Eminent economist Wahiduddin Mahmud said the budget proposal does not provide any clear guidelines regarding how to address the risks to economic growth and stabilisation.

There is apparently some effort to find common ground between election politics and public welfare; but the finance minister still faces the challenge of providing enough safeguards to prevent wasteful or low-priority development spending ahead of the elections, he said.

"In spite of the large downsizing of the development budget, the closing year's revised budget still shows a substantial increase in the government's bank borrowing. This also happened in the previous fiscal, 2004-05, when the government had to resort to large-scale bank borrowing at the fag end of the year because of a sudden flurry in development spending. The situation this time is different. The bank borrowing by the Bangladesh Petroleum Corporation for meeting fuel subsidies is outside the budgetary accounts. Bangladesh Bank has already taken a cautious stance regarding credit expansion in the private sector and there is a liquidity crunch in the banking system; even then the new financial year is poised to start with an overhang of excessive credit expansion and inflationary pressure."

The proposed budget for the coming fiscal is for practical purpose an interim budget, subject to revision by the next elected government, the eminent economist observed.

"One could thus view the projections of revenue earnings and development spending as ambitious and even wishful thinking, but these could alternatively taken as a blueprint of what is needed to support social development and higher economic growth. The justification for providing such a blueprint at the end of the government's tenure may still be questioned. However, what matters for the time being is how the government proposes to implement the budget during the rest of its tenure in view of the prevailing economic strains arising from the inflationary trends, pressure on the exchange rate and the huge burden of fuel subsidies. It would have been better if this could be spelled out in the budget proposal."

It is quite expected that politics will dominate over economics in this year's budget proposal, but even the political options are not easy, he said.

"The government would like to delay any upward adjustment in fuel prices. A vigorous revenue drive is also unlikely. There will be pressure for election-oriented development spending that may further increase the public sector's bank borrowing. This in turn may create further inflationary pressure, or, alternatively, may require a further squeeze on credit to the private sector neither of which is a desirable option. The disbursements of foreign aid will depend on how far the donors' conditionalities can be met. There is thus a great deal of uncertainty about how the emerging budget deficits can be financed consistent with the overall monetary policy. Even if the finance minister has been able to scramble some figures to work out the budgetary balances, this should be no relief to the worries of the Bangladesh Bank governor."

Much will depend on how the government goes about disbursing funds for development projects in the remaining period of its tenure, Wahiduddin Mahmud said.

"The proposed development budget for the next fiscal has included a large number of new unapproved projects presumably under political pressure. This can undo the hard work of the finance minister over the past few years in bringing down the number of projects with a view to facilitating their timely implementation and reducing low-priority development spending. A saving grace is that no funds have been allocated against these new projects. There are, however, large block grants that are a matter of concern."

Import taxes have been reduced to some extent -- partly to meet aid conditionality, partly to provide production incentives, and partly to lower the prices of imported essentials, the economist observed.

"So these tax measures will be generally popular. Yet the challenge remains in mobilising higher revenue by collecting more taxes from domestic sources. Some reforms in tax administration have been proposed including the appointment of a tax ombudsman and other ongoing reforms are to be strengthened again mostly as part of meeting aid conditionality. The key to dealing with tax evasion lies not so much in reforming the tax administration as in gathering the necessary political will.

"The rather belated decision to withdraw the opportunity of whitening black money is most welcome. But what is the rationale for still keeping this tax concession in the case of the purchase of cars, houses and land in posh urban areas? These are precisely the uses of black money that are relatively easy to detect hence the rationale of continuing with the tax concessions is doubtful. However, the proposed concession for tax on additional declared income over that of the previous year may have some justification on ground of providing incentive to taxpayers."

In increasing the allocations for agricultural subsidy, poverty reduction and social security, there is an effort in the budget to combine populism with public welfare, he said.

He, however, mentioned the problem of finding enough resources as well as ensuring that the assistance reaches the intended beneficiaries.

"It is alleged that the benefit of fertiliser subsidy at the import stage, which was provided for in the last year's budget, did not actually reach the farmers. This is a likely outcome where the import trade is not competitive enough. The finance minister has already indicated that this mechanism of providing subsidy might be discontinued and has discussed about other alternatives. The idea of distributing fertilisers at subsidised prices through some government agencies like BADC is also fraught with risks. The middlemen will reap most of the benefits if the marketing system is not competitive, or if the dealers are appointed politically, or adequate uninterrupted supply cannot be ensured.

"On the other hand, if agricultural inputs like fertilisers and diesel are to be distributed directly among farmers through some mechanism like the VGD card, then the system needs to be efficient and accountable. The food distribution through VGD card has a self-screening mechanism, because the relatively well-off people do not like to participate in such a programme out of a sense of self-esteem; even then there are leakages. In the case of distribution of fertiliser or diesel, there is no such psychological inhibition against an elite capture of the system."