3 years ago

A challenging budget at a challenging time

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The main expectation with the budget for the fiscal year 2020-21 (FY21) was that this budget would hold the rudder of the economy. We wished that the budget allocation and implementation would be such that we could minimise the damage in the development trend of the country posed by the Covid-19 virus. This budget is not one of a normal financial year. As such, there will be a lot of things here to address-- maybe devoid of much growth expectations -- with significant attention on four aspects. These are:  (1) minimising loss of lives, (2) minimising loss of livelihoods, (3) lessening damages to the main pillars of development, and (4) preparing the economy to turn around quickly in post-Covid days.

In general, we observe that healthcare, agriculture, social safety net for the poor and job creation have been given strategic priority in the proposed budget. But a comprehensive Covid fighting plan is missing.

HEALTH: The most important thing for the safety of life or to reduce loss of lives is the utilisation of budget allocation for health sector, in terms of both scale and quality. In the proposed budget, an allocation of Tk 292.48 billion has been made for health and family welfare, which is about 14.0 per cent more than the allocation in this sector in the previous year. In addition, another Tk 100.00 billion has been allocated to address any possible needs due to the current pandemic and another 2000 allocated to different ministries to address health related issues.

The initiative to hire new doctors, nurses and health technicians in the health sector is no doubt a positive step by the government. However, at this time of Covid-19 related risks, the general people want to ensure that whatever is allocated, health care facility is accessible to all. The main expectation, rather than how much is allocated, is to increase the scope of virus testing facilities across the country, to provide emergency medical care to those who need support, to ensure that doctors have adequate protection, and to ensure that there is no shortage of health care for diseases other than coronavirus. Therefore, the allocation of the health sector in the budget needs to be implemented with efficiency and good governance. If there is an urgent health risk, it would be better to have a guideline on how to deal with it. In other words, there should have been a clear action plan in the budget speech on how the allocation will be implemented to address health risks.

EMPLOYMENT GENERATION: We may look at how this budget will contribute to creating and maintaining jobs as Covid-19 induced economic uncertainty and sluggishness have posed serious risk to existing employment situation and employment generation for new job-seekers. Many overseas migrant workers have returned home after losing their jobs. They also need employment. With a slowed down economy, it is very difficult to create jobs for all the unemployed people. Therefore, allocation of budget is required to support the private sector to continue with their enterprises, also public sector expenditure on development projects and state-owned enterprises is necessary. The initiatives mentioned in the proposed budget for the agricultural and industrial sectors, as well as the steps taken under the social security programme, are expected to create employment. However, the question is: what would be the size of employment generation? In this budget, several steps have been taken to modernise the agriculture sector, increase productivity through mechanisation of agriculture at various stages. Modernisation of agriculture with reduction in import duty on agricultural machinery will contribute to increase in output, but may lead to reduction in job creation. Therefore, in addition to modernising agriculture, we have to expand agricultural sub-sectors and encourage agro-based industries. Moreover, it would be better to have a clearer guideline in the budget on making modern agricultural inputs affordable to small farmers.

Even before the budget declaration, the government announced various stimulus packages to salvage both agriculture and industry sectors. This also includes Tk 200.00 billion for the micro, small and medium enterprises (MSMEs). A US$12bn (3.70 per cent of GDP) stimulus package for the pandemic hit economy has already been declared. As the national debt-to-GDP ratio is only 31.0 per cent, we have space for leverage to lift up the economy. The central bank has already laid out liquidity support to the banking sector. But the implementing banks should come forward.

If various stimulus packages are implemented in a timely manner with easy terms and conditions, it will help in retaining employment. However, if there was a direction for new entrepreneurs, and a budget allocated for creation of new entrepreneurs like last fiscal year, it could have a special role in creating employment for educated unemployed and even those who have lost their jobs and returned to the country from abroad. The reduction of tariffs on imports of many industrial raw materials will contribute to the operation and development of domestic market-dependent industries. For example, local consumer durable industry requires 2.5 million compressors each year to manufacture and repair refrigerators and air conditioners. The budget proposal to continue the existing concessionary duty benefit on the import of compressor raw materials and to reduce customs duty (CD) on two new raw materials will help the local compressor manufacturers. The government has proposed to bring down the rate of tax deduction at source (TDS) at the stage of local supply of essential commodities, such as rice, flour, potato, garlic, onion etc. from existing 5.0 per cent to 2.0 per cent irrespective of the base price. Decreased TDS may reduce the raw material procurement cost of companies producing biscuits or similar bakery products.

