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2020 | OriginalPaper | Buchkapitel

6. A Review of Public Expenditures in Bangladesh: Evidence on Sustainability and Cyclicality

verfasst von : Zahid Hussain, Monzur Hossain

Erschienen in: Bangladesh's Macroeconomic Policy

Verlag: Springer Singapore

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Abstract

Fiscal discipline has been a strength in Bangladesh’s macroeconomic management. Budget deficits have been consistently maintained at prudent levels over time. Consequently, public debt is low, and Bangladesh is assessed to be at low risk of debt distress over the medium to long term. This assumes sustained economic growth at 6.5–7 percent every year for the next 20 years. However, contingent liabilities, particularly those from state-owned financial and non-financial enterprises, risk putting pressure on the fiscal stance. Low revenue mobilization and weak public investment management have limited the growth and equity impact of fiscal policy. Tax revenues and expenditures also appear to be procyclical, implying that fiscal policy does not act as an automatic stabilizer, thus complicating the management of macroeconomic stability challenges.

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Vorheriges Kapitel Assessing the Effectiveness of Monetary Policy in Bangladesh

Nächstes Kapitel Effectiveness of Fiscal Policy in Stimulating Economic Growth: An Empirical Study on Bangladesh

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This section draws from the comprehensive assessment of fiscal trends provided in the World Bank, The Public Expenditure Review Update 2015, while updating the data available since this review was published.

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For example, costs per student in primary and secondary schools in Bangladesh are one of the lowest in the world, reflecting very high student-teacher and student to classroom ratios.

Including pension, subvention, and separation liabilities.

Economic Census, 2013 (BBS 2013).

This table was produced by using the fiscal sustainability model presented in the World Bank, Public Expenditure and Institutional Review 2010. The analytical derivation of the model is reproduced in Annex for ease of reference.

The discussion in this section is based on the results of the joint World-IMF Debt Sustainability Analysis reported in the IMF, Article IV Report (2018).

As described in ibid., standard shocks include “(i) a two-year reduction in economic growth by one standard deviation based on historical performance; (ii) a two year reduction in export value growth by one standard deviation based on historical performance; (iii) a two year reduction in inflation by one standard deviation based on historical performance; and (iv) a permanent 30 percent nominal exchange rate depreciation, as well as combinations of these scenarios.”

This section is based on findings in Medina, 2015. Assessing Fiscal Risks in Bangladesh. IMF Working Paper WP/15/110.

An organic compound commonly used in fertilizer.

Compared to the baseline projections used.

See Bangladesh Bank, Financial Stability Report 2018 for more details.

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For the former, they detrend variables with the Hodrick-Prescott filter using the standard smoothing parameter for annual data. In the robustness section, they also present results for a different filter that avoids many of the shortcomings of the typical procedure.

The results are similar when analyzing the coefficient between growth rates of the tax revenue and GDP (0.65, 0.43, and 0.06, respectively). The correlation between these two variables is statistically significant in India and Nepal. It is also positive in Bhutan, Sri Lanka, and Pakistan, but not statistically significant.

Developing this argument in a macroeconomic model would allow assessing the welfare implication of South Asia’s procyclical fiscal policy.

According to Izvorski and Karakulah (2019), from 1850 until the early 1900s, customs duties and excises provided the bulk of government revenues, while the personal income tax and VAT were not introduced in countries until later.

Izvorski and Karakulah (2019) show that in 1900, for example, spending on unemployment, health, pensions, and housing amounted to only 1.1 percent of GDP in the Scandinavian countries on average and to 0.7 percent of GDP in the US.

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Titel: A Review of Public Expenditures in Bangladesh: Evidence on Sustainability and Cyclicality
verfasst von: Zahid Hussain
Monzur Hossain
Verlag: Springer Singapore
Buch: Bangladesh's Macroeconomic Policy
Print ISBN: 978-981-15-1243-8

Electronic ISBN: 978-981-15-1244-5

Copyright-Jahr: 2020
DOI: https://doi.org/10.1007/978-981-15-1244-5_6