Enforce lockdown to save lives, Unnayan Onneshan urges govt in budget analysis

As Bangladesh keeps recording an accelerating number of confirmed cases of Covid-19, Unnayan Onneshan (UO), in a budget analysis on Friday, opined that the government should enforce a lockdown, advocating that savings lives could steer the cycle of the economy.

An independent multidisciplinary think-tank, the UO came up with the opinion in a budget analysis titled “Whither Bending the Curves for life and livelihood: A Rapid Assessment of National Budget 2020-21”. A Tk 5.68-trillion budget was placed by the government in parliament for the next fiscal just a day before, Thursday.

The proposed budget for FY 2020-21 lacks measures necessary to address the macroeconomic, medium- term and institutional challenges facing the economy at the advent of the pandemic, the research organisation said in a press release on its budget analysis report.

“In the wake of a global pandemic that has overturned the historical legacy of trends in macroeconomic indicators for the first time in decades, the budget of FY 2020-21 … still remains abundantly in the spectrum of exclusion and short-sighted motivations, and in favour of clientelist networks”, the report said.

Income erosion resulting from the losses in various productive sectors from the shutdown will lead to the emergence of a ‘new’ poor in the country. According to the research organisation, the income erosion may result in 43.5 per cent households having income less than the international poverty line.

“In the worst case scenario, with prolonged shutdown, we estimate 47.43 percent of the households will have income below the poverty line. Systematic reopening up the economy with focus on job creation and retention will see the percentage come down to 39.43 percent,” the assessment added.

For the first time in decades, macroeconomic indicators in Bangladesh are set to dramatically reverse their course - what had been a gradual decline in poverty since 1992 is about to take off in an upward direction, economic growth is stalled to 5.2 per cent, the lowest since 1980, unemployment figures almost double since 2018 reaching an all-time high since 1984, the report noted.

Pointing out that the inequality may further be entrenched, the the research organisation  said it would cross the fault line 0.50 from the existing 0.32 in terms of Gini coefficient while further exacerbate if measured by Palma ratio of 2.93 as there would be descent of low and middle-income section as new poor due to differentiated returns on labour and capital stemming from erosion of income, given the preponderance of most of the labour force to be engaged in informal sector and a ubiquitous loss of employment in both formal and informal sectors.

The UO estimated that a percentage decrease in the GDP growth will result in 0.93 per cent increase in unemployment rate. Hence, the unemployment rate may rise more than 3.0 per cent because of the fall in GDP.

Growth, savings and investment

The research organisation found that the expected growth rate of 8.2 per cent proposed in the budget, reflected by a quick recovery from the current fiscal year’s 5.2 per cent may be deemed unrealistic.

The growth in GDP will in fact plummet due to added weakening of investment, consumption, government expenditure and net exports, stemming from the pandemic, it added. “The losses incurred by specific productive sectors shows a 12.4% drop in the overall contribution of these sectors in the GDP. As their total weight in the GDP is 31.44%, a 12.4% drop in their contribution will mean a 3.9% fall in the total GDP,” the report noted.

The UO underscored that pushing the economy to the next rungs as the country aspires to be middle-income, requires a transformative production pathway, ensuring a cleaner, greener and stable production system.

Real sectors

The impact of Covid-19 has cost farmers more than Tk 560 billion in a month and a half, but fails to address that ensuring a fair price to the farmers may prove to be the toughest obstacle.  “Over the last six years, the subsidy in agriculture has remained at BDT 9,000 crores which means that the proportion of subsidy is decreasing every year as the size of the budget increases and this increment may not be sufficient to achieve and sustain food security," the UO added in the analysis.

Pointing out that the manufacturing sector greatly relies on a single industry, requiring diversification and financial assistance to the SMEs and the women entrepreneur, it noted that “the budgetary allocation is ascertained at BDT 3940 crores, a shocking 0.7 per cent of GDP, which was BDT 4101 crores in FY 2019-20 adjusting for inflation.”

Universal basic needs – education, health and social security

Despite allocation as share of operating and development budget has increased slightly for health sector, it comprises only 0.9 per cent of GDP while education and technology sector takes 2.7 per cent of the GDP which is not sufficient at all, the research organisation noted.

“The allocation for social security is BDT 790 crores higher than the inflation adjusted allocation of the previous year, indicating a real change of 2.5% only and certainly is not ample to secure a decent living for the population that has drowned into poverty, unemployment and income erosion due to the pandemic”, the report said.

Financing, debt management and institutions

Noting that the Covid-19 crisis has dealt a massive blow to the revenue collection of the government as the collection may face a negative growth of 6.0 per cent in the FY2020-21, the UO urged the government to reinforce its emphasis on increasing Tax-GDP ratio which stands below 10 per cent currently, brought on by a tradition of continued corruption in terms of tax forgery and evasion.

Pointing out that the unsustainable public debts have possibility to negatively affect the poverty alleviation and economic growth through repressing the public spending, it called for the optimisation of debt portfolio and revealing the government’s borrowing plan through proper debt management strategy.