpa Sangtha (An enterprise of Government of Bangladesh) and Haripur Power Plant (A Strategic Business unit of Bangladesh Power Development Board). He was also involved in different law framing Committee like Direct Tax Act, Companies Act, Multi Level Marketing Act, Society Registration Act etc.

He writes for the different Daily News Papers and Journals on Banking, Budget, Accounting, Education and Agriculture etc. He presented papers on Bangladesh Financial Reporting Standards and Tax & Banking Issues. Mr. Hossain participated in TV Talk Shows and Radio Program on Education and other Professional Issues. He received awards from the Private television channel authority 'Channel-I' as one of the winners of the special essay competition of the program Hridoy-A-Mati -O-Manus. Mr. Hossain is the author of the book Bangabandho -O-Bangladesher Orthoniti.


Page 02 Members’ Conference on An Analysis on Macroeconomic Performance of Bangladesh

An Analysis on Macroeconomic Performance of Bangladesh

CONTENTS

Page

Introduction...........................................................................................................................................4

National Income....................................................................................................................................4

Fiscal Policy..........................................................................................................................................8

Budget allocation for development and non-development expenditure..............................................11

Deficit Budget .....................................................................................................................................14

Balance of Payment ............................................................................................................................15

Credit Policy .......................................................................................................................................18

Inflation...............................................................................................................................................20

Business Regulation............................................................................................................................22

Capital Market ....................................................................................................................................22

Wealth Concentration .........................................................................................................................22

Employment........................................................................................................................................23

Poverty Alleviation .............................................................................................................................23

Recommendations...............................................................................................................................25

Annexer-1......................................................................................................................... 27-29

Annexer-2...............................................................................................................................30


Members’ Conference on An Analysis on Macroeconomic Performance of Bangladesh Page 03

An Analysis on Macroeconomic Performance of Bangladesh Introduction The economy of Bangladesh is based on agriculture, industry and Services. According to the International Monetary Fund, Bangladesh ranked as the 36th largest economy in the world in 2012 with a gross domestic product of US$ 174 billion. The economy has grown at the rate of 6 -7 % per annum over the past few years. The objective of this analysis is to have an overview on nature, motion, prospect and limitations of macroeconomic scenario prevailing in the country with various information of different sectors of economy and their analytical results which are very useful for the profession like accounts, finance etc. Recommendations as regards to tax calculation, fund allocation and ensuring transparency and accountability of public fund for ensuing national budget are also the objectives of this analytical presentation. This paper has emphasized on the nature of macroeconomic performance of the country in the recent past. To get such nature and motion, the information has been compared in some cases year to year, in some cases as a whole four to five years. The economic policy of a country represents economic growth, full employment, price stability and balance of payment stability. In view of assessing the achievement of the objective of economic policy and macroeconomic position of our country sector wise trend of national income, detailed of some important sectors, present fiscal policy, status of budget allocation for some important areas, financing for the budget, balance of payment position, credit policy, inflation scenario, employment position and poverty level have been analyzed and presented below. National Income National income is the money value of all goods and services produced in a country during a year. Calculation of national income of a country is very important, it helps to assess and compare the progress achieved by a country over a period of time .It estimates economic development and it helps to know how far development objectives were achieved. In Bangladesh every year National Income is calculated showing the contributions of various sectors. The amount of national income is increasing year after year. Sector wise contributions of last three periods (2003-04, 2007-08 and 2012-13) are presented below

Sl. No. Main sector 2003-041 2007-082 2012-133 Remarks

01. Agriculture & Forest 17.97 16.18 14.33 Decreasing 02. Fisheries 5.11 4.65 4.37 Decreasing 03. Mining 1.11 1.21 1.34 Increasing 04. Industry(Manufacturing) 16.16 17.77 19.54 Increasing 05. Electricity, Gas and Water resources 1.59 1.59 1.73 Increasing 06. Construction 8.83 9.13 9.37 Increasing 07. Whole sale and retail marketing 13.97 14.37 14.05 Decreasing 08. Hotel and Restaurant 0.68 0.70 0.75 Increasing 09. Transport and communication 9.79 10.44 10.80 Increasing 10. Financial service institution 1.65 1.81 2.16 Increasing 11. Real estate, lease and other service 8.30 7.49 6.73 Decreasing 12. Public administration and defense 2.63 2.76 2.88 Increasing 13. Education 2.40 2.58 2.90 Increasing 14. Health and social service 2.22 2.31 2.49 Increasing 15. Community, social and private service 7.59 7.01 6.54 Decreasing

Total 100.00 100.00 100.00

1 Bangladesh Economic Review -2009, P-23 2 Bangladesh Economic Review - 2013, P-21 3 Bangladesh Economic Review - 2013, P-21



The above information reflects that there is no remarkable ups and downs of the sector wise contributions of national income. It is also appeared that the contributions of Industry (Manufacturing) one of the core sector, is the increasing trend and the consequential effect of such increasing trend results the of other core sectors such as Agriculture, forest and fisheries towards decreasing trend. Apart from keeping contribution in national income the other positions, of some important sectors are described below.

Agriculture

Bangladesh is an agricultural country. Major part of Gross Domestic Product (GDP) comes from agriculture. 51% of total people directly and indirectly depend on agriculture for their livelihood. In national income contribution of agriculture sector is remarkable. Though the rate of contribution of this sector is decreasing gradually in terms of percentage, the reason behind such downward trend is not the reduction of quantitative production of this sector, rather the increasing rate of contribution of other sectors like industry, construction etc. It is worthwhile to mention that a lot of improvement has taken place in agriculture sector in comparison with the recent past. During the last few years’ shortage of fertilizer, price hike of fertilizers when season comes, sufferings of farmers for collecting the fertilizer, filing certificate case against the farmers, incurring huge loss on sale of crop were the common scenario of the country. Although all the problems have not yet been removed, no doubt the situation has improved. For example some important comparative statistics are presented below:

Element

Average of five years

(2004-2008)

Average of five years

(2009-2013)

% of increase/ decrease

Supply of Fertilizer(000 MT)4 3496 3816 9.15%Land under irrigation(Lac hector)5 56.37 65.09 15.47%Disbursement of Krishi loan(TK in cror)6 7,163 11,658 62.75%Production of food grain(Lac MT)7 311.21 375.08 20.52%Average rate of production of paddy per acre 1255 kg 1387 kg 10.52%Average cost of production of per kg paddy8 Tk. 13.73(Nov-08) Tk. 15.76 (May-12) 14.79%Average selling price of per KG paddy9 Tk. 14.00 Tk. 18.00 28.57%Average profit/loss of per KG paddy Tk. 0.27 Tk. 2.24 829%

From the above chart it appears that more or less in all the areas of agriculture improvement has taken place during the last five years in comparison with the immediate before five years. Use of fertilizer and land under irrigation has increased. Remarkable increase has taken place in disbursement of agricultural loan. Overall production cost of paddy has increased but selling price of paddy has increased at higher rate compared with that of production cost which ultimately increases the profit margin of farmers due to production of paddy. Despite having improvement still there remains a scope for development. For example the seeds which we use in our country at present give production of 3.1 MT paddies per hector. On the other hand, in Australia, Japan and South Korea production quantity is 9.5, 6.67 and 6.93 MT per hector respectively10. The soil of Bangladesh is more fertile than that of many other countries. So, the main reason behind such poor production is want of qualitative seeds. Middlemen and business syndicate are the major problem in marketing agricultural products. A substantial part of farmers of our country 4 Bangladesh Economic Review 2013, P-95 5 Bangladesh Economic Review 2013, P-97 6 Bangladesh Economic Review 2013, P-98 7 Bangladesh Economic Review 2013, P-92 8 Daily Prothom Alo, dated 29 April 2009 and 27 February 2012 9 Daily Prothom Alo 10 Daily Ittefaque 12 November 2004



normally receive their finance from NGOs and money lenders. Problem in respect of this type of loan is the high rate of interest. It is pertinent to mention that during the last 20 years almost 50 lac acres of agricultural land has been reduced. During the year 1983 the amount of cultivatable land of the country was 2crore 2 lac acres. But by the year 2005 that cultivatable land declined and stood at one crore 57 lac acres. For fulfilling the food demand of the increased population there is no other alternative to increase the rate of production. Therefore, for the development of the country whatever sector is emphasized, in no way agricultural sector should be given less priority. The priority will be relating to and to increase the production and reduce the production cost and all possible steps that need to be taken in this respect.

