The Financial Express

Budget FY22, for whom?

| Updated: June 12, 2021 21:58:14

Budget FY22, for whom?

The proposed budget for the fiscal year 2021-22 has already been placed in  Parliament. It is now being scrutinised by the Parliament Members. Many experts including economists are also giving their reactions to the budget proposals. The commentators normally tend to label each year's budget in their own words. This year some are trying to tell us that the proposed budget is more business friendly. Hence, not pro-people! As though businesses operate in a void and do not touch the people. In an economy where 80 per cent investment is expected to come from the private sector as indicated by the Eight Five Year Plan, why would a business-friendly budget not be consumer friendly? And who are the consumers? Surely, the people of all classes. If the businesses try to respond to the demands of the consumers, including the small and medium entrepreneurs consisting of the broadly spread supply chains, how then could the budget be anti-people? If the public response to Covid-19 in terms of additional allocations for the health sector (though more could be done), social protection, agriculture, and education in addition to additional tax waivers and holidays is taken into consideration, this budget cannot be trashed so. Indeed, it appears to be quite strategic, balancing both short-term and long-term goals. That does not mean milk and honey will start flowing immediately after passing this budget. There is certainly huge uncertainty among small entrepreneurs who are struggling to survive. Besides the conventional poor, the 'new poor' who previously earned their livelihoods mostly from the informal sector are also struggling. Even the middle class has not been spared by this pandemic. Most of the 'new poor' are transitory and have no access to social protection, as there is no system of unemployment benefit in Bangladesh. Most of them may have been depleting their savings for survival. Others may have gone to the rural areas as their last resort for coping with the disaster.

Given these perspectives, we would like to see how the budget will respond to these challenges in the broader context of sustainable development. The 50th budget of Bangladesh derives strength from its hard-earned macro-economic stability. Despite Covid-19, Bangladesh has been maintaining reasonably better economic growth rates. This was 5.2 per cent during 2019-20 fiscal year and is expected to be 6.1 per cent in the current fiscal year. Based on this strength the budget aspires to achieve 7.2 per cent growth rate in the upcoming fiscal year. However, this aspiration can only be realised if we can bring the corona virus under total control. This requires huge effort in vaccinating nearly a hundred million people at the least. The good thing is that the investment-GDP ratio has increased from 32.2 per cent to 33.1 percent during the last fiscal year from the previous year, despite the pandemic. The remittance will be 24 billion plus USD this fiscal year compared to 18 billion USD in the last fiscal year. The export sector has picked up its growth momentum mainly due to reopening of the western economies. The RMG owners have started getting new orders and they expect this Christmas will be much more vibrant for their customers. So, the industry will hopefully regain its usual momentum by October. Following this momentum, the forward and backward linkage industries and businesses are likely to gear up to provide more employment to the masses. Another strength of Bangladesh's macro economy is its capacity to control inflation, which has been between 5-6 per cent for more than a decade or so. During this fiscal year there has been phenomenal growth in liquidity injection by the central bank, through easing most policy rates in addition to several refinance facilities. Yet, the budget projects inflation at a rate of 5.3 per cent in the next fiscal year. This may be possible as the economy is still operating below full capacity and is yet to be heated. Also there has been significant erosion of income of the vulnerable, including the middle class, due to the pandemic leading to fall in domestic demand. The import costs of oil and other necessary consumables have also been subdued. The growth of import has not been fully recovered. So, the risk of imported inflation remains low. As such the size of the foreign exchange reserve has been increasing, providing space for the government to invest more in mega infrastructure projects. The budget clearly reflects this growth supportive allocation of public resources with a hope that once completed, these mega projects will turn out to be 'game changers' in enhancing both foreign and domestic investments, leading to increased employment. The challenge, of course, lies in easing cost of doing business and providing necessary support to forward and backward linkage service providers for keeping the flow of investment continuously robust. This budget provides several tax waivers and holidays for domestic industries, mostly small and one-person owned companies, including women entrepreneurs who will enjoy Taka seven million as the threshold for turnover taxation. In addition, many electronic, electric, agricultural processing industries, and motor car industries have been given longer term tax holidays. The health sector entrepreneurs will also receive similar benefits if they establish hospitals outside Dhaka. Also, exporters including apparel industries have benefited from further reduction of taxes at source and easing of VAT collections. All these tax facilities aim to encourage those who are willing to push the agenda of 'made in Bangladesh'.

Let us look at some sectoral allocations to better understand the focus of the proposed budget. The budget has been supportive of all three pillars of Bangladesh's success in sustaining persistent inclusive growth process. Firstly, the allocation for agriculture has risen by 7.3 per cent. In addition to investment in increased mechanisation of the sector, several new initiatives like 32 home gardens of nutritional vegetable in each union, market for farmers in 41 districts, regional SAARC seed bank, and revamping digital marketing platform for the agricultural products auger well for agricultural transformation. The central bank's regulation to allow rescheduling of agricultural loans without any down payment is another move in the right direction. I only hope the stimulus packages declared for farmers and CSMEs get similar positive support from the central bank for speedy and inclusive recovery of the economy. Secondly, the continuation of cash incentives of two per cent on the remittance also deserves to be applauded, as this has helped formalise the inward inflow of remittance. More could be done to create more innovative savings products like green bonds/sukuks in addition to the existing treasury, premium and other bonds, which may be operated digitally by Bangladesh Bank and other authorised dealers in commercial banks. Thirdly, while the continued support to the RMGs by the budget is well taken, a level playing field should be created for other exporting industries to achieve much needed export diversification and growth of other world class entrepreneurs as the country moves out of LDC group.

