2009-10 State of the Bangladesh Economy in 2009-10 and Outlook for 2010-11 Centre for Policy Dialogue (CPD) State of the Bangladesh Economy in 2009-10 and Outlook for 2010-11 State of the Bangladesh Economy in 2009-10 and Outlook for 2010-11 CENTRE FOR POLICY DIALOGUE (CPD) B A N G L A D E S H a c i v i l s o c i e t y t h i n k - t a n k Published in February 2011 by Centre for Policy Dialogue (CPD) House 40/C, Road 11 (New), Dhanmondi R/A Dhaka 1209, Bangladesh Telephone: (8802) 8124770, 9141703, 9141734, 9145090 Fax: (8802) 8130951 E-mail: [email protected] Website: www.cpd.org.bd http://www.cpd.org.bd/Blog/ Copyright © Centre for Policy Dialogue 2011 All rights are reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior permission in writing from the publisher. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The Centre for Policy Dialogue (CPD), established in 1993, is mandated by its Deed of Trust to service the growing demand originating from the emerging civil society of Bangladesh, for a more participatory and accountable development process. CPD seeks to address this felt-need through organisation of multistakeholder consultations and dialogues, by conducting research on issues of critical national, regional and global interests, through dissemination of knowledge and information on key developmental issues, and by influencing the policy making process in the country. At the core of CPD's activities lies its dialogue programme. The dialogues are designed to provide a forum for constructive engagement and discussion on key relevant issues, and to come up with specific recommendations to redefine the policies and for ensuring their effective implementation. The recommendations are then placed before current and prospective policymakers of the country as inputs to the decision making process. Some of the major research areas of the CPD include Macroeconomic Performance Analysis; Poverty, Inequality and Social Justice; Agriculture and Rural Development; Trade, Regional Cooperation and Global Integration; Investment Promotion, Infrastructure and Enterprise Development; Climate Change and Environment; Human Development and Social Protection; and Development Governance, Policies and Institutions. CPD actively networks with other institutions within and outside Bangladesh which have similar interests and also regularly participates in various regional and international fora where interests and concerns of developing and least developed countries are discussed. CPD's current publication list includes more than 360 titles including Books, Monographs, Occasional Papers, Dialogue Reports and Policy Briefs. CPD outputs are available for sale at the Centre and also in selected bookstores in Bangladesh. CPD publications and other relevant information are also regularly posted on CPD's website www.cpd.org.bd The views expressed in this volume are those of the CPD IRBD 2010 Team members and do not necessarily reflect the views of the CPD. ISBN 978-984-8946-03-9 Cover and graphic design by Avra Bhattacharjee Typesetting and page lay-out Fazley Rabbi Shakil Md Shaiful Hassan Price : Tk. 500 USD 35 Printed at Enrich Printers 41/5 Purana Paltan, Dhaka 1000 C12011_1STA_MPA CPDCPD IRBDIRBD 20102010 TeamTeam Dr Debapriya Bhattacharya, Distinguished Fellow and Professor Mustafizur Rahman, Executive Director, CPD were in overall charge of preparing this report as team leaders. Lead contributions were provided by Dr Fahmida Khatun, Head, Research Division; Dr Uttam Deb, Former Head, Research Division (on leave); Dr Khondaker Golam Moazzem, Senior Research Fellow; Dr A K M Nazrul Islam, Research Fellow; Mr Syed Saifuddin Hossain, Senior Research Associate; Mr Md Ashiq Iqbal, Senior Research Associate; and Mr Towfiqul Islam Khan, Senior Research Associate. Competent research assistance was received from Ms Nafisa Khaled, Senior Research Associate; Mr Hasanuzzaman, Senior Research Associate; Mr Md Tariqur Rahman, Senior Research Associate; Mr Muhammad Al Amin, Senior Research Associate; Ms Farzana A Misha, Senior Research Associate; Mr Ashiqun Nabi, Research Associate; Ms Nusrat Jahan, Research Associate; Mr Kishore Kumer Basak, Research Associate; Mr Mazbahul Golam Ahamad, Research Associate; Ms Afrin Islam, Research Associate; Mr Md Zafar Sadique, Research Associate; Ms Ishita Ahmed, Research Associate; Ms Mehruna Islam Chowdhury, Research Associate; Ms Sharmin Chowdhury, Research Associate (on leave); and Ms Obaida Shammama, Programme Associate. Mr Towfiqul Islam Khan acted as the coordinator of the CPD IRBD 2010 Team. PrefacePreface The present volume is in continuation of CPD's longstanding annual tradition of brining out an in-depth analysis of the major macroeconomic performance indicators and developments in the relevant fiscal year, and also sharing CPD's early assessment of the outlook for the next fiscal year. The purpose of this volume, as has been in case of the earlier publications of the Independent Review of Bangladesh's Development (IRBD) exercises of the CPD, is to bring to the wider audience CPD's assessment of the performance and prospects of the Bangladesh economy in key areas of economic governance including fiscal-budgetary and monetary sectors and the real economy. CPD hopes that whilst such annual reviews enable the audience to appreciate the dynamics of changes taking place in the Bangladesh economy and the challenges that the economy faces, such reviews, carried out on a regular basis, over successive years, will also enable those who follow the evolution of Bangladesh economy and economic policies to evaluate the progress/regress and the challenges in this regard, from a comparative perspective. IRBD is a continuing exercise at CPD, and this volume includes a number of interim outputs prepared under the programme at CPD at various points of time, in the course of a particular fiscal year. The IRBD process has involved analytical work, expert group meetings, dialogues and discussion sessions, and thus contributors to this work include, besides the CPD researchers, many stakeholders whose views have also been reflected in this volume, and which have enriched the quality of work presented in this volume. The volume includes four analytical chapters and two annexes. Chapter 1 of the present volume concentrates on an examination of the key macroeconomic indicators' performance in FY2009-10. As will be known to those readers who follow Bangladesh economy, the year under review, FY2009-10, has experienced fluctuating fortunes with regard to key variables. Both slow recovery and lagged impact of the global financial crisis impacted on Bangladesh's economic prospects in this fiscal year. The analysis in this section have put under scrutiny the performance of the government during its first full fiscal year of governance (July 2009-June 2010), after it took over the power on 6 January 2009. The chapter discusses the outcomes of the government's initiatives in various areas including agriculture, industry, power and energy, and social sector in relation to the targets set in the budget and various sectoral plans of the government. The chapter also flags a number of key emerging concerns which are needed to be addressed on a priority basis in the short to medium-term. Chapter 2 presents an analysis of the various proposals in the national budget for FY2010-11 which focuses on the impact and incidence of tax proposals in terms of their implications for income distribution and equity, resource mobilisation, incentives for investment, and domestic protection and export promotion. Sectoral allocations with regard to the Annual Development Programme (ADP) for FY2010-11 have also been examined from the perspective of sources of funds, efficacy of resource use, justification of sectoral distribution, and feasibility of implementation. The chapter puts forward the challenges that policymakers are likely to face in terms of implementing this budget. The need of significantly raising the quality and timely implementation of public sector expenditure envisaged in the budget for FY2010-11 has also been emphasised and discussed in the chapter. PREFACE It is by now a regular practice of the CPD to prepare a set of proposals in view of the national budget to be placed before the parliament by the Finance Minister for the next fiscal year. Chapter 3 presents the proposals that CPD had prepared in April 2010 as inputs to the budget for FY2010-11. These include modalities towards higher domestic resource mobilisation, ways of raising allocative efficiency, suggested fiscal proposals and reforms, and possible distribution of resources for revenue and developmental purposes in the context of the emerging needs of the economy. Chapter 4 deals with the outlook for the next year, i.e. FY2010-11. This chapter is based on an interim report which CPD has prepared based on its analysis of the performance of the economy over the first two quarters of this fiscal year. Here the progress made in terms of realising the annual targets has been analysed with a view to assess the likelihood of achieving fiscal targets, identify bottlenecks, and suggest policies and initiatives in the near term. The volume also includes two Annexes. Annex 1 is a report on the dialogue held on 19 June 2010 at the Dhaka Sheraton Hotel, where CPD's budget reactions were presented. Annex 2 is a report of the post-budget discussion held in Chittagong on 24 June 2010, in collaboration with Chittagong Chapter of the Bangladesh Economic Association (BEA). These are presented in this volume to enable the readers to appreciate the rich discourse that followed the budget analysis under the IRBD programme at the two aforesaid important events. Readers will also get a flavour of the critical views and opinions of representatives of key stakeholder groups who attended these dialogues with regard to a wide range of issues including policies pursued by the government, and the efficacy and quality of their implementation.