The goal of the budget for the next fiscal year (FY21) should be to tackle the unprecedented health and economic challenges posed by the Covid-19 pandemic and restoration of stability of the economy. Finance minister AHM Mustafa Kamal has acknowledged the reality while placing the budget in the national parliament on Thursday afternoon. In his budget speech, he thus said: "The budget for FY 2020-21 has been prepared bearing in mind the strategies required to be undertaken to meet the emergencies in the health sector of Bangladesh and recover from the damages caused in various sectors of the economy. Sufficient allocation has been made in the proposed budget to satisfy the needs of all Ministries and Divisions to address the impact of Covid-19 outbreak".
But to what extend the proposed budget has responded to tackle the health and economic challenges? Targeting 8.20 per cent growth rate of Gross Domestic Product (GDP) in the next fiscal year (FY21) indicates that it has been assumed by the finance minister that economic activities will return to normal shortly and economic growth will resume its previous trend. This assumption means, economic activities will quickly pick up the normal pace and the economy will experience a "V-shaped recovery". However, question remains whether reality corroborates this assumption.
As we are witnessing increasing health hazards, rising cases of infections and deaths, when will it be possible to resume full-fledged economic activities is a big question. On one hand, we are expecting shock to two main drivers of our economy-export and remittance. The two biggest destinations of our exports-the European Union (EU) and North America-are predicted to experience negative growth. Thus, whether in the future, export to these countries will increase and to what extent is a question. On the other hand, the oil price has plunged unprecedentedly. The economies of the countries of the Middle East, where our workers are employed, have contracted. Thus, there is significant reason to be concerned about the flow of remittance from these countries. Since economic activities have come to a halt in those countries, there is also reason to worry that they might send a huge number of our immigrants home.
The finance minister also acknowledged the reality as reflected in downward revision of GDP growth rate of FY20 to 5.20 per cent from the target of 8.20 per cent. He argued that that due to the fall in exports and lower than expected growth in remittances as a result of long and sustained worldwide lockdowns arising from the impact of Covid-19, the growth rate of FY20 has been revised downward. He, however, seems optimistic 'in view of the post-Covid recovery' and so projected 8.20 per cent growth for the next fiscal year 'in line with the long-term plans.' Whether the targeted growth rate of 8.20 per cent in FY21 is congruent with these crises, which will intensify in the near future, is a question.
HEALTH & SOCIAL SAFETY NET : The current health crisis that the country is experiencing and the country's incompetency and lack of capability to tackle this crisis is an accumulated result of decades. The health sector, especially the public health sector has been neglected for long. There is also a lack of accountability in the private health sector. The accumulated outcome of these is being reflected in the current crisis and the poor state of the public health service.
Against the backdrop, total allocation for health budget increased by 14.0 per cent to Tk 292.47 billion in FY21 from Tk 257.33 billion in FY20. The proposed increase in health budget is necessary. The finance minister, in his budget speech, also said: "The health sector is given the highest priority, and provisions have been made for this sector in the form of additional allocation, incentives, compensations, etc."
However, the management of the health sector must also be improved. Without the improvement of management, effective implementation of the increased allocation will come under question. We have often raised a question regarding corruption and mismanagement in the health sector. In parliament, during the budget session, claims have been made that hospitals have been transformed into specialised hospitals for Covid-19. However, the question remains whether these hospitals are actually in motion, as media reports indicate a huge gap between announcement and implementation. Implementation of announcements must be ensured.
I also think increasing the allocation for social protection is commendable. It is estimated that budgetary allocation for social safety nets has been increased Tk 955.74 billion in FY21 from Tk 818.65 billion in revised budget for FY20. However, it must be remembered that a big portion of the budget allocation for social protection is actually dedicated to pension and allowance schemes.
Thus, the question remains, how much allocation has been increased in real terms? In the current crisis, a huge number of people have slid below the poverty line and in the coming days many more will follow; a huge number of people have lost their jobs. Therefore, especially when measures like zoning are being undertaken, initiatives must be taken to include this populace in the social protection coverage and supply them with food and cash assistance; a mere increment of allocation will not be enough. However, I still believe that allocation for social protection as well as the health sector should have been increased more.
The government announced stimulus packages at the beginning of the crisis, which is again, highly commendable. However, the stimulus package will be operated through the banking sector, which itself, as we know, is in crisis. There are crises of mismanagement, institutional weakness, and default loan in the banking sector. The budget should have had a guideline for the operation of the stimulus packages through such a crisis-ridden banking sector.
In my view, there should have been a guideline for ministries, Bangladesh Bank, and other banks as well, in this regard. We are also hearing about various difficulties the Small and Medium Enterprises (SMEs) are facing in accessing their Tk 200.00 billion stimulus package through the banks.
REVENUE & DEFICIT: Due to the current crisis, meeting even the revenue target set in the revised budget is quite impossible. In the revised budget for the current fiscal year (FY20), the target of collecting tax revenue from National Board of Revenue (NBR) is re-fixed at Tk 3005.00 billion against the original target of Tk 3256.00 billion. And I do not think that the very high target that has been proposed for the next fiscal year is realistic. The target of total revenue income in FY21 is proposed at Tk 3780.00 billion out of which Tk 3300.00 billion will be collected through the NBR. Tax revenue from non-NBR sources has been estimated at Tk 150.00 billion while the non-tax revenue is estimated to be Tk 330.00 billion. If the revenue target is not met, how increased allocation for health, social protection, and education will be funded? Thus, the other options for financing should be explored. Exploring other options for financing might get dissuaded, due to such unrealistic revenue targets.
Yes, we can borrow loans from international organisations and in that case, we can negotiate for loans with flexible conditions and low-interest rates. But, Bangladesh does not have much time in this regard as many other countries have entered into negotiations with these international organisations and are negotiating for loans with flexible conditions and low-interest rates. Thus, this option must be explored as quickly as possible.
Lastly, let me focus on the budget deficit. In FY21, the overall budget deficit will be Tk 1900.00 billion which is 6.0 per cent of GDP. In FY20, the revised deficit is estimated at 5.30 per cent of GDP. To finance the next year's deficit, the government will borrow Tk 706.04 billion from external sources and expect to receive Tk 40.13 billion as foreign grants. Moreover, Tk 1099.83 billion will come from domestic sources of which Tk 849.83 billion will come through bank borrowing and Tk 250.00 billion from non-bank sources including savings certificates. I think the deficit will increase in the upcoming days, especially if the revenue target is not met and cost pressure increases. However, it is not a big problem. Even if the budget deficit rises to 7.0-8.0 per cent of GDP, we will have to accept that for the next two years.
Dr Selim Raihan is Professor of Economics, University of Dhaka and Chairman, South Asian Network on Economic Modeling. (SANEM). [email protected]