The Seventh Five Year Plan is due to come to a close this year and the Eighth Five Year Plan is to follow in its wake in what has become a seamless process. Perhaps preparations have begun to initiate the new Five Year Plan based on this tradition, keeping up continuity of a five year time frame in national economic planning. But due to the sudden shock that the economy has received this year following corona virus outbreak, the cycle of planning with the usual framework needs to be broken and a plan for the interim period be formulated to absorb the shock.
The Seventh Five Year Plan was based on a number of assumptions and expectations. First was the estimate about the trend rate of growth in gross domestic product (GDP). The plan sought to raise GDP growth rate progressively from 6.5 per cent in FY 15 to 8 per cent by FY 20. The average growth rate was projected to be 7.4 per cent during the plan period. The economy maintained the development momentum clocking a growth rate that crossed 8 per cent in FY 20. But in the middle of the last year of the Plan, in April, the wheels of economy suddenly juddered to a halt, following the `holiday' (lockdown) declared by the government to combat the outbreak of covid pandemic. Its impact on economic activities across the sectors has been disastrous, as has been the case in other countries. Though the Ministry of Finance has recently announced a growth rate of 5.4 per cent during the last fiscal (FY 20), the figures from international financial institutions based in Dhaka point to a gloomy picture about the same. The World Bank revised Bangladesh's growth rate, pushing it down to 1.6 per cent (it had estimated GDP for FY 19 at 7.5 per cent) in June this year. About the same time IMF projected GDP of Bangladesh to grow at a rate of 3.8 per cent during the same period. ADB's estimate on GDP is little over that of IMF, placing it at 4 per cent for FY 20. In view of these estimates and the fact that all the majors economies, except China, are posting negative growth rates, how can Bangladesh GDP be as high as 5.4 per cent? Of course, if no further damage is done to the economy by corona virus, Bangladesh may avoid the debacle that has fallen on the economies of many emerging and developing countries. But even with the best case scenario, the growth rate can not be as projected in the Seventh Plan. Drastic downward reductions will be required to be more realistic on the basis of the impact of pandemic.
The downsizing of the major assumptions behind GDP growth rate means that the macro economic variables will deviate significantly from the recent trend. The Seventh Plan projected the investment rate to increase by about 5.5 per cent over the plan period, raising the total from 28.9 per cent of GDP in FY 15 to 34.4 per cent by the end of the plan period in 2020. According to the current budget, investment will not exceed the present figure of 28 percent. It was envisaged that one tenth of the total investment would come from foreign direct investment (FDI). The actual result has been disappointing, having fallen far short of the target, only 48 per cent.
Among major assumptions is the mobilisation revenue by increasing collection of taxes etc. by NBR from 10.7 per cent of GDP to 16.7 per cent by FY 20. As of the end of last fiscal, the achievement has been only 12 per cent.
The Seventh Plan assumed that headcount poverty ratio would be reduced by 6.2 per cent during the plan period while extreme poverty would go down by about 4 per cent. National and international agencies have estimated that following Covid-19 the number of poor have increased, taking the figure from 20 per cent during last calendar year to 32 per cent at the end of june 2020, following the pandemic. The percentage of the extreme poor has also gone up, to 20 per cent from 10 per cent.
Almost all the important macro economic variables like exports have been hit hard through dislocations in production following the lockdown, disruptions of supply chain abroad and reduced consumer demand in Europe and America. It will take at least one year for exports to recover and regain the lost ground. Remittance earnings also are likely to be much less than during the last fiscal as a result of impact of Covid in the host countries.
The negative impact of Covid on macro economic indicators is one side of the picture. The other is the intervention that the government has to make through fiscal and monetary policy to cope with the fall out of the pandemic. The strategy, as articulated in the budget for the current fiscal (FY 21), has been to repair the damage and rehabilitate the entities both in the public and private sectors and keep the economy running with a view to jumpstarting it when the recovery phase is over. This has meant allocating additional resources to sectors that have been suddenly affected by the pandemic. To that extent resources will not be available to sectors that required higher allocation during the current fiscal and this shortfall may spillover into the next.
The compromises to the assumptions made and projection reached about the macro economics variables that has become necessary because of the pandemic implies that the next five year plan can not take up where the present one leaves off because of the change in priorities regarding the sectors and resultant allocations made to them following the pandemic, it will not be easy to extrapolate the requirements of funds and allocations of resources. To take care of this disruptions in the continuity about projections of sectoral needs and allocations made, an interim plan covering a period of two years is required to be taken up. This plan will take care of the requirement of resources for the recovery as well as the preparation of the ground for the implementation of the next five year plan. After the two year plan nurses the economy back to health and primes it for a jump start, the Eighth Five Year Plan can take over and add the necessary momentum. To have a new five year plan now would mean that it would be saddled with the task of rehabilitations and recovery of the sectors that have lost the development momentum, however temporary that may be. This objective of slowing down the growth rate for the sake of maintaining stability through recovery can not be meshed with the overriding objective of a five year plan for accelerated growth. On the other hand, to expect a damaged sector to go on an accelerated speed before allowing it to recoup the lost ground would mean compromising its recovery process. Ideally, a Five Year Plan should start, with all the sectors with the economy experiencing their normal rate of growth so that the planned activities can have the maximum impact on their growth potentials. There is no compelling reason to depart from this goal, not even on the ground of maintaining continuity.
Therefore, preparation of a two year plan as an interim measure to help the economy to recover and stabilise appears to be the most practical thing to do now.
The goal of the two years plan should be recovery and stabilisation of the economy through reviving the momentum of the sectors that has suffered set back due to suspension/stoppage of production of goods and provision of services. During the first year of recovery in the two year plan if the production is restored to pre-crisis level effected by kick-starting the economy, investments will be made for acceleration of the growth rate to jump start the economy. At the end of the second year of the two year plan this process of accelerated growth should be in full steam and the ground will be prepared for the start of the Eighth Five Year Plan.
Development projects will have to be prepared for recovery and stabilisation and subsequently for accelerated growth of the sectors affected by the pandemic. These projects will have priority in the ADP during the two year plan supported by requisite allocations. The ongoing projects in the ADP may either be put in mothball or continue with reduced level of expenditures. For these projects the planned activities should be phased out within a longer time frame. Only essential projects that are nearing completion should have allocations as per previous estimates.
The two year plan should be financed with resources from: a) saving from suspended/phased out ongoing projects. b) reduced expenditures on ongoing projects excepting the essential ones, c) saving from non-essential expenditures from the revenue budget from different Ministries, and d) funds received from bi-lateral and multi-lateral donors. Funds borrowed by government from internal sources like commercial banks should also be allocated to the new projects in the ADB. Leaving aside six months work of import bill (about $30 billion) the remainder of the foreign exchange reserves can also be utilised for implementations of projects in the new ADP. Management staff for the new projects should be deputed from the ongoing projects that will be suspended or reduced in scope. In no case, new staff should be recruited for the projects in the new ADP. All projects prepared and undertaken on priority basis for inclusion in the ADP under the two year plan should be completed by the end of the plan period. If for any reason there is time over run for some of projects beyond the plan period those should be taken over and merged with the revenue budget.
Designed carefully, keeping in view the exigencies of corona virus recovery, the projects in the two year plan will not be separate exercises. They will meld with the overall goal of the next five years plan preparing the ground for the launching of the same.