A prescription for the FY 2022-23 budget
Amid the ongoing global inflation and financial instability, the upcoming national budget has to be demand-driven and needs-based. Sector allocations could be prioritised for agriculture, healthcare, energy, manufacturing, education, social safety nets, and infrastructure—and should be aligned with overall programme efficiency and sustainability.
The overall size of the budget should be increased by five percent (as compared to the previous budget) with due provisions for keeping inflation within acceptable limits. This will support the process of sustaining and accelerating macroeconomic gains achieved over the past 12 years. The budget should envision a GDP growth of 7.5 percent. And priority-driven sector allocations should be able to restore the pre-Covid growth momentum. Increased allocation for social safety nets and enhanced stimulus packages would enable mitigating the adverse impacts of Covid, reduce the mild increases in both relative and absolute poverty, and create the basis for subsequent interventions to reduce income disparities and inequalities.
Despite moderate increases in domestic resource mobilisation, tax revenues still remain inadequate to meet development expenditures. In the last budget, estimated expenditure was 17 percent of GDP, and estimated revenues 11.5 percent. It is unlikely that there will be a major deviation from this in the forthcoming budget. However, there are possibilities of moderate increase in revenues as compared to the outgoing year, and expenditure may slightly reduce. Bangladesh's tax-GDP ratio, which remains one of the lowest in the region, needs to be raised to 12 percent of GDP.
Due to fiscal challenges, the government planned limiting the budget deficit to 6.2 percent of GDP in the outgoing fiscal year. For the upcoming year, it would be necessary to scale down the budget deficit to 5.5 percent of GDP. Therefore, raising the tax-GDP ratio to 12 percent of GDP, keeping the budget deficit within 5.5 percent of GDP in the medium-term, and reduced internal and external borrowing should be useful for efficient control and management of public debt.
The budget deficit should be met by domestic and external resources in similar proportions as that of the outgoing year. The budget should highlight incentives for stimulating private investment, entrepreneurship and employment expansion. Concrete incentives to boost exports (by 30 percent), reduce import costs (by 40 percent), and increase the forex reserves (by 25 percent), will add value to both stabilisation and growth. The budget should also include added provisions for food security, facilitate rural and urban consumer access to food and non-food items through rationing and improved storage, and transparent distribution. Allocations for pension and healthcare coverage for citizens over 60 years should also be reflected in the budget.
The FY2022-23 budget should aim at enhancing productive efficiency and competitiveness of sectors bearing potential to stimulate growth. Currently, we have to rely on RMG and overseas remittances, and there is a possibility that these two key sources of growth may face external challenges in the medium term. In addition, strategy and supportive measures for economic diversification will enable overcoming probable challenges and loss of benefits from Bangladesh's graduation from the LDC category. The framework to diversify growth stimulants would necessitate the much-expected financial and banking reforms and simplified procedures to ease and promote business and investment. The income tax and VAT laws should be restructured, and should also give guidelines to significantly check unauthorised transfer of funds abroad, reduce non-performing loans, and minimise scope for illegal and non-transparent sources of incomes.
Increased allocation for expanding the current social safety net and overall social protection programmes should aim at broader coverage and easy access by the poor, especially the new poor, disadvantaged, and vulnerable segments of the population. Social protection should be aimed at extensive reduction of poverty, easier access to resources, and small-scale entrepreneurship in rural and urban areas. The emerging post-Covid urban and rural poverty due to loss of jobs and incomes can be minimised through easy access to both institutional and non-institutional credit for the minimum wage-earners and lower-range fixed income groups. Supportive framework through Consumer Access and Protection Act reinforced by setting up specialised SME Bank and Cooperative Bank branches in every district could contribute towards meeting these objectives.
To achieve overall efficiency, the budget process should be based on results-based and performance-based approaches. The results-based approach would reflect the final output as the determinant of our economic strengths and potentials for faster growth, while the performance-based approach should present the opportunity for incentives for broadened competitiveness and efficiency, which would enable key sectors to demonstrate better performance for increased economic resilience and growth. Restructuring budget-related input-output models and improved monitoring and evaluation mechanisms aimed at addressing critical constraints in every sector could be useful in ensuring appropriate budgetary and policy interventions. These approaches would also add value to the process of internal monetary and fiscal adjustments and in cushioning external shocks.
Dr Mohammed Parvez Imdad is an economist, governance specialist and policy analyst, and the founder-president of the Bangladesh Knowledge Forum (BKF). Views expressed in this article are the author's own.