Fishery Fishery is other important source of national income. Almost 4.57% of national income comes from fisheries sector. As an agricultural country there remains a lot of potentiality of this sector. A substantial part of our population is directly and indirectly depends on this sector. This sector of economy of the country has come under development during last five years .For example remarkable improvement has taken place in production of fish, Despite having improvements in this sector there remain various limitations, of which absence of specific fishery policy is one. A part of village people who live on fishery are known as fishermen. They live on selling fish at market after collecting them from river, khal, beel, hawor, bawor etc.But most of the small rivers have become dry. For example, once the Tista was a river of strong current but now this Tista is a dead river. Like the Tista many rivers have become dry but no steps from the government have been taken to dredge those rivers. Most of the rivers and khal-beel areas have been grabbed by the powerful and rich people of the society. The fishermen are being hindered in catching fish by those powerful rich people. Abnormal price hike of fish catching implements such as boat, bamboo, fishing net, net color etc is another major problem for the fishermen. Most of the fishermen suffer from dearth of capital. Taking this opportunity money-lenders provide advance to the fishermen to facilitate catching fish from big river and sea. But the fishermen are compelled to sell all the fishes they catch to the money lenders at a cheaper rate. As a result no surplus value remains with the fishermen. So all of their labor and efforts are spent for the benefit of the money-lenders. Attack by pirates is another major problem for the fishermen. At the time of returning after catching of fish they are attacked by the pirates. Due to having no alternative job and due to financial stringency, the fishermen go to catch small size hilsha (Jatka) fish from the river despite government prohibition. Due to this nefarious activity every year the country loses fish valued taka three thousand crore on an average11.

Industry (Manufacturing)

In national income contribution of industry sector is remarkable. During the year 2012-13 contribution to national income from industrial sector was 19.54% as against 17.77% of that of the year 2007-08. Last six years contribution of industry (Manufacturing) sector is as under.

Year Percentage (%)12 2007-08 17.77 2008-09 17.90 2009-10 17.94 2010-11 18.42 2011-12 18.96 2012-13 19.54

11 Daily Prothom Alo, 22 April 2009 12 Bangladesh Economic Review 2013, P-21

1617181920

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13



Percentage of contribution of Industry (Manufacturing) Sector

From the above graphical presentation it appears that in national income contribution of industrial sector is in increasing trend year after year. Though the trend is increasing in this sector there remain lots of limitations. For example, there are a huge numbers of commercial organizations under the ownership of the government. Some important organizations of them are, Bangladesh Jute Mills Corporations (BJMC), Bangladesh Textile Mills Corporation, Bangladesh Sugar and Food Industries Corporation. A huge amount of establishment cost is being incurred for all the above organizations but revenue received from them is not satisfactory as compared to expenditure incurred. This results in the abnormal loss every year. The reason behind such loss of the state owned organizations are lack of proper planning, mismanagement etc. For example Sugar and Food Industries Corporation is one of the commercial organizations of the Government. But maximum units of this corporation are incurring loss every year. The main reasons of such loss are:

Less recovery rate. In Pakistan recovery rate is 9% where as in our country sugar recovery rate is less than 7%

Administrative, selling and financial overhead is abnormally high compared with that of neighboring countries

The above two reasons are mainly responsible for increasing loss by sugar mills. This is evident from the fact that despite purchasing sugarcane at higher rate sugar mills of neighboring countries are making profit. On the other hand, in our country only due to lack of proper management farmers are being deprived of profit as well as mills are incurring a huge loss.

Bangladesh Railway is another commercial organization of the Government. Every year BR is incurring huge amount of operating loss . The reason behind such loss is less price of ticket compared to its cost of service. But still there remain various other reasons of such abnormal operating loss.

There are more than 1670 acres of land under the ownership of Bangladesh Railway and they are under the illegal possession of influential people of the country. As a result BR is being deprived of revenue from those lands approximately of Tk. 50 crore in each year.

Abnormal consumption of fuel is also another reason of such huge operating loss.

Micro Industry

Micro Industry is another sub sector of national income. This sector includes various categories of micro industries. For example, various metallic industry, chemical industry, wood industry, hand loom, bamboo and cane industry, various cottage industries etc. Last six years contribution to national income by Micro Industry is above five percent. Another important contribution of this sector is that a major part of the total population remains involved with this sector. But this sector is suffering from various disadvantages. For example, shortage of adequate capital is one of them. According to a survey report as prepared by MIDAS during the year 2003 almost 5,64,658 micro enterprises had been closed down, 51% of which were due to want of adequate capital. As per another report of Asian Development Bank (ADB) in the year 2001 the growth of micro industries was being hindered seriously due to want of capital. Though substantial improvement has taken place but it cannot be denied that still there remains scarcity of capital for this sector. For example news published in the daily Prothom Alo on 18 February 2014 that due to shortage of capital poultry firms is suffering. Lack of capacity of maintaining proper accounts is another obstacle to flourish the micro industry.



Electricity

Electricity is another important sector of national income. Almost 1.29% of national income comes from this sector. It will be agreed by everybody that contribution to national income is not the objective of this sector. Main objective of this sector is to keep running all the economic activity of the country. The situation of electricity of the country six years back is known to all when there were 18 electric generation centers which included 85 electricity generation units. The ages of 36 units out of the 85 range from16 to 41 years. Generally by 15 years a unit becomes obsolete. Within last six years tremendous improvement has taken place in electricity generation and supply condition. During the 2006-07 installed power generation capacity was 3718 MW13 and maximum power generation was also 3718 MW. During the month of May 2014 installed power generation capacity arrived at 10,241 MW and maximum power has been generated as on 31 March of current year 7356 MW14. So, within six years electricity generation capacity has improved by 129% which is no doubt a remarkable achievement.

Wholesale and Retail

Wholesale and retail are other important sources of national income. On an average 14.44% of national income comes from this sector. Though this sector is contributing substantial part of national income, the general people specially end consumers of the products are not satisfied with the pricing of products as determined by the wholesalers and retailers. Main objections are:

Business syndication is the main problem in our country as regards to wholesale business. Specially, in case of imported product wholesalers determine the sale price altogether jointly at a high rate for earning more profit which creates financial burden on the general consumers of the country.

In case of essential products there remains a huge price gap between the wholesale price and the retail price. In some cases as regards to essential products it is found that products of retail level were being sold to the consumers at a markup of more than 40% above its wholesale price which is considered to be abnormally high.

