Govt for robust macroeconomic model

Bangladesh is likely to miss its budget estimates as coronavirus crisis continue to strain funding for various sectors. The 2020-21 fiscal year budget came at a time when the pandemic's multiplier effects were ravaging the country’s economy. It is likely to throw key economic targets in this budget out of gear. 

In this circumstance, the government making a move to formulate a new macroeconomic model. A new model is also one of the conditions for World Bank (WB) budget support. WB will be providing $250 million each year for three years as budget support.

Finance Division’s macroeconomic wing held a virtual meeting last week to prepare a ‘Robust Macroeconomic Model’ by including more data and estimates from Bangladesh Bureau of Statistics. The meeting was presided over by Finance secretary Abdur Rouf Talukder. 

The minutes of the meeting revealed the current economic forecast is limited by inadequate data and less than optimal functionality.

In the absence of a robust macroeconomic model, the forecast reflects a strong element of targeting rather than realistic projections. As a result, mismatch between budget target and actual outrun has become a trend, the meeting said.

A robust macroeconomic model means an economic model that has a financial trading system to remain effective under different markets and different market conditions or the ability to remain valid under different assumptions, parameters and initial conditions.

It also said, macroeconomic wing of the finance division has a limited forecasting capacity. The limitation was identified by Public Expenditure and Financial Accountability assessment in 2016 which gave it a D+ score.

The wing needs to develop a robust and reliable macro-fiscal model. It is currently using Medium Terms Budgetary Framework (MTMF) which is a simple MS Excel-based flow of funds approach.  

Economist and former finance adviser of caretaker government Dr AB Miraz Azizul Islam said the government should prioritise development projects and revenue earning in order to deliver the best result in the in this fiscal year.

“The trend of miscalculation of ADP (Annual Development Programme) allocation or revenue earning will not end because of the current macroeconomic model,” he said. 

The former adviser also said, to accelerate the implementation rate of development projects, procurement process needs to be completed before project approval from planning commission.

The government must check corruption in project implementation to get the maximum utilisation of public money and more revenue must come from the rich than the poor, he added.

According to National Board of Revenue (NBR), its revenue collection nosedived in the negative terrain for the first time in history as it recorded 3.79 percent negative growth in the just-completed 2019-20 fiscal year amid the deepening impact of coronavirus outbreak on the economy.

According to primary data, NBR managed to collect Tk2,15,400 crore till June 30, down by Tk8,492 crore from the previous fiscal year. Not to mention, it was far from the revised target. Revenue collection fell Tk85,100 crore short of the revised target set at Tk3,00,500 crore for FY20.

The NBR's collections stood at Tk2,23,892 crore in the FY19. The original NBR revenue collection target was Tk3,25,600 crore for the fiscal year. Revenue collection on an average grew by 13 to 14 percent in the last decade, with FY19 posting an 11 percent growth.

Besides, according to planning commission data, in the just-concluded 2019-20 fiscal year, ministries and divisions managed to spend only 80.18 percent of the allocation of the Revised Annual Development Programme (RADP) – the lowest on record since the independence of Bangladesh.

The RADP implementation rate in the 2018-19 fiscal year was 94.66 percent. It fell by 14.48 percentage points in the last fiscal year as novel coronavirus pandemic jeopardised development projects.