National budget under Covid-19 and related issues


Jamaluddin Ahmed

(Continued from last day's section)

Historically, we see that regardless of the budget size, we implement 90% to 100% of the revenue expenditure but we do not execute more than 40% of the development projects proposed including both GoB and development partner financed projects. 

In addition, these projects are proposed by their respective ministries (secretary as principal accounting officer and minister as the administrative head). For the yearly budget, the finance ministry consolidates them after the approval of the ECNEC. On completion of the fiscal year on the 30th of June, we see that the unimplemented projects are around 40% but no one is taking the responsibility for such continuous failure and none is punished for such non-compliances in the last 50 years. 

In the case of the failure of the revenue target, no one was made accountable for such failures and non-compliances. Last year, the budget assured that the director of development projects would be made accountable for any failure under the Rules of Business, which is a constitutional requirement. People do not see any evidence of such failure. 

The budget should emphasise the reduction in the income/wealth inequality between the rich and the poor, men and women as well as developed and under-developed areas. The collection ratio of indirect taxes should be lower than direct taxes. But in Bangladesh, this rate is higher and disproportionate under the current budgeting system. 

Every country, which has graduated from LDC to developing and then developed, has designed an effective financial system. We have not been able to structure a desired financial system for Bangladesh even after 50 years of our independence. This means our country must have a policy of how we could source our industrial, infrastructural and other project financing. 

Existing models in academic literature indicates that a country can follow a bank or market-based method or even combination of both. In the last 50 years of independence, we are yet to chalk out this crucial issue.

This is the perfect time to frame the Financial System Architecture to determine what percentage of financing should be sourced from corporate bonds, banking systems (both COMM, DFI, House Building Finance and Infrastructure), equity markets and FDI’s. The central bank should play a developmental role rather than a conservative one. 

In case of the Japanese and German central banks, US FED, and other central banks of Europe, South Korea, Indonesia played their role after World War II and turned their economy to this height of development. We would have to change our perceptions from the colonial era to an independent spirit. We must shed our colonial mentality to embrace the spirit of independence required to own our destiny. 

To increase the flow of money generated from the government, the treasury must be decentralised to maximise monetary transmission. The current treasury of GoB has been inherited from creation of the Reserve Bank of India in the late 1937s from the Rule India Act of 1935. After the creation of Pakistan and India in 1947, India retained the same name for its central bank as the ‘Reserve Bank of India’ while Pakistan named its one as the ‘State Bank of Pakistan’. 

After Bangladesh’s liberation, the central bank was renamed ‘Bangladesh Bank’, only replacing the name with no major changes inside bank order which we inherited from the two colonial rulers i.e. Pakistan and the British. 

We should have a fresh look to reform the regulatory framework required to work as an engine of Bangladesh's development. The same comments apply to the revenue collection system. NBR is an organisation run by NBR cadre at all operational levels, yet we appoint the Chairman (leader) from a non-NBR cadre so there is a huge gap of knowledge between the CEO and operational levels. 

We have not seen any person become the Chairman of NBR from their own cadre. We should think about this important issue. Someone coming from other professional cadre could make a big contribution from the generic NBR cadre. How does the NBR chief posted to this position from other cadre can contribute when his term is only for a maximum of three years. 

This journey has continued as routine work since the era of Pakistani rule and independent Bangladesh is following that even after 50 years. This paradigm should be shifted. Moreover, the NBR should extend its network to all Upazila levels to increase visibility. 

At the district level, the NBR should be located at the DC office. With the separation of the judiciary from administration, they have GoB-constructed building and judiciary-vacated DC office premise. Now, the people of NBR should enjoy the recognition that they are part of the GoB. 

In order to change the public perception about itself, they should consider this a marketing approach. Once the NBR is recognised at district and Upazila levels, things will change in revenue collection while keeping with the highest priority of automation within NBR. 

As of today, all districts NBR office is located at private houses which cast image problem at the district level. Once all these action plans are implemented, we can assure Bangladesh can present a budget of BDT 15 lakh crore within the next 3 years (2025).

Julien Allard and Rodolphe (2011) in their study on private sector financing (2002-2007) titled “Liabilities to the Market: Securities Other Shares” has shown that seven countries -- Australia, Canada, Denmark, Finland, France, the UK and the USA -- have been classified as market-based economies, having financing of >= 51% from market-based sources. Out of the 17 countries, Austria, Belgium, Germany, Italy, Japan, the Netherlands, Norway, Portugal, Spain and Sweden are bank-based economies having a source of finance from the banking system of >= 51%. 

Four countries are identified strongly as market-based (Australia, Canada, USA and the UK) and four countries are classified as strongly bank-based (Belgium, Portugal, Spain and Austria). 

Michael Thiel’s (2001) study on “Composition of Financing from Non-financial Corporations” reported that for the Euro area in 1999, financing was shared in the following manner: Long-term banks 19%, medium-term bank loans 16%, short-term bank loans 12%, loans from other FIs 3%, debt securities 10%, quoted shares 24%, un-quoted shares 13%, and venture capital at 3%. The time has come for Bangladesh to decide on the design of the structure of sourcing finance non-financial operations of the country. 

Challenges to Bankers: In the COVID pandemic, bank employees are working for distressed people through branches across the country in a manner similar to the health department, physicians, Army, BGB, police personnel and journalists. Risking their lives, our managers and officers at the branch level are engaged in providing banking services with the utmost dedication. 

To boost morale and confidence, we have held Zoom meetings with branch managers, senior level managers, CEO and DMDs and thus increased the communication among the officers at different levels. We discuss our day-to-day work including short, medium and long-term strategic planning. 

Discussions are done on value addition and non-value addition jobs as well as techniques on how to reduce duplication of work through application of ICT. Plans have been made to increase the number of the banked population from its current level of 40% to 50%, 60% and even possibly 70%. This increase would reduce corruption by the same proportion. 

This means that the Bangladesh National Payment System under an automated or digital banking financial system can reduce the cost of doing business by reducing corruption. SMEs and CSMEs are the priority of the current government and these bankers can contribute to the rural economy. 

We suggest that the employees of the branches calculate the loan-deposit ratio and then calculate the cost of funds daily. Regarding the implementation of core banking, the managers can make bank transfers of money when the velocity of money significantly which would number of transactions ultimately increase country’s GDP. Bank managers working at the branch level can contribute to GDP by making digital financial transactions. 

(Concluded)


Jamaluddin Ahmed is the General Secretary of Bangladesh Economic Association and the Chairman of Janata Bank Limited