Fiscal Policy

Fiscal policy means policy related to National Exchequer’s activities. The main objective of the National Exchequer is to properly manage income and expenditure of the government. The main sources of income of the government are tax and non-tax receipts. On the other hand, government expenditure covers revenue expenditure. Each and every year the government announces its fiscal policy in its budget. Budget is not merely a statement of revenue receipts and expenditure of the government; rather it reflects the economic activity and revenue policy of a particular period of time. Each year the government announces two types of budget in which expected revenue income and expenditure of a financial year are mentioned. The main sources of revenue income are income Tax, Value added tax, import duty, wealth tax, stamp duty etc. The main sectors of revenue expenditures are education, health, defense, agriculture, rural development etc. Apart from the revenue budget each year government prepares an Annual Development Plan (ADP) for development of the country. The main sources of fund of Annual Development Plan are surplus of revenue budget, foreign aid, donation from foreign countries, imposition of additional tax etc. We can look at the following table of revenue collection as one of the main elements of fiscal policy of last seventeen years15.

13 Bangladesh Economic Review 2013, P-160 14 www.bpdb.gov.bd 15 Bangladesh Economic Review 2013, P-314 & 315. Year 2013-14 from Budget of 2013-14



Year Total Revenue Taka in

crore

Tax Revenue Taka in

crore

Non-Tax revenue Taka in

crore

% of GDP

% of increase

of revenue

% of increase

of tax revenue

% of increase of

non-tax revenue

1997-98 19020 15390 3630 9.50% 9.40% 7.92% 16.20%

1998-99 19767 16167 3600 9.00% 3.93% 5.05% -.83%

1999-00 20074 16079 3995 8.47% 1.55% -0.54% 10.97%

2000-01 24342 19778 4564 9.60% 21.26% 23.01% 14.24%

2001-02 27893 21332 6561 10.21% 14.49% 7.86% 43.76%

2002-03 31120 24950 6170 10.35% 11.57% 16.96% -5.96%

2003-04 35400 28300 7100 10.63% 13.75% 13.43% 15.07%

2004-05 39200 31950 7250 10.57% 10.73% 12.90% 2.11%

2005-06 45722 37312 8410 10.99% 16.64% 16.78% 16.00%

2006-07 52542 41055 11487 11.30% 20.40% 10.30% 36.00%

2007-08 60,539 48,012 12,527 11.30% 15.22% 16.95% 9.05%

2008-09 69,180 55,526 13,654 11.25% 14.27% 15.65% 9.00%

2009-10 79,484 63,959 15,528 11.50% 14.89% 15.19% 13.72%

2010-11 95,187 79,052 16,135 12.09% 19.76% 23.60% 9.75%

2011-12 114,885 96,285 18,600 12.79% 20.69% 21.80% 15.28%

2012-13 139,670 116,824 22,846 13.45% 21.58% 21.33% 22.83%

2013-14 167,459 141,219 26,240 14.09% 19.90% 20.88% 14.86% From the above chart it is observed that revenue and tax revenue of last four years at higher rate compared with those of previous years. Average increasing rate of revenue for the financial years from 2009-10 to 2012-13 was 19.23% as against that of 15.45% for the financial years from 2004-05 to 2008-09.It is pertinent to mention that the main reason behind such increase of revenue is the increase of tax revenue which is the main income for the state, funding public expenditure and other costs, tangibly expressing the common efforts of the community. Taxes are good ways for financing the costs of public goods and expenditure whose consumption by one person does not decrease the consumption by others and, at the same time, for which it is costly or impossible to prevent consumption. Composition of direct and indirect tax is another important issue to be paid attention to. Year wise direct and indirect tax collection position are presented below16: 16 Bangladesh Economic Review 2013, P-314 & 315. Year 2013-14 from Budget of 2013-14



Year Direct tax

Taka in crore

Indirect tax Taka in crore

Direct tax as % of total tax revenue

Indirect tax as % of total tax revenue

2001-02 4,100 16,630 19.8 80.2 2002-03 4,789 18,961 20.2 79.8 2003-04 5,270 21,780 19.5 80.5 2004-05 5,850 24,650 19.2 80.8 2005-06 6,960 28,690 19.5 80.5 2006-07 8,539 32,516 20.8 79.2 2007-08 11,005 34,965 23.9 76.1 2008-09 13,538 39,462 25.5 74.5 2009-10 16,560 44,440 27.2 72.8 2010-11 22,105 53,495 29.2 70.8 2011-12 28,.061 64,309 30.4 69.6 2012-13 35,300 76,959 31.5 68.5 2013-14 18,332 41,146 30.8 69.2

Direct tax as % of total tax revenue (Series 1) Indirect tax as % of total tax revenue (Series 2)

From the comparison of direct tax and indirect tax, as collected through NBR, it appears that incidence of indirect tax is approximately four times of direct tax. During the year 2002-03 contributions of direct tax and indirect tax were 19.8% and 80.2% respectively. A remarkable change has taken place composition of direct tax and indirect tax form the year 2008-09 when contributions of direct tax and indirect tax was 25.5% and 74.5%. It is also important to mention that such composition has reached at 31.5% direct tax and 68.5% indirect tax. Main observations as regards to the direct tax are that the tax which is being collected in the name of direct tax is also contributing a negative impact in the society as an indirect tax only because of its collection procedure. As mentioned earlier, the main characteristic of direct tax is, it is progressive and cannot be shifted on others. But in many cases the present collection procedures of direct tax are facilitating to shift tax payers tax liability to others. An example may be presented to make it clear. According to the fundamental principles of tax law, tax payable amount of a company will be determined based on its net profit as presented in its annual audited financial statements. If the company earns a net

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Series1Series2



profit, it will have to pay tax at a determined rate. On the contrary, if the company incurs a loss for a particular period of time, it will not have to pay any tax. Suppose a company X earned Tk.200 net profit in the year 2011. In that case it will not be able to distribute full amount of Tk.200 as dividend among its shareholders. It will have to pay Tk.75 as tax (assuming tax rate is 37.5%) to the government and the balance Tk.125 may be distributed among its shareholders as dividend. So, according to principle of direct tax the excess purchasing power will be taken away by the amount of Tk.75 from the shareholders of the company. There is no scope to shift this tax liability on others by the shareholders of the company X. But presently there is a tax law by dint of which tax of the company X is not collected based on net profit, it is collected on turnover/revenue of the company. Suppose the company X is selling its goods to the company Y (customer). Under the tax law, the company Y is given the responsibility to deduct tax from the sales price of the company X which is considered as the final tax irrespective of year-end profit or loss. Under this system if the company X sells goods of Tk.100 to the company Y, tax of Tk.4 (assuming rate of tax deduction at source is 4%) will be deducted by the company Y and Tk.96 will be paid to the company X. The company X knows that Tk.4 which has been deducted by the customer will not be refunded despite incurring the loss at the end of the year. Therefore, it will be considered as cost not as tax payment in advance. Since this tax will be considered as cost, subsequently the company X will increase the sale price of the product to Tk.104 as against Tk.100 so that after deducting tax it can get Tk.100 as before. By this manner the company X gets opportunity to shift its tax liability to its customers and according to the principle of indirect tax it is contributing to increase the rate of inflation as well as inequality in the society. This system of direct tax is distorting not only the principle of direct tax but also the accounting system. Budget allocation for development and non-development expenditure

As earlier mentioned through the fiscal policy collected revenue is spent for different purpose, such as development of human resources, ensuring social safety, defence etc. All the expenditure must be for the welfare of the general people. Some observations on the allocation and utilization of fund are presented below;

Health services

Health sector is an important sector of the country. Budget allocation for last five years is as follows17.

