This year's budget comes on the 50th Anniversary of our Independence and Bangabandhu's Birth Centenary. Besides, the run-up to the LDC exit (2026) has already started. The second tier of the SDG timeline has begun with one-third of the implementation timeline exhausted.
The proposed budget of the fiscal year 2021-22 (FY22) has some appreciable decisions for the entrepreneurial class. The so-called pro-business budget may enable economic growth. Conversely, the budget fails to generate support from the consumer class as well as from the disadvantaged people including the new poor. Lack of data has played a role in this regard.
Although we are in the first year of the 8th Five-Year Plan (8FYP) and the second year of pandemic, the budget neither demonstrates any coherence with the projections of 8FYP nor shows consideration for the shock of the second wave of the pandemic on the economy.
The budget needed to deal with a national vaccination plan when the vaccines are emerging across the world as a 'national private good' instead of "global public good". The national budget for FY22 has to be implemented under the long shadow of the second pandemic, but also within an uncertain global environment.
GDP AND GNI COMPARISON: Review of the budgetary documents reveals that the GDP and GNI figures shown by the government are quite confusing. Moreover, a discrepancy is seen while comparing the statistics coming from different national sources.
The GDP growth rates shown in Table 1 are derived from four sources, namely, the budget document, Medium Term Macroeconomic Policy Statement (MTMPS), National Accounts Statistics estimates prepared by Bangladesh Bureau of Statistics (BBS) and the projections by the 8FYP. As can be seen, figures for FY19 are all aligned and the deviations between the budget and other sources remain consistent. As for FY20, the nominal GDP size (projection) mentioned in the budgetary framework is approximately 2 per cent higher than that of the BBS. In the case of FY21, the budgetary data for nominal GDP is nearly 2.5 per cent higher than the BBS estimate, but nearly 2 per cent lower than the estimate provided in the 8FYP. However, the GDP growth rates from both sources are similar for the same fiscal year.
With each successive fiscal year, there is an observed divergence in the size of GDP estimates provided by the Ministry of Finance in the budget and the MTMPS with those provided by BBS in the National Accounts Statistics and 8FYP.
In the context of varying GDP size estimates from varying national sources, the National Accounts Statistics by BBS does not provide either aggregate or sectoral growth rates for the fiscal years of 2020-21 and 2021-22. In FY19, there is consistency in the estimated GDP growth rates provided by the Ministry of Finance, BBS and the Planning Commission, Bangladesh. The deviation kicks off in FY20 and intensifies for FY21 when the Ministry of Finance started to provide GDP growth estimates while it is the sole responsibility of the National Accounts wing of the BBS. The per capita income estimates as shown in Table 2 also raises a number of issues. The FY21 GNI or per capita income estimates provided by the Ministry of Finance in the budget document and the MTMPS appear to exceed the 8FYP estimate by USD 57. In general, the estimated per capita income of the budget during the pandemic is higher than that of the 8FYP, while the estimated GDP size and GDP growth rate were comparatively lower. Hence, the estimated GDP and per capita income become suspect because of the inconsistency of the reported data and their trends.
Over the FY19-22 period, there is an observed decline in the estimated GDP to GNI ratio as GNI has grown faster due to a greater influx of remittances in successive years. The estimated GNI for FY21 is expected to grow with a continued higher inflow of remittances.
It is also understood that the impact of COVID-19 (not to say that of its second wave) has not been taken into account while estimating the GDP and GNI for FY21. It is also surprising that BBS is yet to give any provisional GDP growth figure for FY21 as well as a projection for FY22.
FISCAL FRAMEWORK: The government has declared FY2020-21 a better performing year than FY 2019-20. Growth rates of GDP, public and private investment have been reported to be higher compared to the previous fiscal year. This comes as a surprise.
The upward trends in GDP, public and private investment growth rates are contradicted by data for correlates. Annual Development Programme (ADP) implementation has declined whereas public investment shows an increase. Given the slowdown in private sector credit growth, the decline in capital machinery import and the Quantum Index of Production, increase in private investment is unlikely. The rate of electricity underutilisation has been stagnant which is indicative of the slow pace of recovery in industrial activities and production.
All these suggest that the case of "data deficit" is degenerating into "data anarchy". This will have severe implications for policy choices and outcome assessment during the period of the crisis.
