Put fight against Covid at the heart of budget: economists
Rapid coronavirus vaccination, upgrading the creaking health system and expanding social protection should be the focus of the upcoming budget to bring the crisis under control, economists said.
"Vaccination should be the number one priority," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.
"We have to get rid of the coronavirus at any cost. Otherwise, there will be wave after wave of infections and the entire fiscal year will be spent in managing the crisis," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, a think-tank.
The caution from the economists came as Bangladesh is going through the second wave of Covid-19 with rising infections and deaths from the rogue pathogen, which is ravaging India and many other countries.
Finance Minister AHM Mustafa Kamal is set to unveil his third budget on June 3.
"We already see in India how devastating the pandemic could be. There is no alternative for us. We have to put our all focus on addressing the coronavirus," said Mansur, also a former official of the International Monetary Fund.
Zahid Hussain recommended the budget focus on crisis management, prioritising spending on health and targeting fiscal support to distressed families and enterprises.
It also needs to restore the functionality of education and build on the resilience demonstrated by agriculture while keeping an eye on revenues.
"A business-as-usual budget like last year will miss the boat again," Hussain said.
In the current state of the economy, there is hardly any scope to boost revenue collection by raising tax rates. And officials said the government might keep its tax collection target unchanged for the National Board of Revenue in the next fiscal year because of the devastating effect of the coronavirus pandemic on the economy.
Tax revenue mobilisation will depend on rate rationalisation and administrative improvements through digitalisation, said Hussain.
"We need to move towards simpler rate structures in customs, VAT, and corporate tax regimes. Efforts should continue to focus on limiting capital flight, tax avoidance, and tax evasion."
Mansur said the budget had to be prepared in sync with the current situation.
"This means it would not be wise to unveil an ambitious revenue generation target because it will not be attained."
He said the whole population had to be brought under the coronavirus vaccination drive as quickly as possible. For this, there should be a budget allocation.
"Vaccinating three lakh people a day will not work. We have to increase it by 10 times. If we can do that, we will be able to bring the situation under control."
"This is worth spending because it would take the virus out of the country. The return may be as high as 100 times if we compare the price of a dose of a vaccine with the output loss the country has been witnessing."
Bangladesh's healthcare system has always been weak, and the coronavirus has shown that again.
"We have not been able to use the last year in rebuilding the health system. But we can't afford to waste another year," the PRI executive director said.
"If the government upgrades the hospital system on an urgent basis, it will be a permanent improvement and serve the nation in the years to come. This investment will not go waste."
Economists emphasised expanding the government's social safety net programmes to cover both the old poor and the new poor during the pandemic.
The social protection programmes do not cover the new poor and those who have lost their jobs.
"If we spend to protect the poor and vaccinate the people, it will shield them from the pandemic and redirect the economy to a higher growth trajectory."
More should be done for the small and medium enterprises in terms of monetary policy and fiscal measures, said Mansur, also the chairman of Brac Bank, a lender focused on SMEs.
There are hundreds of thousands of SMEs that have received nothing from the government's stimulus package. There has to be a major loan protection scheme for financial institutions so that they can lend without any reluctance, he said.
Bangladesh faces daunting challenges in creating jobs. And Mansur said the challenge could not be overcome by creating jobs in the public sector.
"The solution lies with the private sector. The government has to create an investment-friendly climate."
There should be more focus on social protection and employment rather than economic growth, said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue.
The health sector should be given priority. "The allocation did not go up as expected in the 2020-21 budget. The expenditure has also been much too low."
Cash transfers have proven to be effective in boosting aggregate demand and multiplier positive effects on the economy, leading Rahman to call on the government to expand social safety net coverage to support the old and new poor.
There should be a change in the duty structure to support the SMEs and domestic market-oriented industries, he said.
He requested the government to use more aid money in financing the budget deficit.
"This will help the country as the sales of high-cost national savings certificates have gone up. The higher sales of savings instruments may create debt distress."
He asked the government to set aside funds to boost food stocks, which are on the decline from a comfortable level.
The price of rice has gone up by 20 per cent, hitting the low-income people. Rice accounts for 30 to 35 per cent of the consumption basket of this group of people.
"The stability of rice price is highly important," Rahman said, calling for the continuation of incentives for the export and remittance sectors.
Rahman and his think-tank CPD have always opposed the black money whitening facility.
"The government might say that it has collected a lot of money because of the facility. But, the point is there are no statistics on the number of honest taxpayers who become disincentivised because of it."
"The scope is sending a wrong signal from a governance perspective. So, the scope should be discontinued."
Monzur Hossain, research director of the Bangladesh Institute of Development Studies, said the government might need to unveil an ambitious budget to support the people and the economy. But it may push up the budget deficit to as high as 10 per cent of the gross domestic product.
"But the government should not be concerned about the higher deficit as there is idle money in the banking system."
Bangladesh has been receiving a record amount in budget support from multilateral partners since the pandemic struck the country. Funding for the vaccination drive has also poured in.
Hossain called on the government to raise the number of cash support beneficiaries to at least 50 lakh and support them at least four times a year until the impact of the coronavirus peters out.
The government should use microfinance institutions to channel the stimulus packages to small businesses as they do not have access to banks, he said.
An increase in the allocation for the infrastructure sector will accelerate economic development and create temporary jobs, Hossain added.