Year Taka in crore

% of total budget

2009-10 6,271 6.18%

2010-11 7,287 5.68%

2011-12 7,667 5.03%

2012-13 9,130 4.82%

2013-14 9,470 4.26%

% of total budget (Series 1)

17 Budget for the year 2013-14



During the last couple of years some mentionable advancement has taken place in this sector. Reduction of death rate of five years below children and death due to pregnancy from 65 per thousand to 53 per thousand and from 3.48 per thousand to 1.94 per thousand respectively is one of them. Due to reduction of child death rate, receiving United Nations MDG Award by the Prime Minister is a remarkable achievement. Despite having achievement as mentioned above there remain lots of problems in this sector. Some of them are, in many hospitals of the country there is shortage of various components such as sufficient number of doctors, nurse, ambulance, generator etc. People are not getting proper treatment from the hospitals. Medicine shortage is a common scenario for all the hospitals of the country. According to the opinion of the specialist, through utilizing the present staff strength and instruments properly providing health service is possible to 60% people, but according to a survey report published in the daily news papers only 22% people of the country are getting health service from the public health organization, while those organizations are run by the finance which is collected from general people of all walks of life18. Another adverse information in this sector is undesired existence of differential treatment of the rich and the poor people. According to the survey of World Bank, Directorate of health and Central Medicine Store, it has been observed that half of medical equipments are not utilized for service of the people, packets are not opened in case of 21% equipments.11% equipments are damaged before use. 10% equipments are partially and another 11% equipments are not used despite having usable condition19. During the year 2012 the survey was conducted on 50 hospitals of Dhaka, Khulna and Sylhet divisions. Based on the scenario as described above it will be logical to mention that whatever might be the success and limitations of the sector which is responsible to fulfill the fundamental rights of the nation it can be said that allocation of budget for health sector is not sufficient.

Interest payment:

A major part of revenue budget is spent for interest payment on loan from internal and foreign sources. During the last six years budget allocation for payment of interest is as follows20:

Year Interest payment

% of budget

2008-09 15,358 17.20% 2009-10 14,867 14.64% 2010-11 15,622 12.18% 2011-12 20,351 12.44% 2012-13 23,347 12.18% 2013-14 27,743 12.47%

Budget allocation for payment of interest

Interest is a non productive expense. Every year a huge amount is being spent for interest purpose. Again, according to economic theory, excess interest cost hampers the economic growth of a country. Eventually interest is such a cost which may increase in such a manner that after payment of interest cost there may not have any money left over for anything else. To avoid this situation the only way is to keep constant monitoring on the trend of national debt and the interest cost of the budget. It is pertinent to mention here

18 Daily Ittefaq, 11 February 2005 19 Daily Ittefaq, 29 February 2014 20 Budget for the year 2013-14

010,00020,00030,000

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-09

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-10

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-11

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-12

2012

-13

2013

-14



that the rate of payment for interest expenses is in increasing trend. During the year 1974 when the country was under reconstruction expenses for payment of interest was only five percent but by increasing such rate in the FY2011-12 that has arrived at 17.5 percent of total non-development expenditure. So the rate of increasing the interest expenses is not negligible at all.

ADP Implementation

As earlier mentioned, Annual Development Plan (ADP) is one of the elements of budget. Usually in every year the original allocation figure and the revised figure testify completely different picture. Below are the twenty one years ADP pictures presented21.

Financial year Revised ADP Tk in crore

Actual ADP implementation Tk in crore

Rate in %

1991-92 7,150 6,024 84 1992-93 8,121 6,550 81 1993-94 9,600 8,983 94 1994-95 11,150 10,303 92 1995-96 10,447 10,016 96 1996-97 11,700 11,041 94 1997-98 12,200 11,037 91 1998-99 14,000 12,509 89 1999-00 16,500 15,471 94 2000-01 18,200 16,200 89 2001-02 16,000 14,090 88 2002-03 17,100 15,434 90 2003-04 19,000 16,796 88 2004-05 20,500 18,771 92 2005-06 21,500 19,473 91 2006-07 21,600 17,916 83 2007-08 22,500 18,455 82 2008-09 23,000 19,668 86 2009-10 28,500 25,917 91 2010-11 35,880 33,007 92 2011-12 41,080 38,020 93

The shortfall of implementation of Annual Development Plan (ADP) is one of the obstacles of economic growth of the country. In implementing ADP the unique feature observed is that during half of the year the implementation is very poor and slow, in terms of expenditure. Instances are presented below. 21 Bangladesh Economic Review 2013, P-319



Name of the period Period covered ADP implementation status July to December 06 6 months 25%

July 07 to February 08 8 months 30%

July 08 to January 09 7 months 34%





From the above chart it appears that during the first seven months of financial year (2012-2013) i.e up to January 2013 the ADP has implemented only 38% of total target. Without achieving the real output the last half becomes booming. In many cases it has also been seen that after partial completion of a project under the ADP no further allocation is given and as such, the project remains incomplete for long period of time. Due to having incomplete projects including road, bridge, culvert etc they do not come into use of the general public. On the other hand, the main part of ADP finance comes from foreign aid, donation, loan etc. For foreign loan interest has to be paid. This is also another form of misuse of government fund.

Deficit Budget

Deficit budget is one where the estimated government expenditure is more than expected revenue. Though a healthy practice for any government is to have a balanced budget, in the developing countries like Bangladesh, where huge resources are needed for the purpose of economic growth & development, it is not possible to raise such resources through taxation. Deficit budgeting is the only option and accordingly every year the government is preparing and implementing deficit budget. As regards to the amount of budget deficit, there remains a lot of debate. In recent years the amount of budget deficit is being maintained more or less five percent of GDP .It is true that for economic development of our country deficit budget is essential, but there remains a question how far the maintenance of the amount five percent of GDP, which is equivalent to almost 30 percent of total budget, is reasonable. It will have to keep in mind that budget deficit increases national debt, more national debts compel to pay more interest and more interest cost plays positive role to increase the budget deficit.



