The Financial Express

Implementing the budget on a quarterly basis

Implementing the budget on a quarterly basis

The proposed budget amounting to Tk 5680.00 billion for the fiscal year 2020-2021 is the largest-ever in the history of Bangladesh. This is a dilemma to have this big budget during these Covid-19 days. On one side, we need more government expenditure to fight the corona crisis, and on the other, because of the pandemic, economic activities have shrunk resulting in a slump in government revenue. This means more budget deficit. In the proposed budget, the deficit (including grants) is about 32.74 per cent (5.8 per cent of the Gross Domestic Product, GDP) or Tk 1859.87  billion. If we exclude grants, the deficit becomes about 33.45 per cent (6 per cent of the GDP) or Tk 1900.00 billion. If the government sticks to continuing normal economic activities (and lockdown zoning is not undertaken properly), more people will be infected by coronavirus. It also implies that government is taking preparation to face herd immunity for its citizens.  In that case, about 60 to 70 per cent population will be infected by Covid-19 and they will need more medical attention meaning extra government spending will be required in health sector. More than 50 per cent among the infected people will be from the working class and they will not have any income for a certain period. The government should also extend safety net programres for the temporarily unemployed people. On the other hand, if the government again takes decision for stricter lockdown, economic activities will be limited and government revenue will be shattered. Moreover, there will be huge social costs of second time lockdown (in terms of crimes and law and order situation). Overall, this will be a big challenge for the government to implement the budget of the fiscal year 2020-2021.

Some economic analysts claim that the budget falls short to be Covid-19 responsive. Before saying that, they should explain how the expenditure should be reallocated into different sectors so that it can be more pandemic responsive. It is not easy to reduce allocation from any sector. Nobody said that budget allocation was more than necessary in any sector. So, we can increase more spending to fight Covid-19 crisis by two ways, one to increase more spending, in that case the deficit will increase (it is already 5.8 per cent of the GDP in the proposed budget). Other way, we can raise the health and other safety net expenses to cope with the current crisis by reallocating the budget from other sectors. I do not know which one the economists will prefer in this situation. But I think they should advocate clearly from where the additional money will come and how the money will be redistributed. It is not enough to say government should increase allocation into this or that sector. This is a fashion nowadays to criticise the government without giving constructive and helpful policy advice. 

The biggest challenge for the government is to collect tax (Tk 3450.00 billion) and non-tax (Tk 330.00 billion) revenue. It becomes more difficult because of the Covid-19 situation. However, it is not impossible to collect the revenue if the government can digitalise tax collection procedure, and promote online business activities by giving tax incentives to entrepreneurs interested to do internet-based business (at least some share of their business should be online). The government has already started taking different initiatives to make revenue collection process online. But it requires more attention for digitalisation in economic activities within the country and with foreign countries. The government can facilitate online business expansion by providing infrastructural access (like internet access and training on how to do online business) to all kinds of business entities (like luxuries and daily necessities including groceries). This will create new jobs for receiving, processing and delivering online orders. Of course, some people will lose their jobs too because of lack of online knowledge and decreasing demand for manpower in stores. However, most of the unemployed people due to corona crisis will hopefully get back their jobs gradually once the crisis is over. If people become used to purchase goods online, after the corona time the demand for online purchases will be sustained (at least partially) along with the store purchases. That will help increase the aggregate demand of the economy faster and will raise government revenue. It is wise to mention that it may take a couple of years to regain the normal economic rhythm after the crisis.

Deficit financing will not be easy at all.  Because of global economic downturn, access to foreign borrowing (Tk 760.04 billion) will be difficult. However, efficient bargaining and diplomatic efforts can make it easier. Domestic Borrowing (Tk 1099.83 billion) from both the banking sector (Tk 849.80 billion) and non-banking sector (Tk 250.03 billion) will be almost impossible because of economic  slowdown during the Covid-19 days. I think printing money will be the last resort to finance the deficit. Getting more grants (not easy at this current situation and will require highly skilled diplomatic initiatives) also can help in this regard. Moreover, effective digitalisation of the economic system can minimise deficit to some extent.

Another big challenge is to spend the allocated money efficiently in different sectors. Since the last few months, we have been observing that our health system is  too weak to fight Covid-19. It is not because of funding crisis. It is because of fragile healthcare system and inefficiency of the health department. It is a long way to overcome the uncertain crisis. I think money will not be a big problem to fight the current pandemic if government can make sure that budget implementation process will be transparent and accountable. Digitalisation in economic activities, especially in health sector, can improve the monitoring and efficiency to a great extent. It will take time to have full digitalised economic system. However, it should be expedited.

Government should focus, monitor and evaluate the implementation process of the budget on a quarterly basis. Frequent evaluations will accelerate the implementation rate and quality throughout the fiscal year. Capacity building (by providing training and other facilities) is a must, especially in health sector to implement the budget successfully for the fiscal year 2020-2021.

Dr. Nazmul Islam is Visiting Assistant Professor of Economics at Colgate University, U.S.A., and Assistant Professor of Economics, Department of Humanities, Bangladesh University of Engineering and Technology (BUET).



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