The 18 per cent increase in social protection allocation of Taka one trillion crore-plus reveals the government's commitment to respond to the needs of the extreme poor, whose numbers must have increased significantly in the pandemic. If the pandemic persists, there may be a need for more allocations in this sector. There must be a special focus on the urban poor who are mostly climate refugees and hardly have any access to social security programmes like the ones available in rural areas. There must be a special relief or social protection allocations to the bordering districts where covid infections have gone up astronomically leading to local hard lockdowns. The livelihood challenges in these districts have intensified manifold in recent days. The government made a smart move by pledging to provide significant corporate tax breaks to enterprises who will employ at least 10 per cent or 100 employees from disadvantaged segments of the society, including the third gender population, snake-charmers (bede), and minority ethnic groups. However, this minimum number of employees could be a barrier for some enterprises in getting this tax benefit. A flexibility with proportionate approach could be a better option. No doubt, these are positive moves. However, unless there is an attempt at digital real time monitoring of the actual recipients and payments made through a digital financial system, there will always be a scope for leakages here. Fortunately, the government has started using mobile financial systems in reaching the beneficiaries and I am sure, more will happen in this direction. For that matter, we need to have more credible data bases prepared in a participatory manner, for efficient management of the social protection programmes.

Education is yet another sector which deserves more focused attention from the government. The budget has allocated 16 per cent for mainstream and technical education, which ought to be increased to more than 20 per cent in line with the strategic plan of the sector. The learning loss of rural students as well as a substantial portion of urban students has indeed been significantly high. Fallouts like dropping out, early marriage of adolescent rural girls, and loss of income of the teachers in private educational institutions must have occurred at alarming rates. Money alone cannot address these challenges. We need to decentralise our educational system and infuse more qualified teachers if we want to improve the quality of our education. We may have to develop a blended campus with enough digital infrastructure for the educational institutions. The budget was quite shy on the digital divide, and the cost of internet and devices that should have been reduced by providing tax incentives to the provider. Of course, the BTRC has given a regulation on the single rate of data sale throughout the country, which could offer some relief to the rural users. The government could also think about more intensive use of the four terrestrial television channels for virtual teaching purposes, which could be useful to the rural community where the quality of teaching remains low. Taxing private universities was not a good move either.

So far, we have been talking about allocations and tax waivers. What about the revenue mobilisation? The revenue target for the NBR has been set realistically lower in this budget taking into consideration the impact of the pandemic. This is okay. However, the budget could have given some strategic directions to the NBR on urgent need for its reforms and modernisation. The CAG is apparently working with the NBR to digitise its accounting system in alignment with other government accounts. The government accounts are getting the benefit of electronic fund transfer, automatic clearing house and other state of the art payment settlement systems of Bangladesh Bank. Why shouldn't NBR take this opportunity and make its payment system more digital and transparent as desired by the CAG? I wish good luck to the CAG for making this happen. The NBR should also enhance its capacity in terms of more trained human resources, new recruitments, allocation of more officials to follow up on thousands of pending cases in the courts, and appointment of a smarter panel of lawyers to fight those unresolved cases involving stuck up of more than Taka forty-one thousand crores. It can also push for ADRs to quickly settle the cases. Moreover, there must be a 'carrot and stick' policy to give a signal to the would-be taxpayers that they will get better public services if they are in the tax net. The NBR can also take the help of the established research institutes to carry out surveys on the new taxpayers. The rural growth centres are potential sources of new taxpayers. Also, the NBR could have collected more revenue from the tobacco sector if it were taxed more across the board. Tobacco is at the root of many non-communicable diseases. The smokers are easier victims of Covid-19 as well. So, why so soft on the tobacco enterprises? At the same time, NBR could not be similarly soft to the MFS providers. Their corporate tax rates have been jacked up from 2.5 per cent to 7.5 per cent. This is, indeed, a punishment for these fintechs which did so much to keep the payment system afloat during the pandemic, particularly for the lower income groups and smaller startups and SMEs.

The proposed budget has a deficit of 6.2 per cent which will be borrowed from international financial and development agencies, as well as from domestic sources including the banking sector. Given the comfortable Tax-GDP ratio, there is almost no threat of rise in inflation. This proportion of budget deficit looks fine to me, given that our revenue collection remains so low. 

Let me end this piece by refocusing on the health sector which has been allocated only 5.4 per cent of the budget, including a block allocation of Taka Ten thousand crore for the purchase and management of vaccines. This cautious allocation to health must be due to the lack of capacity and 'reputation' of efficient and transparent spending of the money. However, there is a need for immediate reform of this sector. There must be better monitoring, preferably with digital technology, of the public spending on health by either the Ministry of Finance or a joint committee to bring back public confidence on this lagging sector.

Finally, allocations alone will not take us far in meeting the challenges of the pandemic as the availability of vaccines remains a big hurdle. Until most of our population is vaccinated, we must continue to campaign for all out adoption of masking culture, social distancing and hand washing. And here, there must be a 'whole of society' approach. The government alone cannot accomplish all this. Social mobilisation by the local governments, NGOs, media, social help groups, academia is a must for universal mass wearing of masks to tide over the second and subsequent waves of coronavirus. The budget should come up with immediate emergency allocations, not necessarily a big amount, for this Covid response. The new regulation by Bangladesh Bank on CSR support for social response to the pandemic can also be helpful now.


Dr Atiur Rahman is Bangabandhu Chair Professor, Dhaka University and former Governor, Bangladesh Bank.
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