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Download PDF The government should cut back on the Annual Development Programme (ADP) expenditure to tackle an extra $1.1 billion pressure in the current budget arising from international oil price hike and natural disasters, says a World Bank (WB) report.
The report also suggests reducing the gap between administered prices and import cost of fuel and fertiliser, saying that the pressure in the budget have resulted in a precarious fiscal situation.
The FY08 budget has come under severe pressure from three shocks: international oil and non-oil commodity price hikes, July-September floods and the cyclone Sidr, observed the report that was placed in WB board meeting in Washington on January 9.
The report said that the adjustment pains can be mitigated, at least partially in the short run, through increased concessional foreign assistance.
In the meeting, the WB board also approved $100 million budgetary support for Bangladesh due to huge economic losses in the cyclone.
Asked about the WB suggestions, a finance ministry official said they are working out to slash at least Tk 3,000 crore from the ADP expenditure. “Price increase of fuel and fertiliser is a sensitive issue and there is no decision in this regard so far,” he said.
Considering the present state of economy of Bangladesh, the World Bank report said having nearly exhausted the potential for reallocating expenditure within the FY08 budget, the government is faced with three policy choices. It, however, observed that each of them would prove to be unpleasant to certain sections of the population.
In the absence of domestic price adjustments, the FY08 budget faces an extra $80 million pressure arising from subsidies to energy and fertiliser not provided for in the original budget, it said.
Besides, the floods added roughly $500 million of unforeseen expenditure and now the cyclone will likely to add another $520 million this fiscal year.
“The total flood and cyclone induced expenditure shock constitutes 8.9 percent of the original FY08 budget of about $11.5 billion,” the report said.
Suggesting on other policy options, the report said the government can raise domestic energy and fertiliser prices sufficiently to create fiscal space for desired levels of developmental and natural disaster-related expenditure. “This, of course, is a very sensitive issue politically,” it added.
The other option is to allow the flood and cyclone related expenditures without administered price and other adjustments and face heightened inflationary pressures on top of the already tense inflation situation, being mindful that inflation particularly hurts the poor. “Or, crowd out productive private investment owing to increased government borrowing,” the report said.
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