So, to keep control over the amount of interest payment with a view to not hampering the economic growth of the country it is essential to watch the amount of national debt. The amount of such national debt can only be possible to be calculated correctly when budget deficit is reconciled with the national debt. Another important aspect is the calculation procedure of the of budget deficit. When a government plans to spend more than its income, it resorts to financing the additional spending through a budgetary deficit. So, the traditional definition of a budget deficit is the difference between total government expenditure and the revenue received. But a complete and technical definition of deficit will be the difference between the size of the government debt at the end of the year and the corresponding size of the debt a year later. Thus, the budget deficit is funded by a national debt. Actually the national debt is the accumulation of all the budget deficits for every year since the country has been in existence. In our country since its existence budget deficit has been being determined on the basis of traditional method. Due to calculation of budget deficit by this method and having no reconciliation system, there remains a huge difference between the accumulated balance of budget deficit and the balance of national debt which may create question about the completeness of accumulated balance of budget deficit. In the context of Bangladesh economy calculation of budget deficit through technical method is essential. Because more budget deficit assists to increase the national debt. Since the date of independence of Bangladesh to 30th June 2012 according to previous budget records total revenue collected by the different governments of the country is Tk. 867,649 crore (annexer-1). During the same period total non-development expenditure incurred Tk. 763,648 crore and development expenditure incurred Tk. 395,521 crore i.e total expenditure (development and non-development) incurred Tk. 1,159,169 crore (annexer-1). So, the accumulated balance of deficit finance as on 30th June 2012 is Tk. 291,520 crore. According to economic theory total debt balance of the country as on 30th June 2012 should be Tk. 291,520 crore. Taking information from different sources it is seen that as on 30th June 2012, balance of foreign loan is Tk. 174,765 crore22, balance of loan from bank is Tk. 92,028 crore23 and loan by selling savings certificates is Tk. 63,917 crore24. Total debt balance as on 30th June 2012 is Tk. 330,787 crore. From the above calculation it may be observed that there remains a difference of Tk 39,190 crore between accumulated deficit balance and total debt balance as on 30th June 2012. Balance of Payments The Balance of Payments is the summary statement or statistical record of a country’s international economic transactions with the rest of the world over a certain period of time presented in the form of double-entry bookkeeping. Stability of Balance of Payment is one of the important tools to measure the macroeconomic performance of the country.

22 Bangladesh Economic Review 2013, P-363 (Dollar converted into BDT applying prevailing rate) 23 Bangladesh Economic Review 2013, P-326 24 Bangladesh Bank Monthly update March 204, P-20



Balance of payment position of our country of the year 2013-14 (July-Dec) compared with that of the year 2005-06 is presented below.

Head of account Balance for the year 2005-06 (USD in million)25

Balance for the year 2013-14 (July-Dec) (USD in million)26

Export 10,422 14,511 Import 13,301 16,947 Balance of Trade (2,879) (2,436) Service (1110) (1,899) Receipt 1296 1676 Payment 2406 3575 Income 4561 6030 Receipt 5481 7245 Payment 920 1215 Current Account 572 1695 Capital account 242 216 Finance Account (24) 259 Errors and omission (425) 310 Overall Balance of Payment 365 2,480

From the above details it is revealed that despite having negative position of all the areas such as balance of trade, service, finance etc, the balance of payment position of the country is surplus. During the six month period from July to December 2013 overall Balance of Payment arrived at $ 2480 million. During the year 2005-06 the overall balance of payment position was $ 365 million. So, balance of payment position for the year 2013-14(first half) has increased compared with that of the year 2005-06 by almost 14 times. Major contribution of such improved position of balance of payment is the increasing trend of foreign remittance which is being earned by the manpower export in various countries of the world and Foreign Direct Investment (FDI). Foreign remittance

Foreign remittance has substantial contribution to make the position of Balance of Payment positive in our country. Foreign remittance status of last seven years is presented below:

25 Bangladesh Economic Review 2013, P-360 26 Bangladesh Bank Web 27 Bangladesh Economic Review 2013, P-360 & Bangladesh Bank Web

Year Foreign remittance (USD in million)27

2005-06 4802 2006-07 5979 2007-08 7915 2008-09 9689 2009-10 10987 2010-11 11650 2011-12 12843 2012-13 14461 2013-14 (July-Feb) 9207



02000400060008000

10000120001400016000

2005-06 2007-08 2009-10 2011-12 2013-14

Foreign remittance US$ in million

Although above information clearly represents that the amount of foreign remittance is in increasing trend the manpower export from Bangladesh is declining. Manpower export has declined because in importing countries of manpower, employment has been falling due to recession, also wages have been falling. In this connection not only the export of manpower is declining but also the amount of repatriation is increasing. For example during the first six month of 2010 the number of repatriation was 26,095 but increasing such number during the same period of the year 2011 arrived at 61,000. So the amount of foreign remittance which is the only source of maintaining our balance of payment position is being affected in both the ways of export and repatriation. However, very recently the situation is improving due to taking various steps by the present government.

Foreign Direct Investment

Increasing trend of foreign direct investment is another reason of improving Balance of Payment position. Foreign Direct Investment (FDI) is such investment where the investor invests his savings to a business beyond his own country. In Bangladesh the first idea of Foreign Direct Investment was conceived as a means of disinvestment of nationalized industries. With this objective, Foreign Private Investment Development and Protection Act 1980 and Bangladesh Export Processing Zone Act were promulgated. But no remarkable result was achieved. Subsequently, due to creation of foreign market of readymade garments foreign investors were attracted to invest in Bangladesh. Meanwhile, Investment Board Act 1989 was promulgated. Separate Export Processing Zone (EPZ) was also established. Special facilities also were offered to the investors’ thorough national budget. Services of different infrastructures such as gas, electricity, water, etc were also extended gradually and FDI also increased day by day. Discovery of significant gas fields further stimulated financial potentiality of Bangladesh, Trade and exchange liberalization, current account convertibility, emphasis on private sector development, liberalization of investment regime, and above, extending of infrastructure and service facilities to the private sector are some of the underlying factors which promoted the flow of FDI into Bangladesh during 1990s.

Statistics of last five years Foreign Direct Investment is as follows28:

Year USD in million 2008-09 960.59 2009-10 913.02 2010-11 779.04 2011-12 1194.88 2012-13 1730.63

Foreign Direct Investment (US$ in millions)

Though the trend of FDI in Bangladesh is increasing, no doubt the country is lagging behind to attract more FDI in comparison with other neighbouring countries. Reasons behind such lacking are: Government policy is obviously an important factor influencing inflows of FDI; there are other equally 28 Bangladesh Bank Web

0

500

1000

1500

2000

2008-09 2009-10 2010-11 2011-12 2012-13

Serie…



important factors. So far as the investment related policies of the government are concerned, these are fine in spirit, but their actual implementation continues to create obstacles for both local and foreign investors. An inefficient and not-too honest bureaucratic system is primarily responsible for this problem. All the administrative barriers are in fact generated from this non-investment-friendly bureaucratic system.

Balance of Trade

One of the major components of Balance of Payment of a country is Balance of Trade. From the inception of our country balance of this component is negative. Last couple of years export and import position is presented below29.

Year Export Import Import as percentage of export 2005-06 10,526 14,746 140% 2006-07 12,178 17,157 141% 2007-08 14,111 21,629 153% 2008-09 15,565 22,507 145% 2009-10 16,205 23,738 146% 2010-11 22,924 33,658 147% 2011-12 24,288 35,516 146% 2012-13 26,900 34,300 128%

Import (Series 1) & Export (Series 2) Above data of export and import reflect that the export position as well as the import position of the country is in increasing trend almost at the same rate. As a result there is no contribution of balance of trade to improve the Balance of Payment position of the country. Credit Policy

Capital is one of the essential elements of any industry and business enterprise. This capital is supplied by the entrepreneurs and by the bank or financial institutions. Without capital provided by the bank or financial institutions in the form of loan, no industry or business enterprise can be operated. So, in consideration of contribution to national income banking sector may not be so important but to keep the economy running 29 Bangladesh Economic Review 2013, P-79 & 80. Year 2012-13 from budget of 2013-14.

05,000

10,00015,00020,00025,00030,00035,00040,000

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

Series1Series



and to create the employment opportunity banking sectors’ contribution is invaluable. Despite having such a lot of contribution in the economy, adverse impact for abnormal rate of default loan is a remarkable issue for banking sector which distorts the credit policy of the country. Default loan balance of banking sector of the recent past is presented below30.

