A short note on budget: The quicksands

Can we call it an election year budget?

Yes, but mostly no.

The government has expanded its expenditure target by a sizeable 15.3%  given the global recessionary trend and the fact that this year's outlay has actually shrunk by 2.6%.

Development expenditure for next fiscal year has also been targeted 14.7% higher against this year's revised outlay which is a mere 0.7% more than the original target.

That is what an election year budget should look like when political expediency matters (One can always argue the increase is not much if adjusted for inflation).

You spend more to give more money to the people (party people included). When you have money, the public go happy (party people also turn euphoric as they have their electioneering bills to count).

But the buck stops just there when reality kicks in.

Where will the money come for the spending spree? It seems the finance minister has gone on an overdrive to squeeze every possible penny out, just what the IMF had wanted in exchange of its budgetary support for the country's fledgling forex reserves. A 15.5% revenue growth target looks starkly different from this fiscal year's zero growth.

Not only the middle- and lower-class people will be hit, this will also have a cascading effect over consumer spending. Remember, Bangladesh's majority of the GDP is generated from consumption (74%). This means growth will take a direct hit for whatever it counts for.

So none of these unsavoury prospects go well for an election year.

And what if tax collection falters, as it has this year like many more preceding ones? 

That will either mean to cut expenditure with less money exchanging hands, meaning an unhappy vote bank, if such banks exist in reality.

Or reaching out to the banks' vaults. Bank borrowing through treasury bills will increase. The resultant show will be an increase in treasury bill interest rates, creating more liability in terms of interest payment.

But that will surely hit investment at a time when entrepreneurs may already be feeling jittery over the prospect of an approaching election. Private investment curve is already heading south, and with further cuts employment and wages will be hit.

This will leave a bitter taste in the mouths of the voters. Bank borrowing will lead to higher inflation at a time when things are already costlier than before. So when faced with a prospect of low wage or unemployment, social unrest will brew.

On the other hand, the corporate Bangladesh will also feel the bitter pill of the double whammy of IMF's loan conditions and a deteriorating macroeconomic condition.

Moody's has already downgraded Bangladesh's credit rating to 'risky', immediately spinning them into a high cost regime. LC opening will be costlier and so will be foreign loans.

At the same time, Corporate Bangladesh will face higher-tax headwinds. Having to pay tax on interest payment is just one of them, but many rebates will be withdrawn and supplementary duty to be raised.

So the economic reality will force the finance minister to trim his wish for an election year budget.