18 June 2017

http://dailyasianage.com/news/68705

Budget 2017-18: Funding and

implementation of mega projects
M S Siddiqui

Finance Minister Muhith proposed the budget deficit figure at over Tk 1.12 lakh crore or 28 percent
of the total budget like last year to keep the budget deficit within 5 percent of the country's gross
domestic product (GDP).

The much talk weakness of the budget is implementation of budget and promoting private and public
investment. Private investment remains almost stagnant and has been hovering around 23 percent
over the years due to bottlenecks in infrastructures and perennial energy crisis in industrial units.
 The government wants to increase the investment ratio by 1.6 percentage points to take the total
investment at 31.9 percent of the GDP in the next fiscal year, which the private sector considers
possible if they are given necessary support and increase public investment to 8.6 percent of the
GDP. But to achieve the proposed GDP growth to 7.4 percent, Tk 6,000 crore additional amount of
investment will be needed in private sector while Tk 50,000 crore additional amount of investment
needed in government sector, CPD.

With a view to implement projects quickly, the government took up "Fast Tract Projects" in 2014 and
primarily listed six mega projects for quick implementation. Most of these projects, however, are far
behind schedule. Only the exception is Padma Bridge. Forty-three percent of the total work of the
bridge has so far been completed and when all is done, the bridge is expected to add 1 percent to
the GDP. The other projects have seen less than 10 percent progress.

In fiscal 2008-09 the amount of aid utilization was less than $2 billion, which crossed the $3-billion
mark in fiscal 2013-14 and last year$3.53 billion was used. As of January, total foreign aid in the
pipeline stood at $36.54 billion, according to planning ministry statistics. For the next three years
more than $3 billion was expended. In the next budget, the foreign aid utilization target has been set
at $7.6 billion (Tk 60,817 crore), which is 67.78 percent higher than the current fiscal year's goal.

This is difficult to achieve with the existing capacity of the government. Over the last several years,
the government took up development projects but failing to implement many of them on time. In the
aid utilization for these projects are poor but more than $2 billion aid has been earmarked for the
transport sector, whose live projects include the Dhaka Mass Rapid Transit, Karnaphuli tunnel,
Dohazari-Cox's Bazar-Gundhum rail line and the Padma Bridge rail line.

About $1.5 billion of foreign assistance will be utilized for construction of various power plants
including the Matarbari ultra-supercritical coal-fired power plant. Another project is the Rooppur
nuclear power plant, where the government plans to use about $1 billion of foreign assistance. China
has committed about $5 billion for the Padma Rail Link project and the Karnaphuli
tunnel construction project.

Be it construction of a road, a sea port or a power plant, almost all projects go through delays and
cost escalations, a problem that does not only hold back economic growth, but create scope for
corruption as well. Overall, most of the mega projects have now been delayed by two to four years.
Some of them may face even more delays. For instance, the prime minister inaugurated the Payra
Sea Port project in 2013 and the project was included in the fast-track initiative in January 2015, with
an aim to have it completed in 2021. The project saw hardly any progress, apart from the signing of
three MoUs.

There are also projects that were taken some years ago but were yet to kick off the construction.
Dhaka Elevated Expressway is a glaring example. PM Sk Hasina inaugurated the construction work
of the 21km expressway 2013 but the project's fate is still uncertain as its financier could not be
finalized. Constructions of Metro Rail in the capital, Bus Rapid Transit (BRT) from Gazipur to Airport
and Dohazari (Chittagong)-Gundum rail track are also facing delays. The Dhaka-Chittagong four-
lane highway project, taken up in 2005, was to complete in 2012 at an estimated cost of Tk 1,600
crore but it didn't happen. By the time the construction completed in the middle of last year, the cost
shot up to Tk 3,900 crore -- a rise of nearly 150 percent.

The second example of such poor-quality spending is the 8.25km Moghbazar-Mouchak flyover
project taken up in January 2011. It was to complete in 2015. Later, the deadline was extended by
18 months and the cost shot up to Tk 1,327 crore, nearly double the primary estimate.
The core reason behind this is said to be the inefficiency of those involved from planning to
implementation. In most cases, budget allocations for these projects could not be spent. Still, the
government proposed Tk 30,614 crore (one-fifth of total ADP) for six mega projects in the budget
2017-18.

The allocation for communication infrastructure development saw a jump of 42.55 percent this year
from the revised budget of the outgoing fiscal year. The government has earmarked over Tk 47,500
crore this year, which was over Tk 33,300 last year. In addition, the road transport and highways
division, railways ministry and bridges division saw a hike of around 63 percent, 34 percent and 29
percent in allocation compared to the current fiscal year.

Allocation in the road transport and highways division was Tk 12,077 crore last year, which has been
proposed at Tk 19,700 crore this year -- a hike of over Tk 7,600 crore. An allocation of Tk 16,000
crore has been proposed for railways, which was about Tk 12,000 crore last year. In the bridges
division, an additional Tk 1,900 crore has been proposed in the budget.

Last year, the allocation for bridge development was about Tk 6,500 crore, which is over Tk 8,400
crore this year. The road transport and railways ministries have been implementing different mega
and fast track projects. Some of these include the Padma Bridge, Metro Rail, Dhaka Elevated
Expressway, Bus Rapid Transit, expansion of two-lane highways into four lanes, Padma Rail Link,
Dohazari (Chittagong)-Gundum (Cox's Bazar) rail track, involving several billion dollars.

Experts said the higher allocations were expected as projects taken in the past years are gaining
momentum now. They, however, expressed concern over the quality of implementation of the
communication infrastructure projects. The public expenditure would go up by 26 percent but the
trend growth is around 16 percent for last eight-nine years.
Regarding the fund, The budget proposal said tax collection would go up by 34 percent, "But it will
be a spectacular fact to increase tax collection by a third in a single year." According to Dr Deboprio
of CPD.

Apart from more VAT collection, other source of collecting money to fund mega projects is foreign
financing, which he has projected to increase by 68 percent from that in this year's revised budget. It
is beyond our perception since when and how Bangladesh suddenly achieved this kind of superb
implementation capacity. And if the figures are only for the sake of figures, the consequence will be
a budgetary mismatch, a huge deficit, a bigger bank borrowing, and all the other knock-on effects.

Of the deficit, Tk 51,924 crore will come from external sources while domestic sources will provide
Tk 60,352 crore. Of the domestic source, Tk 28,203 crore will come from the banking sector and the
remaining Tk 32,149 crore from savings certificates and other non-banking sources.

But the sales of saving instruments rose 59 percent year-on-year to Tk 42,098 crore in the last July-
April period due to higher returns of the schemes while the government's target for the full-year was
Tk 19,610 crore at a very high interest rate then interest rate of commercial Bank causing further
increase of expenses in non-development account. FM has no plan to reform the administration for
increasing the capacity of implementing the development projects but increasing the budgetary
allocation and adding up new development projects.

This bigger budget and low implementation capacity and poor tax collection is a major mismatch in
reality and proposed budget. Government is relying on new VAT Law to increase the internal
mobilization of fund but the market yet to accept the new law creating another challenge of tax
collection.

FM said Bangladesh is in highway of development but the highway has some obstacles of collection
and utilization of funds.

The writer is a legal economist. He can be reached at mssiddiqui2035@gmail.com