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Business  & Finance News

Wednesday, August 07, 2002

Compiled by SDNP

Head Lines

Further fiscal reforms may inspire backlash

SOE losses 7 times in 2 yrs

Ashraf Arnab,The New Nation

The donors' prescription for improving the fiscal deficit is in effect impeding draft preparation of three-year plan, sources said.

" We are yet to get specific guidelines regarding fiscal deficit related issues for inclusion in the draft of the plan," said one highly placed source in the Planning Commission (PC) yesterday.

The World Bank (WB) and Asian Development Bank (ADB) have prescribed for inclusion of option related to reducing allocations for SOEs financed outside ADP and downsizing public expenditures for ADP-financed projects in the proposed rolling plan for three-year term.

According to them, the SOEs with huge liabilities should be given back to the private sector to cut overall fiscal deficit.

" The government should focus on commercialising, restructuring and privatising commercial activities best left to private sector," says a document of these two big donor agencies.

As the government has to speed up the reforms in some particular State-owned Enterprises (SOEs) for concessional aid, it is undecided to go for bold action on the ground of existing political situation of the country, sources in the government said.

The country has been experiencing decline in Official Development Assistance (ODA) for the last few years. The ODA flow declined to 2.4 per cent in 1998 from 4.8 per cent in 1990.

"The government is in dilemma on taking up such tough but courageous measures in the rolling plan fearing of any untoward political situation," said a government policy maker.

According to WB and ADB, the proposed inclusion of priority-based option in the next plan is essential to reduce the widening fiscal deficit in consolidated term.

The existing consolidated fiscal deficit of public sector is about 9 per cent of Gross Domestic Product (GDP). The average consolidated deficit, one of the four indicators of the public sector deficit, is 4.5 per cent.

Consolidated fiscal deficit, a major instrument of the consolidated deficit base, is 7.9 per cent, which is very high in the context of Bangladesh's existing estimated GDP growth at 4.8 per cent.

The amount of consolidated fiscal deficit increased to Tk 203.7 billion in the financial year 2001-2002 from Tk 86.4 billion in 1998-99.

The definition of the consolidated fiscal deficit included, in addition to conventional central government fiscal deficit, SOE deficit financed outside ADP, including intra-public sector transfers. It also largely relates to the non-performing loans of NCBs, mostly due to default by the SOEs.

Sources in WB warned that a portion of the increase in classified loan of the Nationalised Commercial Banks (NCBs) will be the government's fiscal liability. The total classified lying with the four NCBs-Sonali, Janata. Agrani and Rupali is about Tk 10,800 crore.

" The fiscal savings from tighter management of the ADP and SOEs, including possible privatisation receipts, could easily exceed 2 percentage points of GDP, helping financial reforms in the sectors that hold back growth," the document of WD and ADB observes.

According to the study, the 6 per cent fiscal deficit of GDP in 1999-2001 remained unsustainable because of the deteriorating financial situation of the public sector, including SOEs.

The SOEs losses increased over 7 times during the last two years from Tk 4.5 billion in 1999-00 to Tk 22 billion in 2000-01. This accelerated further by about 51 per cent to Tk 33.1 billion in 2001-02.

The donors strongly suggested for privatisation of Bangladesh Petroleum Corporation (BPC), Bangladesh Jute Corporation (BJC) and Trading Corporation of Bangladesh (TCB) as these public corporations are the highest losers with a combined loss of Tk 19.3 billion.

The SOE deficit financed outside the Annual development Programme (ADP) increased by 0.2 per cent of GDP in 2001-02, thus offsetting the effect of the reduction in the central government fiscal deficit on the consolidated fiscal deficit.

The central government fiscal deficit increased by 6.2 per cent of GDP to Tk 147.9 billion in 1999-00 from 4.1 per cent of GDP in 1998-99 to Tk 81.4 billion.

Donor agencies suggested for reforms in the SOEs and strengthening the ADP spending against the backdrop of deteriorating fiscal imbalance of GDP.

Dwelling on SOE reforms, WB and ADB said the government at the first phase should focus on commercialising, restructuring and privatising commercial activities of the sector specific like hotel, jute manufacturing, fertiliser and petroleum marketing and trading. At the same under the first round of reform drive, one the remaining SOEs hard budget constraints should be imposed, they added.

The reform works in the second phase should be on developing the outsourcing, divestiture and public-private partnership strategies for utilities and services, including gas, power, urban water supply, railways, airlines, shipping and telecommunications.

The WB and ADB are of the opinion that several additional factors appear critical in restoring fiscal sustainability in Bangladesh. They suggested for maintaining the momentum of growth by accelerating structural reforms, increasing the government revenues to tax-GDP ratio, reversing the decline in concessional aid.The existing tax-GDP ratio is not available immediately, but in 2000-01 it was 8.5 per cent.

They have suggestion also for reducing real interest rates, particularly by reducing classified loans and high administrative costs of state financial institutions.

Laying emphasis on ensuring proper ADP funding and spending transparency, the duo big donor agencies said many ADP projects were of doubtful quality because of weak scrutiny. Sub-projects instead of new projects were added intermittently to the ADP delaying the completion of the ongoing projects and their realised rate of returns.

They said that the high capital spending over a multitude of projects squeezes out current spending with non-wage operation and maintenance expenditures at mere one per cent of GDP.

To improve capital spending efficacy, the donors have prescribed to improve the classification of expenditures to ensure proper integration of current outlays of investment projects into the recurrent budget, integrating hidden subsidies to SOEs more transparency in the budget and strengthening the ADP project selection and improving criteria for ADP.

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Flood situation to improve

UNB, Dhaka, The New Nation


A boy carrying a calf on his shoulders as he wades through flood waters to reach higher land in Narayangonj on Tuesday

Flood situation in Dhaka is likely to remain unchanged in next 24 hours till 6AM Wednesday as the Turag registered rise and Tongi Khal remained steady, the Flood Forecasting and Warning Centre (FFWC) said on Tuesday.

The Turag recorded slight rise at Mirpur and was flowing 16cm above danger level, Tongi Khal remained steady at Tongi and Buriganga receded in Dhaka. The Kaliganga marked fall by 10cm at Taraghat but was still 46cm above danger level.

Out of 46 monitoring stations, eight points recorded rise and 35 points fall in 24-hour period till 9AM on Tuesday. In 10 points rivers are flowing above danger level.

However, the flood situation in upper portions of the basins of Brahmaputra and Ganges will continue to improve due to recession of most of the rivers under these two basins in last 24 hours, the FFWC said.

The situation in Kishoreganj, Narsingdi and Brahmanbaria districts is likely to remain unchanged but it will improve further at Narayanganj where the Lakhya recorded fall by 7cm but was flowing 21cm above danger mark.

The Jamuna is flowing above danger level by 44cm at Aricha, the Padma by 21cm and 50cm at Goalando and Bhagyakul respectively and the Surma by 14cm at Kanaighat. All these rivers receded further.

The Kushiyara registered rise at Amalshid and Sheola and was flowing by 25cm and 15cm above red mark at these two points. The Manu rose by 194cm at Manu Railway Bridge and 18cm at Moulvibazar while the Halda rose by 110cm at Narayanhat.

The Meghna was also flowing 46cm above danger level at Bhairab Bazar although the river receded slightly.

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