Keep in mind Ukraine war, new Covid wave
The government should make budgetary allocation for the fiscal year of 2022-23 to deal with the impacts of the ongoing Russian-Ukraine crisis and the possibility of the emergence of another wave of coronavirus, said a noted economist.
The suggestions came from Binayak Sen, director-general of the Bangladesh Institute of Development Studies (BIDS), as China is fighting its worst Covid-19, while the Russia-Ukraine conflict shows no signs of abating.
China, known as the world's factory, is the largest trading partner of Bangladesh. The latest wave of coronavirus cases in Shanghai has already hurt the weak recovery of the global supply chain from the pandemic-induced disruptions.
And the conflict has added fuel to inflation in many countries, including Bangladesh.
"We are facing double jeopardy: from the Ukraine crisis and the new wave of coronavirus," Sen told The Daily Star in a phone interview recently.
"So, the government should allocate an additional 10 per cent of the budget to combat the coronavirus pandemic and the impacts of the Russia-Ukraine crisis so that we can deal with challenges, if any."
The coronavirus situation has seen significant improvement in Bangladesh in recent months, helped by the successful mass rollout of coronavirus jabs and the sharp fall in coronavirus caseloads.
But Sen says Bangladesh has to remain alert about any new wave of Covid-19 since the virus has not disappeared from the world.
"So, the fear of a new wave is still there."
He called for a separate fund to tackle any difficult situation. "If we face any new threat, then we would be able to use the fund."
Sen, who joined the BIDS in 1986, is an expert on poverty, income inequality, human development, labour market, social security, good governance, and political economy.
The former senior economist of the World Bank thinks Bangladesh's economic growth may come under strain because of the international crisis.
"We had thought that the Ukraine war would be over within one or two months. But the crisis has defied all predictions and it may continue for some time. The war may linger. The policymakers should take this into their consideration."
The fallout of the war, coupled with the impacts of the pandemic, may create a major threat for Bangladesh and a threat for budget management, he says. The impacts might come in the form of revenue shortfall or a drop in export earnings and might hand a blow to the balance of payments.
"Even, economic growth may falter to some extent because of the crisis in the international markets. It will have an impact on employment and social protection."
The war and the dragging pandemic have sent the prices of commodities and everyday items to a new high as the global supply chain has received a renewed blow. As a result, inflation is rising to record levels in many countries.
"Inflation has had an impact in many countries. It is bound to have an impact on Bangladesh," said Sen.
Inflation in Bangladesh rocketed to a 17-month high in March driven by higher food costs.
The economist thinks that the war can create a crisis related to the prices of oil, gas, metals, fertilizer, wheat and other foodgrains.
"So, there have to be some block allocations by taking this situation into account. There has to be additional allocation to tackle the fallout stemming from the war and any new wave of coronavirus. We have to put in place institutional preparedness to meet up those contingencies."
Sen was also asked about the country's perennial failure of implementing budgets in their entirety.
One way to encourage public spending, he advises, would be to decentralise public spending by increasing block allocations for the lower-tier governments such as union councils and municipalities.
"The upcoming budget should focus on raising the spending capacity of the local government to reduce the pressure on the central government. We will have to rely more on the local governments."
To start with, 10 per cent of the budget should go to the local governments. "We have to create scopes for them to spend. This will help them use funds when they are needed. Otherwise, if we continue relying on ministries, the allocation will not be utilised."
He called for increasing the spending capacity of the implementing agencies.
According to Sen, expenditure may shoot up to meet the contingency needs amid higher oil prices. And the budget deficit will widen too as revenue generation may face shortfall and export earnings may not be at the expected level.
"However, there is no need to panic since Bangladesh's budget deficit has not gone out of control."
As the possibility of another coronavirus wave can't be ruled out, Sen suggests Bangladesh focus on the health sector particularly.
"We need to analyse the drawbacks in order to find out why we are not being able to use the allocation for the sector properly and where reforms are needed."
Sen urged the government to pay special heed to bring in institutional reforms in some key areas such as health and social protection, instead of just raising allocations.
He warns that the number of people queueing for support from social safety net schemes such as the operation run by the Trading Corporation of Bangladesh, which sells some essential goods at subsidised rates, may go up.
"Some funds have to be allocated for these people. But what is even more important is to reform the social safety net sector so that the people who need the support get it."
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