POVERTY, EMPLOYMENT AND INEQUALITY
Poverty: The targets set by the national budget towards poverty reduction seem to ambitiously differ from other national documents such as the 8FYP. It may be recalled that independent studies by Citizen's Platform for SDGs, CPD, BIGD-PPRC and SANEM projected poverty rates inthe range of 35-42 per cent in 2020.
The existence of new poor has not been taken into consideration by the national budget. The government also did not take any initiative to estimate the number of newly disadvantaged people. There is a saying in English- "If I am not measured, I am not counted". This is true for the new poor.
The poverty reducing attribute in some of the ministries like the Ministry of Defense, Statistics and Information Division, Bridges Division, Parliamentary and Legislative Affairs Divison is inexplicable. The linkages need to be clarified by the government.
Inequality: Some suggested implications of public expenditure in the area of inequalities have been noted. Statistics and Informatics Division target to gender inequality reducing expenditure for FY22 is 84.2 per cent, which increased from 36.2 per cent in FY21. No such work is known to be done by the Statistics Division to reduce gender inequality. The Bridge's Division shows a 4.71 per cent target for gender equality expenditure in FY22 which contradicts the Division's expenditure on poverty reduction (96.7 per cent in FY22). A discrepancy of information is seen here because the poor population includes women as well.
One might question if this marks the dawn of "data anarchy".
Employment: Regarding the employment situation, the Budget Speech (FY21-22) states that over 50 per cent of the country's population is made up of the youth and that over a million jobs have been created in the IT sector with an expected addition of 2 million in 2021. However, no source has been cited nor any timeline mentioned for these figures.
Employment generation, for the most part, is addressed through two primary modes: self and overseas employment. Despite mentioning that over 2 million entrants were expected in the job market every year, the budget continues to emphasise overseas employment over domestic employment-- which is curious considering that three-fourths of total employment is made up of domestic jobs and this ratio is targeted to remain as such over the next five years.
In terms of self-employment, the budget focuses on conventional skills training and development alongside providing internships as a means of raising youth employability and subsequent employment rate. Time bound goals for youth employment are not further expanded upon.
In terms of overseas employment, the budget aims to attain 0.7 million overseas jobs every year, which would overshoot the targeted on average 0.6 million overseas jobs mentioned in the 8FYP.
Additionally, there is little to mention what's next for informal sector employment or for that matter, 'disengaged youth'-- otherwise known as the youth not currently involved in education, employment or training (NEET).
The budget speech does not go for indicating how the new fiscal measures are to be linked to employment retention and generation in the future. It needs to be pointed out that the most recent Labour Force Survey was released in 2016-17 and there has been no initiative since to update this. This prompts the question-- if there is no up-to-date, relevant information available, how is the employment situation in Bangladesh to be monitored and market signals to be generated?
FISCAL MEASURES -- WHO ARE THEY MEANT FOR: The fiscal measures proposed in the budget are quite satisfactory. Tax and tariffs favoured manufacturing over other sectors. However, VAT exemptions and extensions, concessionary facilities on raw material import, favouring big and medium manufacturing industries e.g., electronics, ICT products, steel, energy, pharmaceuticals, textile and footwear etc., are praiseworthy. Another good thing is that many incentives focused on import substitution and protection of domestic industries. The fiscal incentives offered will serve big and medium industries that mostly cater to the domestic market. But an increased tax rate on MFS, if passed on to users, will burden the SMEs.
No incentive was designed keeping in mind the broader informal sector that employs over 80 per cent of the labour force. Measures did not reflect a COVID-recovery perspective, e.g., no reflection of incentives for most affected sectors in the informal economy including hospitality, retail trade, transport etc.
Moreover, consumers were mostly ignored. No novel/innovative tax rebate/tax relief incentive was introduced (e.g. on health expenditure /insurance, education etc.) to reduce the expenditure burden of households. The increased tax rate on MFS if passed on to users will burden households (particularly those outside formal banking channels and rural households). Besides, imposing a 15 per cent tax rate on private universities will burden households, if it is passed on to the students. A number of new measures taken for LNOB (Leave No One Behind) group is very praiseworthy.
Women: Tax free turnover limit has been increased to BDT 7 million for female owned SMEs from BDT 5 million for all. VAT is exempted at the local manufacturing stage on the production of sanitary napkins and extension of exemption on certain raw materials used for production.
Youth: Tax exemption until 2024 on ICT services to encourage youth entrepreneurs; Tax exemption of 10 years on an array of vocational and technical training institutions.