I think initiatives like reduction of corporate tax in large industries will play a positive role in retaining investment and employment in large industries. In order to diversify the export sector, it is necessary to consider special corporate tax benefits in other important export sectors, especially leather and agro-processing as well as ready-made garment sector. Following the non-listed companies, corporate taxes of companies listed in the capital market from 25.0 per cent to 23.0 per cent would have encouraged various industries to be listed on the capital market and support their survival.

Increase in supplementary duty on mobile SIM-based services will not only increase the cost of conversations, but also the cost of internet use by means of mobile data. At this moment we are encouraging internet-based shopping, business, education, working from home etc. This will lend a negative impact due to the use of internet-based services for various online shopping services and even education. There is no alternative but to use mobile based internet as there is no WiFi facility in different places, especially in rural areas. This additional duty will expand the rural-urban divide. In this context, in the new reality of coronavirus, it is necessary to withdraw the proposal increasing supplementary duty on mobile SIM-based services. Allocation of Tk 1.0 billion for rural social service activities will play a positive role in creating rural employment. Along with this, the existing employment generation projects should be continued. The lower middle class people, who are facing new poverty, losing jobs, needed precise planning and budget allocation.

WOMEN'S JOB: There is no clear direction in this budget for women's employment. However, the announcement of setting up child day care centres in every upazila is praiseworthy. This will help women to participate more in the labour force. It is to be noted here that 5.0 per cent of Tk 200.0 billion stimulus for MSMEs is specially allocated for women. Thus, if this Tk 10.0 billion is disbursed to women entrepreneurs with easy terms and conditions, it will contribute to save their business and retain jobs of people working with them.

In the budget, there is an effort to reduce the prices of food items which are essential, for food security and poverty alleviation. The prices of various daily necessities will remain accessible to poor people. Moreover, the decision to reduce the advance income tax on imports of raw materials for poultry feed industry will play a positive role in the development of this sector. Increasing the tax-free income limit in the proposed budget will also play a positive role in easing people's economic life. However, it would have been better if the tax-free income limit was Tk 0.4 million.

UNCERTAINITY: This budget has been announced in a difficult situation. As our economy is going through an uncertain phase, triggered by the multifaceted corona impact, it is not possible to plan a budget with high precision. Therefore, we may compromise many of our growth aspirations. However, we will not give up on expectations regarding efficiency and good governance in implementing the budget.

There is a lot of uncertainty in this budget, such as -- the growth target may not be achieved, revenue collection target is much higher, and targeted borrowing from banks might be a problem. Revenue collection target cannot be achieved without a structural change in the revenue collection mechanism of the NBR. In the next financial year, it is necessary to focus on expanding NBR offices to the upazila level so that the number of taxpayers can be increased. The widening of budget deficit this year is not a big concern given that our debt-GDP ratio is not very high. However, at the moment, it is necessary to support the lives and livelihoods of the people, even at the cost of some debt burden.

If we look at the main philosophy of the proposed budget, there is a proposal for good governance, transparency, accountability, tough attitude towards corruption etc. However, the same budget proposal has provided the opportunity to whiten black money again; even the opportunity has been expanded this time. It is not known if there has been much benefit from the opportunity in the past. Instead, it gives a kind of discouragement to honest tax payers. Under the existing regulations, one can regularise undisclosed money with penalty. Thus, there is no need to provide concessional tax facility to whiten black money. The opportunity to whiten black money is contradictory to the determination of good governance and transparency in the budget. Therefore, the opportunity to whiten black money at a concessional tax should be stopped to keep the core philosophy of the budget firmly  balanced and steady.

The state of the country's economy in the coming fiscal year will depend on how much structural change has taken place in the health sector. If the risks in the health sector are not reduced, economic planning in all other sectors will face problems. I hope that the promise of good governance, transparency and accountability in the proposed FY21 budget will be followed in every aspect of budget implementation. This is a challenging time. Let us face the challenges of the budget implementation with utmost sincerity.

Dr Nazneen Ahmed is Senior Research Fellow, Bangladesh Institute of Development Studies (BIDS). [email protected]


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