Year Loan balance Amount of default loan % of default loan 2010 3,62,185 22,709 6.27% 2011 3,78,247 23,149 6.12% 2012 4,38,615 42,726 9.74% 2013 4,76,151 40,583 8.52%

Up to the end of December 2011 default loan total amount of Tk. 20,844 crore was written off31. Taking into consideration of such written off loan total volume of default loan arrived as on December 2013 Tk. 63,570 crore which was 13% of total outstanding loans and advances. It is worthwhile to mention that at the end of the year 2004 amount of total default loan was Tk. 18,727 crore. After nine years the amount of default loan increased more than three times. Other important issue of prevailing credit policy of the country is that as an agricultural country, agricultural sector of Bangladesh is a thrust sector .Small scale and cottage industry is emphasized by all the governments to reduce the poverty of the country. Total contribution of agriculture and small scale and cottage industry is almost 20% of GDP. Despite having a remarkable contribution in national income, there is a serious discrimination in disbursement and recovery of loan for agriculture, small scal & cottage industry. Outstanding loan balance of agriculture and small scale & cottage industry of the recent past is presented below.

Particulars Outstanding loan balance as at the end of year 2013

% of total loans and advance

Total loans and advance 4,76,151 Agricultural loan32 28,841 6% Small scale and cottage industry33 5,792 1%

In consideration of outstanding loans and advance balance from the above chart it appears that agricultural and small scale & cottage industry are holding only 6% and 1% respectively which are very

30 Daily Prothom Alo of 25 February 2012, 18 February 2014 and Bangladesh Bank Web. 31 BD News.com 25 January 2013 32 Bangladesh Economic Review 2013, P-331 33. Bangladesh Bank Monthly Update March 2014, P-10

Based on Percentage of default loan Based on amount of default loan



negligible in consideration of contribution to the national economy in the form of income and employment generation of those two sectors. Inadequate disbursement of loan for the agricultural, small scale and cottage industry is not the only problem of present credit policy of the country. Abnormal pressure for recovery of such loan is also another hindrance to grow the agriculture, small scale and cottage industry sectors. In this connection at the end of the year 2013 total default loan of agricultural sector, is only Tk 5897 crore which is 14% of total classified loan. But to recover such loan, farmers are pressurized in different manners which are completely against the growing environment of those sectors. It is pertinent to mention here that farmers feel fear thinking that if the loans are not repaid timely, certificate case will be filed against them. In this connection for example two circumstances as published in the daily news papers may be mentioned. According to news published in the daily Ittefaq on 24 March 2012, total 173 certificate cases have been filed against the farmers to collect the default agricultural loan of only Tk3,156,000 by one of the state owned commercial banks. But on the other hand according to news published in the daily Prothom Alo of 2 April 2012 one large industrial loan, balance of which is almost Tk 22 crore, has been rescheduled thirteen times without following the norms of rescheduling by the same state owned commercial bank .The present market value of collateral of such loan is only Tk 2.23 crore. So in respect of recovery, the loan is completely doubtful. But in spite of knowing the fact the loan has been rescheduled by the bank. Comparing the fact of these two loans it can be mentioned that in the present credit policy of the country there remains discrimination as regards to sanction, disbursement and recovery of loan to lower income level people and to higher income level people. Due to these problems many farmers prefer to obtain finance from NGOs and money lenders. Due to obtaining loan of high rate of interest farmers of the country as a whole have to incur extra burden of huge interest every year. So, it is needless to present any other example or data to prove that present credit policy needs some revision to increase the economic growth, create employment opportunity and reduce economic inequality of the country.

Inflation

Inflation is another vital issue for hindering macro economic growth in our country. Year on year, inflation has risen rapidly though mostly in FY2011, settling at 10.2% in June 2011.After June 2011 inflation rate is also not satisfactory. Inflation position of recent past is as follows.

Year/Month Rate of inflation34 2007-08 9.9% 2008-09 6.7% 2009-10 7.3% 2010-11 8.8% 2011-12 10.6% 2012-13 7.5%

December-13 7.4% January-14 7.5%

February-14 7.4%

During first half of financial year 2011-12 average inflation rate arrived at 11.31% which seems to be higher. Though from the above chart it seems that after the FY 2011-12 inflation rate is in downward trend but still it appears to be high. Due to existence of high inflation rate the people of lower income level are facing serious financial constraint. According to the information of a survey report published recently that the costs of food, conveyance, house rent and medical treatment have gone up almost 34 Bangladesh Economic Review 2013, P-26



double compared with the recent past .Abnormal rate of inflation has also contributed to economic inequality. There are various reasons of inflation. In our country money supply is being increased year after year. The growth of broad money supply compared with some important goods (rice, wheat, fish, milk, meat, fertilizer, cement & petroleum) available for consumption is presented below.

Particular 2007-08 2012-2013 Average Growth rate

Amount of broad money supply(M2)35 248,795 crore 565,906 crore 20% Goods available for consumption (annexer-2) 450.49 Lac MT 499.75 Lac MT 2%

From above table it may be observed that during the year 2007-08 total amount of broad money supply was Tk. 248,795 crore, during the year 2012-13(December-2013) that broad money supply arrived at Tk. 565,906 crore i.e. an average per year growth rate was 20%. But the average growth rate of some important consumable goods was only 2%.Example as presented above reveals the higher supply of money which is one of the reasons of prevailing inflation of the country.

Increase of fuel price in global market is one of the reasons of price hike of essentials in local market. Due to increase of fuel price, production cost and carrying costs of the products are increasing.

Abnormal dependency on indirect tax is one of the reasons of instable price of goods. Due to charging indirect tax in the form of duty and value added tax, the cost of the commodity increases and it contributes for cost push inflation. For example during the year 2004-05 total indirect tax was collected Tk. 25 thousand crore but in the year 2011-12 the amount of collection of indirect tax is Tk. 64 thousand crore. The yearly average rate of increase of indirect tax is 15% which seems to be abnormally high.

Abnormal devaluation of local currency compared with foreign currency is one of the reasons of price hike of commodities. Especially during recent years this has happened abnormally. For example as on 31 December 2009 one dollar was equal to 69.27 taka, on the same date of 2010 by decreasing 2.13% value of one dollar arrived at 70.75 taka. But after one year i.e. as on 31 December 2011 by decreasing almost 16% value of one dollar stood at 82 taka. Due to the devaluation of the local currency in such manner prices of imported goods have gone up abnormally

Due to increase of prices in international market especially abnormal price hike of fuel and other food items in international market prices of essential commodities in local market have increased. From a research activity it has been published recently that due to increase of price in international market, purchasing capacity of poor people has reduced at 11%36.

Abnormal increase of government expenditure is playing a vital role to increase the inflation in the country. During the year 2008-09 total amount including development and non-development expenditure was spent Tk. 89,316 crore but in the budget of financial year 2013-14 that amount has been estimated Tk. 222,491 crore. Average rate of increase of annual expenditure is more than 20%.

Relaxed monetary policy is also another cause of high rate of inflation. Especially in the recent years loans have been disbursed abnormally. According to the information during the year 2009 there was a huge amount of liquid assets in the nationalized commercial banks. For example at the end of the year 2008 total amount of liquid assets in the nationalized commercial bank was Tk. 20 thousand crore. During

35 Bangladesh Economic Review 2013, P-324 36 Daily Prothom Alo, 16 October 2011



last three years the bank disbursed loans in such a manner that all the nationalized banks have been suffering due to shortage of liquid fund. All the nationalized banks are to be maintaining their Cash Reserve Rate (CRR) by taking short term loan from other commercial banks. Due to relaxed monetary policy during the years 2010 and 2011 the growth rate of public consumption was 8% whereas in the years 2008 and 2009 such growth rate of public consumption was 6%.This incremental rate of public consumption creates demand pull inflation.

