The budget falls short to be Covid-19 responsive | The Daily Star
12:00 AM, June 14, 2020 / LAST MODIFIED: 01:35 AM, June 14, 2020

The budget falls short to be Covid-19 responsive

The fundamental objective of the budget for the next financial year (FY21) should have been to resolve the unparalleled health and economic threats raised by the Covid-19 pandemic, and to restore economic stability. Though the budget has acknowledged the context, it falls short to be a Covid-19 responsive budget.  

Health sector

The health crisis that the country is going through and the incompetence and lack of resources of the government to handle this problem is an accumulated result of decade long problems. For decades, the health sector, especially the public health system, has been overlooked. In the private health sector too, there is a lack of transparency and accountability. Against this backdrop, the total allocation for health budget increased by 14 percent to Tk 292.47 billion in FY21 from Tk 257.33 billion in FY20. The proposed increase in health budget is necessary but seems inadequate given the ongoing health hazard. However, there is a provision of a block allocation of Tk 100 billion, which is proposed to fulfil emergency requirements. This allocation should be used judiciously. Allocation of Tk 1 billion to finance the activities for the development of research in health-education and science and technology is commendable and the allocation should be increased quite significantly in coming years.

Along with increased allocation, despite inadequate, the management of the health sector must also be improved. Without the improvement of management, effective usage of the increased allocation will come under question. The health ministry lacks capacity in implementing the budget. There are questions regarding corruption and mismanagement in the health sector. In the budget, claims have been made that hospitals have been transformed into specialised hospitals for Covid-19. However, the question remains whether these hospitals are actually in operation, as media reports indicate a huge gap between announcement and implementation. Most of these hospitals lack doctors, nurses and supply of essential medical equipment.

Social safety net

The increased social-safety net allocation is expected, but the allocation should have been increased more. It should be kept in mind that a large portion of the social protection budget allocation is actually devoted to pension and allowance schemes. Therefore, the question remains, how much allocation was effectively increased for the poor and vulnerable population. A huge number of people have slipped below the poverty line in the current crisis and many more will follow in the coming days; huge numbers have lost their jobs too. In particular, therefore, when measures such as lockdown zoning are undertaken, initiatives must be taken to include this newly poor population in the social protection coverage and provide them with food and cash assistance. Also, there should have been some kind of programmes of "employment guarantee schemes" or "unemployment benefit" for the people who are losing jobs. Therefore, a mere increase in allocation (also inadequate) will not be enough.

Revenue target

Given the current crisis, it is quite impossible to meet even the revenue target set in the revised budget. The revised budget for the current fiscal year (FY20) re-fixes the target of collecting tax revenue from the National Board of Revenue (NBR) against the original target of Tk 3,256 billion at Tk 3,005 billion. The revised revenue target of the current fiscal year is also not feasible.

Furthermore, the very high target that has been proposed for the next fiscal year is not realistic at all. Total revenue target in FY21 is proposed at Tk 3,780 billion from which Tk 3,300 billion is proposed to be collected through the NBR. The non-NBR tax revenue is estimated at Tk 150 billion whereas non-tax revenue is estimated at Tk 330 billion. The question is if the revenue target is not met, how will there be funding for increased allocation for health, social protection and other sectors? Therefore, other financing options should be explored. However, due to unrealistic revenue targets, exploring other options for financing might get dissuaded. The option of borrowing from international organisations with flexible conditions and low-interest rates should be explored vigorously.

Budget deficit

The overall budget deficit in FY21 will be Tk 1,900 billion which is 6.0 percent of GDP. In FY20, the revised budget deficit is estimated at 5.5 percent of GDP. The government plans to borrow Tk 706.04 billion from external sources to fund the next year's deficit and hopes to secure Tk 40.13 billion as foreign grants. In addition, the government wants to have Tk 1,099.83 billion from domestic sources, of which Tk 849.83 billion would come from bank borrowing and Tk 250 billion from non-bank sources like savings certificates. Though, it seems that the budget deficit in FY21 is likely to increase further if the revenue target is not met and the pressure to spend high escalates, under the current crisis, it should not be a big problem.

The stimulus package

At the beginning of the crisis, the government announced stimulus packages. The stimulus package will, however, be operated largely through the banking sector, which is itself in crisis, as we know. The problems in the banking sector involve mismanagement, institutional weakness, default loans, and political patronage. The budget should have had a guideline for the operation of the stimulus packages through such a crisis-ridden banking sector. The Small and Medium Enterprises (SMEs), in particular, are facing various difficulties in accessing their Tk 200 billion stimulus package through the banks.

GDP growth rate

Targeting a Gross Domestic Product (GDP) growth rate of 8.2 percent in the next fiscal year (FY21) indicates that economic growth has been expected to quickly take up the normal pace and the economy will experience a strong rebound. However, such an assumption is highly questionable. Given the increasing scale of health hazards, rising cases of infections and deaths, it is quite uncertain when the resumption of full-fledged economic activities will be possible. Also, two major drivers of economic growth—exports and remittances—are under acute pressure as the global economy has been plunged into a long term recession and, in particular, the European Union (EU) and North America—the two biggest destinations of our exports—are predicted to experience negative growth. Furthermore, with the unprecedented fall in the oil price, the economies of the countries of the Middle East, where our workers are employed, have contracted. Thus, as our workers lose jobs in those countries, there is a high concern of falling remittances in the coming months as well as reason to worry that these countries might send back a large number of our people.

In conclusion

What we needed was a mid-term "recovery plan" under which the proposed budget for the FY21 should have been formulated. There was a need for undertaking out-of-the-box measures, go beyond the usual thinking and a strong political will. Though some reflections of political will are visible in the proposed budget, there is a lack of coherence and a clear guideline on how such will can be translated into proper actions.

 

Dr Selim Raihan is professor, Department of Economics, University of Dhaka, Bangladesh, and Executive Director, South Asian Network on Economic Modeling (SANEM). Email: selim.raihan@gmail.com

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