Unnayan Onneshan, a local research organisation, has said that budget deficit has been kept ‘artificially lower’ in the proposed budget, while major sectors would see lower allocations in real terms if inflation is adjusted.
  
‘Given the inadequate foreign grants and limited sources of non-tax revenue collection, it seems that the government has kept the budget deficit at artificially lower rate by setting an ambitious target of tax revenue collection,’ read the organisation’s ‘rapid assessment of budget for fiscal year 2006-07.’
  
As there is a sharp increase in the inflation rate, the proposed increase in allocation for different sectors may not go up in net terms compared to that of the previous year, it said.
  
The report showed that the real increase in the development allocation for agriculture is only 3.78 per cent compared to non-adjusted figure of increase by 11 per cent.
  
It also revealed that budget document showed development allocation for education and religion increased by 34.8 per cent in the proposed budget from the outgoing fiscal year’s revised budget.
  
‘But after the adjustment of inflation, the rate declined to 26 per cent,’ it added. Similarly, development allocation for transport has actually increased by 8.31 per cent, after adjusting inflation, while the official estimation of increase is 15.9 per cent.
  
‘The only sector shows a negative growth both in terms of ADP share and allocation in absolute amount is the power sector,’ said the assessment.
  
It was 15.73 per cent of ADP in the revised budget of current fiscal year, and further decreased to 12.16 per cent in the proposed allocation for next fiscal year, meaning that the allocation in absolute amount slipped to 6.53 per cent.
  
‘The reduction is sharper than in any other sector of the economy. The allocation for power makes the situation more acute while the inflation-adjusted allocation is calculated. It shows more than 12 per cent decline in allocation undermining the urgent need of resolving the power crisis’.
  
The Unnayan Onneshan also said that the government’s tax structure is regressive in nature as the dependence on direct tax that includes tax on income and corporate profit is lower than the indirect tax like value added tax and import duty.
  
‘The regressive nature of tax structure is one of the main reasons which contributed to widen income inequality between rich and poor over the years,’ it said.
  
In the outlook analysis for the nest fiscal year, Unnayan Onneshan said that the upcoming fiscal would be a critical period for the investors for several reasons in terms of both political and economic perspectives.
  
‘Election could dampen the overall investment climate in the upcoming fiscal as the political unrest continues to prevail across the country,’ it said.
  
‘The election-oriented and ambitious public expenditure, which is less likely to be growth oriented, only could increase unproductive spending spree ahead of the elections, therefore, spur the inflationary pressure despite the central bank’s desperate effort to contain inflation by shrinking money supply into the economy,’ it added.
  
But the contractionary monetary policy, which is further likely to limit the credit growth, would in turn contain the industrial activities, observed the research organisation.
  
‘Therefore, one can find an economy of higher than projected inflation rate and lower GDP growth in fiscal 2006-07,’ it concluded.
  
The assessment was prepared by economists and researchers Rashed Al Mahmud Titumir, Jakir Hossain, M Iqbal Ahmed and Golam Sarwar.