Budget FY2022 addresses pandemic priorities only partially
In the year of Bangladesh's golden jubilee, the finance minister has presented the 50th budget of Bangladesh for fiscal year (FY) 2022. This is probably the most challenging budget in the history of Bangladesh. This is also the second budget since the Covid-19 pandemic erupted in Bangladesh in March 2020. The budget comes at a time when the country is also being swept away by the second wave of the pandemic. Thus, before the economy could move towards the recovery phase it has fallen into health, economic and social risks afresh. Hence this budget has been prepared in the context of an unprecedented situation as the economy is mired in multiple challenges which Bangladesh has never observed in the past.
A well-formulated budget and its effective implementation would be an important mechanism to mitigate these challenges. To what extent the budget for FY2022 is going to do so is examined here by looking into a few important aspects in the context of the ongoing pandemic.
Allocation for priority sectors and their utilisation capacity
The budget for FY2022 has made allocative priorities in a business-as-usual manner where the impact of the Covid-19 pandemic has not been taken into consideration. In terms of sectoral allocation, the priority sectors during the pandemic are clearly health, social safety net and employment generation. However, resources are not sufficient for these sectors. To start with, though allocation for health sector as a share of the total budget has increased from 5.15 percent in FY2021 to 5.42 percent in FY2022, in terms of its share in GDP there is no change. It is 0.95 percent of GDP in FY2022, as it was in FY2021. The logic behind low allocation for the health sector at a critical time is mentioned to be the inability of the health ministry to utilise its allocation. In fact, actual expenditure as a percentage of revised budget allocation has worsenedsignificantly over the past decade. Besides, utilisation of nondevelopment budget has been consistently higher than development budget utilisation for the last several years.
The other important sector, social safety net (SSN) programmes have undergone a few changes which are not encouraging. The overall SSN budget as a percentage of total budget increased from 17.75 percent in FY2021 to 17.83 percent in FY2022. SSN budget as a percentage of GDP saw an insignificant increase—from 3.10 percent in FY2021 to 3.11 percent in FY2022 budget. A major component of the SSN budget is pension for the retired government employees and their families. Hence, the share of SSN budget excluding pension declined from 2.35 percent of GDP in FY2021 to 2.34 percent of GDP in FY2022 budget. Allocation for pension has increased from Tka 23,000 crore in FY2021 to taka 26,690 crore in budget for FY2022. This increase is 16 percent which is higher than the rate of increase of overall social protection.
Surprisingly, SSN budget excluding pension as a percentage of budget decreased from 13.49 percent in FY2021 to 13.41 percent in FY2022 budget. There are also some deductions in allocation for a number of programmes. For example, allocation has been reduced for programmes protecting livelihoods, such as Work For Money and Skills and Employment Programme in Bangladesh. Allocation for three types of education stipends have been reduced in FY2022. Also, allocation for several programmes which address the needs of the marginalised, vulnerable, and left behind communities has been slashed in the FY2022 budget. As it is, there is insufficient allocation for SSN, the lowering of allocations for these programmes is not reasonable. These should be reinstated urgently.
Low investment on human capital is not only reflected through low health budget, but also low allocation for the education sector. Total allocation for education sector in FY2022 budget increased by only 8.68 percent compared to FY2021. However, the revised education budget as a share of GDP decreased to 2.08 percent in FY2022 from 2.14 percent in FY2021. In the 8FYP, education budget as a share of GDP is targeted to reach 3.5 percent by 2025, and 4 percent in 2031. At the current rate, the education budget as a share of GDP may reach only up to 2.15 percent in 2025 and 2.26 percent in 2031. For making up the learning losses during the pandemic and reducing the resultant learning inequality, resources for online educational infrastructure and capacity development of teachers should have been allocated.
Investment and employment
The estimated growth of GDP for FY2021 is 6.1 percent. In anticipation of a back to normal scenario, the GDP growth target for FY2022 has been set at 7.2 percent. To achieve this growth, a lot of investment will be needed. Private investment is expected to be the major driver of this investment. In FY2022, public investment-GDP ratio is projected to be 8.1 percent compared to 8.2 percent in FY21. And private investment is estimated to be 25 percent of GDP in FY2022. This implies that an additional Taka 117,000 crore will be needed to achieve this growth. Given that private investment has been stagnant at about 23 percent of GDP for the last couple of years, how private investment will improve in a pandemic year is unclear.
Of course, one can expect that the private sector would be encouraged to invest since the government has offered several incentives through tax exemptions and reductions. However, higher investment is not only a function of low tax. Several factors, such as less bureaucratic hassles, infrastructural facilities, corruption free environment and skilled human resources are also important preconditions for higher investment.
If businesses pick up in FY2022 it will help create employment which is crucial for recovery from the fallout of the pandemic. At the same time, a number of ministries which have direct link to employment generation need to have more allocation and speed in their ADP implementation. For example, the Ministry of Industries, the Ministry of Labour, the Ministry of Youth and Sports, and the Ministry of Expatriates' and Overseas Employment received lower allocation in FY2022 compared to FY2021. The implementation rate of their ADP allocation is only 44.7 percent during the first 10 months of FY2021.
Support to the poor and low-income group
While businesses, particularly the large ones, have been provided with so much support through fiscal measures, the government forgot about the poor and low-income groups. The pandemic has created new poor and eroded incomes of the informal sector employees. Moreover, the threshold of tax-free income of the small earners has not been raised. This could help the people in the low-income group as they would have more disposable income. The government could also earn indirect tax through their purchases.
Besides, the cottage, micro and small businesses should be provided more support as they have used all their savings by now and many could not avail the loan under the stimulus packages. Structural problems in accessing finance from commercial banks are one of the reasons. But their apprehension for not being able to pay back the instalment also deterred them from taking bank loans. There is no indication of any second stimulus package for them.
Trickle down approach
The policymakers seem to believe that if the large businesses flourish it will automatically benefit the poor, low income and middle-income groups. Sure, private businesses will create employment for many, but it does not guarantee reduction of inequality. It is the government which has to intervene and take targeted measures to reduce inequality of all forms. Budgetary measures are one such mechanism for government intervention. The government can incentivise some sections through fiscal measures such as tax cut, tax exemptions, tax holiday and subsidies. Through progressive taxation and redistributive measures, the government can also extend some respite to those who have less or no resources.
The budget for FY2022 aimed to protect lives and livelihoods. But this has not been supported by mindful measures and adequate resource allocation.
Dr Fahmida Khatun is the Executive Director at the Centre for Policy Dialogue.Views expressed in this article are personal.