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Developmental allocation remains static for over a decade
FE Report

          Though there has been substantial rise in public expenditure in last ten years, the development expenditure has remained almost static creating a negative impact on the macro-economic scenario of the country.
This was revealed in a report titled "State of the economy: FY 1996-97 to FY 2005-06" prepared by Unnayan Onneshan, a development think-tank.
The report also says that per capita public indebtedness has increased from Tk 621.53 in fiscal 1996-97 to almost double at Tk 1164.23 in FY2005-06.
On the other hand, the increasing dependency on domestic finance through banking and non-banking sector would lead to crowd out private investment opportunity, which in coupled with low public investment would dampen the overall investment scenario of the country.
"This as a result would have a negative impact on Gross Domestic Product (GDP) growth," it adds.
During the first fiscal year of the previous Awami League (AL) regime in 1996-97, the government expenditure was above 13 per cent of the GDP, which scaled up in fiscal 2004-05 when it accounted for 15.54 per cent of the total GDP, says the report.
On the other hand, the government expenditure on annual development programme was 6.21 per cent of GDP in 1996-97 and in the current fiscal the ratio is same -- 6.21 per cent.
Interestingly, the report said, in the previous AL regime there was a tendency to increase expenditure on Annual Development Programme (ADP) as it rose from 6.1 per cent in 96-97 to 7.37 per cent in 2000-01 but the growth in expenditure witnessed downward trend during the early stage of the present government.
In 2001-02 it was 6.68 per cent of GDP but in 2006-07 it decreased to 6.21 per cent.
It was in the fiscal 2004-05 when there was a significant growth in expenditure on ADP, which rose at the peak of 8.3 per cent of the total GDP -the highest in the decade.
"The deceleration of expenditure on ADP means that more public funds tend to divert to non-development expenditure. Another reason for the slow growth of expenditure on ADP was implementation problem", said Rashed Al Mahmud Titumir, executive director of Unnayan Onneshan analysing the budgetary allocation of the last ten years.
The growing public expenditure in unproductive activities ahead of the national elections and growing dependence on bank financing as well as the interest rate hike of the government savings instrument likely to woo away private investment in the near future, which in turn would erode the GDP growth, the report says.
As regards sectoral contribution to the GDP, the performance of agriculture sector is relatively better compared to that of industry and service sector during the period between fiscal 1996-97 and 2000-01 while the industry and service sector performed better during the period of fiscal 2001-02 and 2005-06, the report said.
It said sectoral share of agriculture to GDP constituted over 25 per cent during the first five years, maintaining a modest growth rate. However, its share to GDP has declined in the subsequent years to 21.9 per cent in 2004-05 with lowering the growth rate, which dipped as low as 0.01 per cent in fiscal 2001-02 from as high as 7.38 per cent in fiscal 1998-99.
The share of industry to GDP hovered around 26 per cent over the last decade: from 25.01 per cent in fiscal 1996-97 to 28.44 per cent in 2004-05.
Budget deficit, as a percentage of GDP was highest in fiscal 1999-2000 reaching at 6.1 per cent. The worsening budget deficit was resultant impact of the poor revenue performance.
The situation consequently has been mitigated in the second phase when the revenue collection has been improved. However, with growing trend of the government expenditure during the last couple of fiscals the budget deficit again tended to be widening, which is expected to be 4.5 per cent of the GDP in 2005-06.
About exchange rate, it says the worsening trade deficit resulted from raising demand for import and limited export capacity, which hold back the potential export growth have continued to put pressure on the exchange rate.
The situation has worsened due to high import bill of oil. It is unlikely that the oil price in the international market would come down in near future, much of which depend on the upcoming political development between USA and Iran, it adds.
The ten-year analysis shows that taka has been depreciated significantly over the years. The exchange rate was Tk 42.7 per dollar in FY 1996-97, which has reached at Tk 66.5 per dollar in April 2006, reflecting around 56 per cent depreciation in nominal terms.
It says inflation maintained an average growth of 5.0 per cent over the last decade. During the AL regime it was 4.88 and throughout the BNP regime it averages at 5.28. Often it is higher for food items than the non-food items. The higher inflated price, especially in the food items indicates negative impacts on the livelihood of the majority of the population, leaving the poor much worse-off, the report observes.


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