The Financial Express

Budget identifies priorities, lacks clear plan of action

| Updated: June 12, 2021 20:49:28

Budget identifies priorities, lacks clear plan of action

The budget for the fiscal year 2021-22 (FY22) is proposed by the finance minister AHM Mustafa Kamal at a critical time of the pandemic. The title of the budget speech is "Bangladesh Towards a Resilient Future Protecting Lives And Livelihoods." There is, however, a disconnect between the title of the budget and its content.

This disconnect is due to the improper and inappropriate assessment of the Covid-19 situation. For example, issues of poverty, job market, SME sector and vaccination from Covid-19 have been underestimated in the budget, which would lead to limitations in formulating policies.

If policymakers remain in their comfort zone during such a crisis, then they will not feel the need to create and implement appropriate policies. There has also not been enough data collection related to the pandemic situation from government organisations - this data is very important to understand the ground reality and is very useful for policymakers.

To address this, many think-tanks have come forward and are taking the initiative to collect data. The consensus from all the research conducted is that poverty rate has increased; there has been a big crisis in the labour market - including urban to rural migration and increased pressure in the rural job market; MSMEs have suffered the most and have received the least amount of support during the pandemic-- facing difficulties in receiving stimulus packages, they have relied on informal sources of finance.

Emphasis must not only be placed on financial recovery, but also on social recovery which would otherwise lead to an incomplete discussion. Recovery of social issues such as education, health, social security, poverty, inequality, etc. needs to be addressed. In brief, the solutions presented seem to be on an ad-hoc basis, rather than overall planning in regard to the Covid-19 crisis.

Budget implementation is a major issue. Although the budget has three stages, there is always little discussion about the revised and actual budgets later in the year. From SANEM's research it has been found that for the past 10-12 years, the proportion of the proposed budget that is actual spending is around 75-78 per cent. Moreover, the difference between implementation and spending is crucial, as increased spending does not imply that policies are being properly implemented. The monitoring and evaluation process of the goals mentioned in the budget are also not clear, which is why discussions of budget implementation are dependent on spending figures only.

While the size of the budget is increasing, it is not increasing in proportion to Gross Domestic Product (GDP). Therefore, the size of the budget, Tk 6.03 trillion proposed for FY22, should be further increased, but in terms of priority. For example, public health expenditure, education and social protection are currently very small portions of GDP, which does not align with international Sustainable Development Goals (SDGs) norms. Ideally, these expenditures should be doubled to achieve SDGs, however it would be impossible if the budget is only around 17.5 per cent of GDP. The revenue GDP ratio (11.3 per cent) seems to be unrealistic and historically high for the upcoming fiscal year, as per our current situation, and needs to be toned down. The budget deficit of 6.2 per cent is not an issue, rather it could be higher. To meet the budget deficit, it is important to ensure "honest use" of the loans mentioned in the budget to be taken from the banking sector.

While many priorities have been appropriately mentioned in the budget, there is not much discussion about the education sector in the budget. Previous initiatives have been mentioned, but issues with online education, risk of drop outs and early marriages have not been reflected upon.

Most notably, there is no mention of the "New Poor" and inaccuracies in the lists of "Old Poor" and "Non Poor" - which would lead to issues in providing support to these groups.

The tax benefits given in terms of imports also poses as risk, as it may discourage businesses to expand into exports - this is also a cause of concern when Bangladesh graduates from Least Developed Country (LDC) and falls under the World Trade Organization (WTO) regulations.

Nevertheless, the Finance Minister should be thanked for emphasising the priority sectors in the budget announcement. He finally states that the "roadmap" for how the budget will be implemented in these priority sectors is missing in the budget announcement.

It is also necessary to analyse whether there is a difference between expectations and reality and if so, what the differences are. For example, there has been an increase in allocations in the social security sector, in the health sector, which is certainly positive. Policies have been proposed on a micro level. Among those, some exemptions have been given to encourage investment in agriculture and to make agricultural products easily available.

 There have also been some tax exemptions to encourage investment in the health sector, and many efforts have been made to make various products in the health sector affordable, which is also a positive aspect. There are also additional incentives for female entrepreneurs.

The budget is, overall, business friendly which is positive and there is visible effort in reviving the economy.

However, it is not clear how much the general public, the low-income people and the middle class will benefit from the efforts made to boost businesses. It is also not clear how many small and medium-sized enterprises will benefit from the concessions. There are mixed feelings in terms of how much the general population will benefit and how much employment will be generated.

The main reason for the difference in expectations is that this budget seeks to help the general public by providing some incentives and concessions at the basic level through some small policies. However, the expectation was with employment and poverty alleviation at the forefront, as well as social infrastructure, health and education at the forefront and the allocation would be increased with emphasis on these issues, as well as a very clear roadmap. Although this is somewhat reflected at the individual level, it is not seen at the collective level, which was a cause of disappointment. In this regard, the first step is to increase the allocation, the second step is to implement it, the third step is to increase this allocation and to see whether the implementation is consistent with our development.

This process cannot be started unless the allocation is increased. Therefore, there was a need for major reforms in health and education, especially in the face of the pandemic. There was an expectation for something different, which we did not observe. The labour market has also been heavily impacted, which has spread to other sectors as well.

If businesses do well, employment will be created, and the labour market will be stimulated through that employment. However, it is not clear whether the kind of incentives that have been given to stimulate businesses will actually spread to the labour market. Therefore, a real roadmap is needed.

The current situation of our labour market, the kind of steps have been taken in the current financial year to cope with the impact of coronavirus and what else needs to be done to address other problems in the labour market all need to be considered. This budget needs to have a realistic picture of the steps that have been taken for the next fiscal year. There have been some concessions and incentives in terms of employment. In the case of e-learning, concessions have been given, 1.0 million people will be trained in the IT sector. However, these issues are very small initiatives to address the challenges of the labour market in Bangladesh and there is a lack of a clear plan of action.


Dr Selim Raihan is Professor, Department of Economics, University of Dhaka and Executive Director of SANEM. [email protected]

Dr Sayema Haque Bidisha, Professor, Department of Economics, University of Dhaka and Research Director of SANEM. [email protected]

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