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CPD: Proposed budget traditional, lacks innovation to fight Covid-19

  • Published at 06:39 am June 12th, 2020

The government’s budget wanted to please all, says CPD

Terming the proposed budget for 2020-21 fiscal year traditional, the Centre for Policy Dialogue (CPD) has said it lacks innovation to fight pressing issues, especially addressing inequality and problems of the new poor caused by the Covid-19 pandemic.

The think tank made the observation during a virtual press briefing titled "An Analysis of the National Budget for FY2020-21" on Friday. 

On Thursday, Finance Minister AHM Mustafa Kamal announced a budget of Tk5.68 lakh crore for FY2020-21 in parliament.

"The budget is a traditional one as we did not see the necessary innovations to address issues such as health risk, poverty and inequality caused by the Covid-19 pandemic," said CPD Executive Director Fahmida Khatun.

"A realistic estimate of our economic performance is also necessary because Bangladesh needs to access Covid-19 related funds from international organizations, particularly when the government is expecting to underwrite a large part of the budget deficit from foreign borrowing," she added.

CPD Distinguished Fellow Prof Mustafizur Rahman said: "During a crisis like the Covid-19 pandemic, the main objective should be supporting the poor and other affected people, instead of being too concerned about GDP [gross domestic product] growth. 

"And, this could later become a big loss for our economy," he apprehended.

Prof Mustafizur said the macroeconomic framework of the budget does not reflect realities on the ground. 

"The government is moving forward with a weak revenue collection structure."

CPD Research Director Khondaker Golam Moazzem said the economy cannot be restored amid health risks, and rather there is a possibility of its worsening.

"It seems the government prepared the budget thinking the pandemic would go away quickly like how it spread around the world. But that is not the thing. In reality, our health risks are increasing day by day [due to the pandemic].

"The government, in fact, wanted to please all by the budget," he added.

“It is not just about the revenue mobilization but also about private sector investment, which is facing challenges as they cannot even utilize the existing capacity. In this gloomy situation, the government has set a 125% growth target for private investment, which would not be possible,” said the economist.

Questions raised on whitening of black money 

The civil society think-tank also raised questions about the opportunity to whiten black money in the budget through investment in selective sectors.    

“Giving the opportunity to whiten black money is an injustice to the honest taxpayers. It does not bring much benefit to the government as only Tk16,000 crore has been legalized since independence, of which Tk9,000 crore was whitened during the caretaker government,” said Fahmida  

She also said that people do not want to whiten money unless proper steps are taken, and the availability of the option leads the owners of black money to relax instead of feeling pressured.

Focus on lives and livelihoods, not GDP growth  

Regarding the government GDP target, the think tank said the focus should be on saving the lives of people of the country and reducing the vulnerabilities of the marginalized groups, particularly in the backdrop of the ongoing COVID-19 pandemic.

“We are facing severe health risks and the focus should be on how to tackle it. When there are lives at risk, there is a need for cash transfers for the poor, especially the new poor,” said Professor Mustafizur Rahman.

“The government has rightly put emphasis on these sectors. However, its promises and priorities have not been translated into actions through innovative approaches and allocation of adequate resources,” the economist added.

The rising number of new poor and increasing inequality in income and consumption requires differentiated measures which the budget has not adequately addressed, said the CPD.

“During the Covid-19 pandemic, the main objective should be supporting the poor and affected people, instead of being too concerned with GDP growth,” said Prof Mustafizur.

“Several countries have been facing negative growth, which is natural during a pandemic. The focus should be on coping, adjustment and mitigation with a view to subsequently get on the recovery track,” he added.  

To ensure health services, the CPD urged the government to assess the demands for the sector and allocate adequate funds with a proper implementation strategy.  

Health not top priority despite Covid-19

Despite the Covid-19 pandemic, the health sector is not a government top priority and much-needed reforms in the sector are yet to take place.

The allocation for health as a share of GDP has increased from 0.84% in FY20 to o.92% in FY21, and this is only marginally higher than the average allocation of 0.82% of GDP during the last decade.

The budget allocation for health has been less than 1% of GDP for the past 12 years, indicating that healthcare was never a priority sector for the government, said the CPD.

Surprisingly, even the Covid-19 pandemic was not reason enough for the government to prioritize the healthcare sector in FY21, the CPD added.  

The total budget allocation for health increased only by 14%, from Tk25,733 crore in FY20 to Tk29,247 in FY21.

The increase in total budget allocation for health in FY21 follows a linear trend line, indicating that the rise was business-as-usual and nothing out of the ordinary, despite the fact that the healthcare sector is reeling from the shock of Covid-19, said the research organization.

GDP, revenue target not realistic

For FY21, the GDP growth target has been set at 8.2%. Considering the present status of economic activities, CPD estimated that the GDP growth rate will not be more than 2.5% in FY20 and that the target for FY21 would not be possible to attain as the impact of the Covid-19 pandemic has been largely ignored.  

Furthermore, revenue mobilization will be very tough in the backdrop of the shortfall in the outgoing fiscal year.

For FY21, the government set a revenue target of Tk3.78 lakh crore, which is far from reality, CPD said.

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