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Budget 2020-21: What else we can do

| Updated: June 27, 2020 23:02:02

Budget 2020-21: What else we can do

Budget 2020-21 has been placed before parliament in a grave situation of Covid-19 pandemic. Unfortunately, the country has taken 18th position in the cumulative number of coronavirus cases surpassing China and the economy has been struggling for more than a quarter to survive despite a prolonged crisis. Bangladesh was set to achieve around 8.5 per cent economic growth in the outgoing fiscal year. Investment has declined from 31.57 of 2018-19 to 20.8 in 2019-20. Industry and services, the two most important drivers of economic growth, have also registered dismal record. Presumably, the growth of gross domestic product (GDP) has been estimated to be 5.2 per cent in the Medium Term Macroeconomic Policy Statement (MTMPS) 2020-21 to 2022-23 due to extraordinary contraction of these two sectors. The targeted growth of GDP in 2020-21 is 8.2 per cent when the budget will be implemented, even though it would be hardly achievable given the great uncertainty all around.       

As discussed in the MTMPS document, the proposed budget has been formulated keeping in mind the targets of the 8th Five Year Plan, Sustainable Development Goals (SDGs) and Vision 2041. The government could not move beyond the medium term budgetary, macroeconomic and revenue frameworks during the Covid-19 pandemic. It implies that the proposed budget did not bring a big change and innovation as it did not have enough freedom to formulate a budget to adequately address the health concerns from the menace of and massive downturn of the economy. The government had to continue allocating on mega infrastructure and energy projects because otherwise costs would be heavily escalated. These projects would also be required to achieve double-digit growth when the Covid-19 would be over.

As can be readily understood, the budget is aimed at striking a balance between life and livelihoods triggered by the miserable consequences of the spread of covid infections and loss of life in recent days. Obviously, we cannot afford to opt for 'herd immunity' as the existing health infrastructure, manpower and support services are no well-prepared to provide enough care.  Substantial allocation is required to create new infrastructure, medicines and equipment, testing facilities, intensive care units, ambulance and support services vis-à-vis increased physicians and nurses to counter such a formidable challenge. Even though the proposed budget for the health sector includes two foreign-funded projects and block allocation, it is not adequate in the context of skyrocketing number of new Covid-19 patients.     

The revenue target set in the proposed budget seems to be quite optimistic, and the National Board of Revenue (NBR) will remain under tremendous pressure if the current menace does not end at the earliest. Conversely, the government has opted for a 'big risk' of setting nearly 6 per cent budget deficit, which would be financed through borrowing mostly from domestic banking and foreign sources.

It will eventually mount pressure on the domestic financial sector as the banks are already loaded in implementing the incentive package of the Prime Minister. Nevertheless, governments are allowed to increase budget deficit during crisis in order to avoid recession if crisis endures. Bangladesh's Public Moneys and Budget Management Act 2009 reveals that deficit-GDP ratio can be kept at a 'tolerable limit' and it has not fixed any number of such limit. Therefore, even though it can create pressure on both fiscal and monetary sides, it would help restore the economy if the budget can be properly implemented. At the same time, the government must create emergency healthcare facilities, encourage private investment, transfer cash and kind to people in need, especially distressed poor and marginalised groups under social safety net programmes (SSNPs) and minimise Covid-laden unemployment as outlined in page 37 of the MTMPS document. It is widely perceived that a major global economic downturn is imminent, so the budget must be ready to increase resilience of domestic economy. At the same time, international financial institutions and bilateral donors would be unable to finance the deficit financing target of the proposed budget since almost all the countries would require international support. In that case, the government should prepare an alternative deficit financing mechanism without increasing much stress on banking system any further.

The proposed allocation in SSNPs is about 17 per cent in the proposed budget, which marked a significant rise due to new schemes and increased coverage to benefit low-income and Covid-stressed households. Now a big challenge is how to counter a possible large shock in domestic and foreign employment due to job loss of migrant workers in the Middle East, Europe, and other parts of the developed world as well as decline in global demand for goods and services. An interim employment strategy is required as the readymade garments sector has already declared to release a huge number of workers and many small-medium enterprises have lost capital over the last couple of months. Foreign remittance would also decline drastically if overseas workers return at a massive scale. Therefore, the workfare schemes under the SSNPs would need a significant change.

Finally, the proposed budget has not elaborated the strategy of the government to grab opportunities unveiled by Covid-19 besides combating a large number of threats and challenges. One of such opportunities is to take measures in introducing a universal healthcare system supported by medical insurance, which would be useful to create a shield against future pandemics and develop human capital in a sustainable manner to utilise demographic dividend of Bangladesh in the long run. Another important opportunity is to attract global investment -- from Japan and other countries -- which is currently moving out of China due to Covid-19. While Vietnam and Thailand are successfully diverting the investment to their economies, Bangladesh should immediately declare fiscal and policy incentives in this arena. The government should also rethink of reforming tobacco tax through increasing price, decreasing price tiers of cigarettes into two, and introducing specific duty and three per cent health surcharge. It would immensely help reduce health risks of Covid-19 and significantly increase tax revenue from this sector. 


Dr Mahfuz Kabir is Research Director at Bangladesh Institute of International and Strategic Studies. 

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