Business Regulation Marketing of products at reasonable price is another important element for economic growth. Lower margin of agricultural, small and micro enterprise products compared to that of large and medium scale industrial products contributes to increase the economic inequality of the country. In our country one of the hindrances to grow the small and micro enterprises is to sell the products at reasonable price. Lower selling price at farmer level of various agricultural products such as potato, paddy and others are the examples of the situation described above. The main reason behind such marketing scenario is the absence of business regulation. Besides, the mentioned example above, there are many other problems for proper marketing of products of small and micro enterprises. Middlemen and business syndicates are the major problems in marketing the agricultural products. So from above discussion it reveals that lack of proper marketing system is contributing for increasing the economic inequality of the country. Business syndication is the main problem in our country as regards to wholesale business. Specially, in case of imported products, wholesalers determine sales price altogether jointly at a high rate for earning more profit which creates financial burden on the general consumers of the country.

As elsewhere mentioned of this paper in case of essential products there remains a huge price gap between wholesale price and retail price. In some cases as regards to essential products it is found that products of retail level were being sold to the consumers at a markup of more than 40% above its wholesale price which is considered to be abnormally high.

Capital Market

In national income Capital Market has substantial contribution but till to date this market has not achieved full confidence of the investors. One of the adverse scenarios is the concentration of market capital. According to the latest information in terms of one analytical result of sector wise involvements of capital market, it reveals that almost 50% of total market capital is invested under one sector which is banking sector. In respect of sector wise dividend payout ratio the banking sector also remains at first position. The investors of our country are not well educated in this area; as a result sometimes without having genuine basis market price of shares is being increased and/or decreased. Nevertheless, there remains a considerable scope to improve the capital market. Present volume of market capital of our country is only 25.50% of GDP, whereas in Pakistan it is 36.2% and in Sri Lanka 32.01%. Wealth Concentration

Wealth concentration is a theoretical process by which, under certain conditions, newly-created wealth concentrates in the possession of already-wealthy individuals or entities. According to this theory, those who already hold wealth have the means to invest in new sources of creating wealth or to otherwise leverage the accumulation of wealth, thus are the beneficiaries of the new wealth. Over time, wealth condensation can significantly contribute to the persistence of inequality within society.



As example of wealth concentration, savings from the upper-income groups tend to accumulate much faster than saving from the lower-income groups. Upper-income groups can save a significant portion of their incomes. On the other hand, lower-income groups barely make enough to cover their consumptions, hence only capable of saving a fraction of their incomes or even none. Assuming both groups earn the same yield rate on their savings, the return on upper-income groups’ savings are much greater than the lower-income groups’ savings because upper-income groups have a much larger base.

In our country there remains a serious wealth concentration. One of the important categories of wealth is land. According to news published in the daily news paper, in one hand 50 percent of total population of the country is completely landless; on the other hand only 6.2% of total population is holding 40% of total land of the country37. So this example reveals the existence of serious wealth concentration of the country.

Employment

Full employment is one of the criteria of sound macroeconomic position of a country. Present unemployment rate is 4.59% and in the year 2005-06 the rate was 4.24%.A table showing the data of unemployment position of the two periods is presented below38.

Particular 2005-06 2010 Total workforce(in millions) 49.5 56.7 Employment workforce(in millions) 47.4 54.1 Unemployment (in millions) 2.1 2.6 % of unemployment 4.24% 4.59%

The above table shows that both the employment and the employment workforce are in increasing trend. Although the main reason of increasing unemployment is population growth it has recently lessened to moderate to 1.34% per year, but the working age population have been expanded at 2.5% to 2.8%.However, government has taken initiative to reduce the unemployment problem. For example, to create employment opportunity with the view to making the young unemployed boys and girls total taka 11.90 billion (1189.76 crore) has been disbursed during the period from 2009 to February 2013.Through this programme total 563,211 employment opportunities have been created.

Another important issue in labour market is the determination of wages by the market. Under the law of supply and demand, the price of skill is determined by a race between the demand for the skilled worker and the supply of the skilled worker. The price rises when demand exceeds supply, and vice versa. For a businessman who has the profit motive as the prime interest, it is a losing proposition to offer below or above market wages to workers. The data of the table presented above show that during the year 2013 total demand of labour is 57 million as against the supply of total labour in same time is 59.6 million. So, the demand of labour is lower than its supply which results lower rate of wages with the consequential effect of contribution to economic inequality in the country. To address this issue government has recently promulgated the law determining the minimum wages rate. However, necessary steps to determine the minimum wages by the respective authority is not sufficient.

Poverty Alleviation

Poverty is one of the economic problems in our country. At present 31 percent people of the country live below the poverty level. Again according to global hunger index, 41.4 million (4.14 crore) people i.e. almost 26 percent of total population are affected for want of nutrition. One of the reasons of poverty is 37 Daily Ittefaque, 11 December 2004 38 Daily Prothom Alo, 29 January 2012



prevailing inflation at high rate. As per one calculation, if food price increases at 10 percent, 2.5 percent people of the country come below the poverty level39. Due to high rate of inflation national consumption cost has increased at higher rate than income increasing rate. According to news published in the Daily Prothom Alo dated 12 December 2012, during the five years period from year 2005 to year 2010 income has increased by 59% but consumption cost has increased by 84%. As a result national savings is not increasing expectedly and invesstment are decreasing instead of increasing. Another important cause of poverty is lack of policy to create a fairer distribution of income and wealth. But the economic policy especially monetary policy, fiscal policy and allocation of resources are not adequate in favour of ensuring fairer distribution of income and wealth. For example under fiscal policy abnormal dependency on indirect tax and dependency on deficit finance cause the inflation of a country. In our country more than 80 percent fund of budget comes from sources which is inflationary in nature. The policy of allocation of resources in the national budget is also not in support of the poor people of the country. As an agricultural country a major part of poor people are under the agricultural sector. If we look at the allocation of resources for agriculture sector in recent past, it can be seen that the allocation is in downward- trend. In the agricultural sector, total development and non development expenditure has been estimated in the budget of financial year 2012-13 Tk. 122,759 million which is almost 18 percent lower than that of the previous year. Total budget has been increased 16 percent compared to that of the previous year. If we consider the inflation, allocation in agricultural sector has been reduced by 21 percent. Similarly, to support the poor people, another sector is health. Poor people are not able to take modern medical treatment from modern hospitals. They are to depend on district, upazilla and union parishid level government hospitals. In the budget of financial year 2013-14 Tk. 94,700 million has been allocated under health sector which is only four percent higher than that of the last year. If prevailing inflation is considered, the allocation under the heading health sector has been actually reduced by three percent. As earlier mentioned shortage of doctor, nurse, medical equipment, medicine is a common scenario in all levels of hospitals. Due to shortage of sufficient budget, people of almost every upazilla are not being able to get proper medical treatment. According to the opinion of the expert, through utilizing the present staff strength and instruments, proper health service is possible to be provided up to 60% people, but according to a survey report published in the daily news papers, only 22% people of the country are getting health service from the public health organization. It is very much reasonable to raise a question that despite prevailing such a situation in health sector of the country how far only four to six percent of total allocation for this sector is feasible. In the every year budget a substantial portion is allocated in the name subsidy which is only for the poor people. But there remains a doubt about perfect distribution of subsidy among the genuine poor people of the country. According to the result of one research, only 12 percent of hard core poor people are getting benefit of government safety net activities and those, who are getting benefit of such safety net activities from 16 to 20 percent, are not eligible to get such benefit40. Proper performance of various activities under social safety projects is another important issue. In many cases it happens that the money of employment program for hard core poor people has not been utilized due to not implementing the program for the negligence of implementing authority41.