Transgender Community: There is an increase of tax-free income for the transgender community from 0.3 million to 0.35 million. A tax rebate incentive has been declared for companies to employ 10 per cent or more than 100 transgender persons in their workforce.
Health Sector Measures: Tax exemption of 10 years for hospitals/specialised hospitals established outside Dhaka, and three other cities dedicated to women, children, oncology, wellbeing, preventive medicine has been announced. Furthermore, VAT exemption on autism related services will be available. Duty free facility on the import of implantable 'Occluder' used for the treatment of children born with heart defects will be a relief for parents. Withdrawal of 10 per cent supplementary duty from locally manufactured "Long Pan" to make sanitation facilities cheaper for rural people. All of these are welcome steps to strengthen the healthcare sector.
SOCIAL PROTECTION PROGRAMMES: The allocation of the social protection programmes increased marginally due to expansion of pension allocation and agriculture subsidy. Otherwise, the allocation would have fallen. The table 5 shows that the social protection programmes as share of GDP is hovering around 3.1 per cent in RFY21 and FY22, while as a share of the total budget, the allocation marginally increases. However, pension allowance alone has shared 24.8 per cent of the total allocation of social protection programmes. Without the pension allowance, the allocation of the social protection declines in terms of GDP and budget in FY22 (Table 5). Additionally, the agriculture subsidy, which is also a programme under social protection, increases 368.8 per cent from RFY21 to FY22.
On the other hand, total various monthly allowance (excluding pension and including freedom fighter honorarium) has increased 27.1 per cent in FY22. Around 14.34 lakh additional beneficiaries were added. However, the allowance rate remains constant for the beneficiaries, which is inadequate. Therefore, there is a meagre growth in allocation for the various monthly allowance as a share of the budget (0.46%) and GDP (0.08%). Notwithstanding, the elderly and widow allowance are only 500 BDT, where the minimum consumption expenditure is Tk 1,862 according to BBS estimation in 2016. We are ahead of India in terms of National Per Capita Income, but the elderly and widow allowances are higher in India.
In FY21, to address COVID, one-time cash transfer programme and support to distressed workers in export oriented sector was announced, which was 0.08 per cent of GDP. In FY22, six COVID specific programmes in the social protection programmes are identified. However, a big part of the COVID-specific programme is unspecified. The coverage or sources of utilisation of the fund is needed to be specified.
HEALTH: Although the allocation of health budget has increased by around 4.0 per cent in FY22 compared to revised budget of FY21 (RFY21), the allocation has declined in terms of share of the total budget from 5.8 per cent to 5.4 per cent. The health allocation as a share of GDP also declines from 1.0 per cent to 0.95 per cent. The ADP implementation rate for the health service division in the time of a pandemic is disturbing. Till April 2021, only 25.5 per cent of the total allocated ADP has been implemented. Several projects, such as improving oxygen supply to intensive care units and health facilities at the grassroots, are yet to be implemented fully.
EDUCATION: When government needs to allocate more to ensure education and remote learning, the allocation in education budget increases 8.7 per cent in FY22 compared to RFY21. However, in terms of share of the total budget and GDP the allocation declines. Even though Covid-19 severely impacts the primary sector compared to other educational sectors, the additional allocation in the primary sector is 9.71 times lower than the allocation for secondary and higher secondary education.
CONCLUDING REMARKS: It is evident that the budget does not consider the second wave of the pandemic. The relevant budgetary figures show that FY21 was better than FY20, while many proxy budgetary variables suggest otherwise. The envisaged fiscal supports are for the organised, large industries, while the micro, small and medium enterprises are left in the cold. On the other hand, the policy stance does not concentrate on increasing direct cash transfer and food support to the disadvantaged groups including the "new poor". While the poor state of domestic revenue structure is a major bottleneck, the ability of the government to scale up important public expenditure has emerged as the binding constraint for Bangladesh economy for FY22.
[This op-ed provides a summary of the Citizen's Platform for SDGs, Bangladesh study titled "National Budget 2021-22: What is there for the "disadvantaged people".]
Debapriya Bhattacharya, Distinguished Fellow, CPD, [email protected]
Sarah Sabin Khan, Senior Research Associate, CPD, [email protected]
Md Mursalin Hossain Rabbi, Research Associate (Project), CPD
Afra Tahsin Chowdhury, Research Associate (Project), CPD
Fabiha Bushra Khan, Research Associate (Project), CPD
Najeeba Mohammed Altaf, Programme Associate, CPD
Shama Tasnim, Research Intern, CPD