Public Investment on Infrastructure

Expenditure on Interest rate

Although government has proposed a deficit budget in FY 2013-14, the key issue is that such deficit has not been meant to augment multiplier effects in the economy rather has financed consumption as opposed to paying for infrastructure to remove supply side constraints. This continuation of present deficit has its roots in maverick decision to install rental and quick rental power plants at the cost of long run solutions.

A part of the deficit is financed by borrowing from the domestic banking sector and this has reduced the capacity of banking sector to make available credit to the private sector. In the wake of less availability of resources due to service debts and subsidy payments, the capacity of government to invest in physical and social infrastructure has also decreased.

Compared to the other sectors, the infrastructure sector (Transport and Communication) and the power sector are more capital centric. The proposed allocation in these two sectors stood at Tk. 20,596 crore and Tk. 11,351.20 crore respectively. These are higher than the allocation in the budget of FY 2012-13 by Tk. 7,358 crore and Tk. 1,358 crore, respectively. Special allocation for the Padma multipurpose Bridge is Tk. 6,852 crore and is included in infrastructure.

In terms of budgetary allocation, although the infrastructure sector has seen one of the highest increases in recent times, the effectiveness of this amount, however, would depend on how the money is capitalised. If the money is used to build new roads, railways, etc, the possibility of a greater fiscal multiplier would be created. Moreover, one flaw in the government’s infrastructure development plan is its reliance the PPP initiative, which has already failed to produce real results. For example, despite allocating Tk. 30 billion for 16 PPP projects in FY 2011-12, the funds remained unspent.

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