Despite lot of decisions, planning as taken by the policy makers of the country which have adverse impact on way to reduction of poverty level we will have to admit that various steps, projects and activities have also been taken by the government to reduce the poverty. Continued increasing the budget allocation for 39 Daily Prothom Alo, 30 April 2012 40 Daily Prothom Alo, 16 October 2011 41 Daily Prothom Alo, 11 July 2011



social safety (in amount), reduction of fertilizer price, reopening 12,203 community clinics reducing gap of direct and indirect tax etc are the remarkable steps to reduce the poverty level of the country. As a result of taking various important steps for poverty alleviation during the year 2012 number of hard core poor people has come down to two crore 53 lac from three crore 72 lac of the year 1990-91.It has been planned to bring down the poverty level to half of existing by the year 2015. But government has achieved this plan ahead of target date i.e within the year 2012.As recognition of this success Bangladesh has received award from The International Organization for South-South Cooperation(IOSSC) award and award from Food and Agriculture Organization (FAO) of UNESCO.

Recommendations

On the basis of analytical results of various economic parameters as mentioned above it can be said that Bangladesh is a country of steady and sustainable growth. GDP growth rate is on an average 6% to 7%. Poverty level is in declining trend. Bangladesh’s strong growth and success in poverty alleviation have also attracted the international communities’ attention. But as a growing country despite having a steady growth there are also some shortcomings regarding full employment, monetary policy and price stability. To make the economic growth more dynamic, to protect the high rate of inflation, to reduce the inequality of the society steps may be taken to increase the share of direct tax. For increasing the share of direct tax new tax payers need to be identified. It is pertinent to mention that five percent of high income level people are holding almost 27% of GDP. According to this information five percent of the population i.e. seven million people’s average yearly earnings is more than Tk. 300,000 which exceeds the minimum threshold of taxable income. So, the number of tax payers of the country should be almost seven million but at present Tax Identification Number (TIN) holders are only two million. To keep the inflation within the tolerable range through controlling the demand pull inflation the annual money and credit growth may be consistent with the growth rate of commodities. The program for social safety which has been taken by the government may be continued with larger form. In addition to that subsidization of products like providing goods and services that everyone needs cheaply or freely (such as food, healthcare etc), governments can effectively raise the purchasing power of the poorer members of the society. But to remove the objections as mentioned earlier and to ensure their proper distribution assistance of various professionals may be taken.

Minimum wage legislation which has been introduced by the government for the garment workers the minimum limit and area of industry may be increased to make consistent with the prevailing inflation and raising the income of the poorest workers. To create employment opportunity for resolving unemployment problem in the country through increasing the growth of small and micro enterprises the government should take effective steps to ensure sufficient amount of credit and to creating marketing opportunity to sale the products of small and micro enterprises.



According to present government accounting system there is no reconciliation between accumulated budget deficit and amount of government debt which is essential to confirm both the balance. Due to non reconciliation of those differences, frauds and errors may remain undiscovered. To ensure the transparency and accountability those issues may be resolved with the assistance of professional accountants. Overall budget size may be kept within maximum 15% over the previous year’s budget. Unnecessary development activities may be avoided to reduce the pressure on deficit budget, government debt, interest expenses and finally to keep control over inflation of the country. Sufficient amount of budget may be allocated for health sector for providing maximum health service to the rural poor and hard core poor people.



Reconciliation of Accumulated Deficit Balance with Liability

Annexer-1

Particular BDT in crore

Revenue Receipt

867,649

Non Development Expenditure 763,648

Annual Development Program 395,521

Total Expenditure 1,159,169

Accumulated Deficit

291,520 Financed by:

Foreign Loan

174,765

Bank Loan

92,028

Liability for National Saving Certificate

63,917

Total Liability

330,710

Difference

39,190



Summary of Budget for the Period since inception of the Country to 30 June 201241 Annexer-1

Year Revenue Budget

Non Development Expenditure

Annual Development Program

1971-72 222 269 265 1972-73 224 213 402 1973-74 377 364 464 1974-75 470 470 525 1975-76 757 599 950 1976-77 966 768 999 1977-78 1,245 1,036 1,257 1978-79 1,376 1,053 1,483 1979-80 1,812 1,194 2,082 1980-81 2,193 1,408 2,364 1981-82 2,767 1,662 2,391 1982-83 2,768 2,038 2,688 1983-84 3,397 2,414 3,006 1984-85 3,465 2,803 3,167 1985-86 3,754 3,313 3,628 1986-87 4,717 3,956 4,439 1987-88 5,146 4,730 4,150 1988-89 5,822 6,170 4,622 1989-90 6,778 6,740 5,717 1990-91 7,822 7,310 5,269 1991-92 9,517 7,900 6,024 1992-93 11,060 8,510 6,550 1993-94 12,280 9,150 8,983 1994-95 14,210 10,300 10,303 1995-96 15,512 11,814 10,016 1996-97 17,145 12,535 11,041 1997-98 19,624 14,544 11,037 1998-99 19,700 16,765 12,509

1999-2000 21,345 18,444 15,471 2000-2001 24,173 20,662 16,151 2001-2002 27,670 22,692 14,090 2002-2003 31,120 25,307 15,434 2003-2004 35,400 28,390 16,817 2004-2005 39,200 34,664 18,771 2005-2006 44,868 38,070 19,473 2006-2007 49,472 45,412 17,916



Summary of Budget for the period since inception of the country to 30 June 201242 Annexer-1

Year

Revenue Budget

Non Development Expenditure

Annual Development

Program 2007-2008 60,539 57,922 18,455 2008-2009 69,180 67,603 19,668 2009-2010 79,484 78,136 25,917 2010-2011 95,187 84,188 33,007 2011-2012 114,885 102,130 38,020

Total 867,649 763,648 395,521

42 i) Statistical Yearbook of Bangladesh 1975, P-157-58 ii) cÖKvkK -we`¨v cÖKvk, msKjK: G. wU. Gg AvjgMxi, wRqv -Lv‡j`v miKv‡ii A_©gš¿x Gg, mvBdzi

ingv‡bi 12wU ev‡RU e³…Zv, P-10-11 iii) Bangladesh Economic Review 1998, P-105 iv) Bangladesh Economic Review 2013, P-314, 315, 319 & 326



Statement of Important Goods Available for Consumption43 Annexer-2

Lac MT Goods For the Year 2007-08 For the Year 2012-13

Rice 289.31 301.10

Wheat 8.44 10.36

Fish 25.63 33.90

Milk 26.50 34.63

Meat 10.40 25.32

Fertilizer 38.86 49.45

Cement 39.22 31.97

Petroleum 12.13 13.02

Total 450.49 499.75

43 Bangladesh Economic Review 2013, P-92, 101, 103, 332 & 334



macroeconomic situation in bangladesh

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