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The Financial Express

Pandemic forces govt rethink fiscal priorities

| Updated: June 01, 2020 21:23:32


Pandemic forces govt rethink fiscal priorities

We have yet to know when the peril of the Covid-19 pandemic will come to an end. In such an uncertain situation, most of the countries have adopted the "lockdown" strategy as an immediate preventive measure against the transmission of Covid-19. The "lockdown" strategy, which is resulting in economic stagnation across different nations, cannot, however, be a long-term strategy for dealing with the pandemic. Many countries have started to realize this and have taken steps to devise effective policy guidelines for returning to the business-as-usual operation of their economies. It is needless to say that countries like Bangladesh tend to be hit harder than others, i.e. the developed ones, by the the pandemic.

Bangladesh has performed considerably well with a steady progress toward socioeconomic advancement as measured in terms of various development indicators. However, the country must adopt a pragmatic approach to the challenges of the pandemic so that it does not lose the momentum of its ongoing development endeavors.

FY 2020-2021 is particularly important for the timeline set by the government in the plan of action to implement the sustainable development goals (SDGs). It is possible for the government to continue pursuing the SDGs and related development planning amid the evolving uncertainties of Covid-19. Given the core values of SDGs that emphasize the inclusion of all communities in a broader development framework, the government must strive to uphold this principle while fighting the pandemic. In addition, contingency plans and stimulus packages for recovering the economy from the damage done by the pandemic must ensure that no affected groups are left behind.

Bangladesh has demonstrated praiseworthy performance in alleviating poverty in recent times. The incidence of poverty has reduced to 20.5 percent. However, a large group of people that used to live above the poverty line before the outbreak of Covid-19 tends to fall into the poverty trap. It can be inferred from this possible exacerbation of the poverty situation that an overwhelming majority of the population does not have sustainable livelihood and thus fails to rise to the challenges of economic crisis induced by the ongoing pandemic. To deal with this situation, we may take into account the following points while devising strategies to improve people's lives and livelihoods in the current extraordinary circumstances.

(A) In the short-run, distributive policies must address the immediate needs of the people who have fallen below the poverty line because of the pandemic-induced economic slowdown.

(B) In the medium-run, these newly poor must be provided with opportunities to mobilize resources that are provided through the government's stimulus packages so that they are able to generate their incomes sustainably and thus to guard themselves against economic uncertainties.

(C) In the long run, the government and its development partners need to critically assess the existing measures of poverty and their relevance to the programs and strategies for poverty alleviation. It is conspicuous from the effects of the current pandemic that a large group of people identified as nonpoor by the current measures of poverty incidence is in fact considerably vulnerable to poverty. The measure of absolute poverty in terms of earnings does not reflect the true economic condition of a large population. It is, therefore, important that the relative measures of poverty are taken into consideration while assessing the poverty situation in the country. Such a measure would help a develop long-term plan of action to reduce poverty in a sustainable manner.

To minimise the adverse impact of the current pandemic on the economy, the government has introduced stimulus packages for the garment industry as well as many other sectors. Intended results of these stimulus packages would be achieved only when the government ensures transparency in distribution of the benefits and addresses the potential weaknesses of the institutions responsible for administering the stimulus packages. The government has been providing the poor with cash incentives and food support. Recently 5 million poor people have been given Tk. 2500 to each which was appreciated. It is estimated that more 10 - 12 million people need support from this program. However, it is imperative that the government identifies the truly eligible people and households for the relief by ensuring appropriate coordination between the concerned agencies.It is also important that the government does not leave the population belonging to the middle- and lower-middle classes behind while serving the rich with different stimulus benefits and the poor with relief supports.

Many individuals as well as voluntary organizations have come forward to bolster the government's effort to protect the vulnerable populations from the adverse impacts of the pandemic. An effective coordination is now necessary to strengthen the concerted efforts made my public, private, and voluntary actors so that the truly affected and vulnerable groups could be reached.

Formulation of the national budget for FY21 is currently underway. Several considerations need to be put on the table before setting the fiscal strategies in the budget planning. It is likely that a considerable number of the current taxpayers will lose their eligibility to pay taxes because of potential loss of income due to Covid-19-induced economic crisis. As a result, the government must have alternative plans for mobilization of resources to finance the budget deficit including broaden the tax-net. It is estimated that at least 10 million are eligible to pay the minimum tax. Current tax-GDP ratio in Bangladesh is one of the lowest in the world at around 9.0 per cent. One must be aware of the sources of finance, whether they are internal and external borrowing or higher money supply through expansionary monetary policies, and their implications for macroeconomic performance in both short and long-run.

Implementation of annual development program (ADP) would arise as another challenge for the next fiscal year. A substantial portion of the ADP, which is usually implemented in the last quarter (April-June) of fiscal years, is likely to remain unspent because of the economic inertia caused by Covid-19. Consequently, the government may face serious difficulty planning the implementation of ADP for the next fiscal year though government has already finalized the ADP of Tk 2.05 trillion for FY21. However, the amount of health expenditure in the new ADP has been modestly increased which was not at the expected level in line with emerging situation due to pandemic.

The ongoing pandemic has unveiled the weaknesses of the country's health sector. It is high time we understood the importance of modernizing the health infrastructure, providing the health workers with appropriate training and compensation, and expanding the capacity of the healthcare programs. An effective coordination between the public and private health service providers is critical to developing an efficient national health system. It is needless to say that health spending is much lower than required in the country with less than one percent of gross domestic product (GDP) allocated for the health sector in the last fiscal year. In view of the health exigencies emanating through Covid-19, budgetary allocation for the health sector should increase to at least three percent of GDP in the next fiscal year and four percent in the following years along with enhancing the capacity of the concerned agencies to spend such expenditures. Actually, Covid-19 showed us how vulnerable our health sector is, how the health sector has been neglected over the years. We have to take lessons from this pandemic situation, which created the opportunity for drastic reforms in the health sector without any further delay. Investing in health will help increase productivity of the citizens. We have to see this from the right, constitutional perspective. Every citizen should be issued a national health card with universal health coverage under a general practitioner (GP) system available at every corner of the country. Every district level hospital should have modern health facilities including ICU having a standard equivalent to that of the Dhaka Medical College Hospital.

Budgetary priorities must also be set for the agriculture sector and social security. Food security has emerged as one of the most important national policy agendas across the globe since international trade has slowed down because of the border shutdowns. It is, therefore, important that the government puts particular emphasis on strengthening the production and distribution channels of agriculture so that the farmers are protected against economic shocks while the consumers are provided with an adequate supply of foods. Policies of providing subsidies and interest-free loans for the farmers should be prioritized in the development strategies as well. Besides, the government has to streamline its policy guidelines for small and medium enterprises (SMEs) covering both formal and informal SMEs who have been severely affected by the pandemic so that they can meet the rising demands for SME goods in the local market. It is also expected that the government will spend at least 4.0 per cent of GDP in FY21for social security by expanding its coverage and increasing the amount of money for each program both in rural and urban areas with particular emphasis on the urban poor.

It can be said that the "lockdown" strategy is only a short-term approach to dealing with the raging pandemic. People must return to the issue of livelihoods by taking protective measures against the threat of Covid-19. Public awareness about health issues is particularly important. We have to protect ourselves and help the government in this regard. We need to follow the guidelines set by the government. The government needs to facilitate this return to the business-as-usual state of the economy by adopting appropriate and timely plans and policy guidelines.

Dr. M. Abu Eusuf is an economist and Professor, Department of Development Studies, University of Dhaka and Executive Director, Research and Policy Integration for Development (RAPID).

eusuf101@gmail.com

 

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