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OP-ED: Budget 2021-22 - Issues to be addressed

  • Published at 03:58 pm May 30th, 2021
Another long day on the grind day labourers
Syed Zakir Hossain/Dhaka Tribune

Like the previous years, the size of the budget has been growing up

War against Covid-19 is still going on all over the world, including Bangladesh. 

The global economy is in a great recession losing more than 3.4 million lives so far, stagnation in imports and exports, decline in domestic production, lack of new employment, losing employment, all in turn, increasing poverty. 

Together all these make the preparation of the budget very difficult. 

Like the previous years, the size of the budget has been growing up. For FY 2021-2022, the budget would likely to be about Tk6.05 (98.71 times higher) trillion which was only Tk7.86 billion in FY 1972-73. 

The GDP growth target for the next fiscal year likely to be set at 7%. The revenue target would be Tk4 lakh crore, of which Tk3.50 lakh crore would come from the National Board of Revenue (NBR). 

The size of the ADP would be estimated about Tk220,000 crore, which is Tk12,000-15,000 crore more than the original allocation for the current financial year. 

The budget deficit would exceed Tk2 lakh crore, which will be 6.2 to 6.5% of GDP. 

Resource mobilization

Resource mobilization from domestic sources would be a challenge for the government. 

The revenue collection targets set by the Ministry of Finance would be a big challenge. 

Like the previous year, the Covid-19 would affect the revenue collection in the next fiscal year, in turn, a substantial shortfall in revenue collection. 

However, the large tax unit of the VAT wing of the NBR reported a noteworthy growth in VAT collection from the telecom, cement and tobacco sectors during the first three-quarters of FY 2020-2021. 

Bangladesh government should focus on capacity building of the revenue board to raise the revenue-GDP (gross domestic product) ratio and needs to be more innovative in collecting increased volume of resources initiating inheritance tax, wealth and property taxes, on-line business, etc. to meet up the revenue shortage of the government. 

Framework of expenditure during Covid-19

In the coming financial year, the Covid-19 incentive package could be allocated like the current fiscal year which will be spent on employment and economic recovery, especially to boost up the private sector making sure how it would be done.

The government allocation for expenditure can be divided into two types such as (i) current expenditure (i.e. purchase of goods and services, paying salaries and allowances of the government employees, payment of interest against foreign and domestic loans, food accounts and expense for structural coordination, etc.) and (ii) capital expenditure (i.e. development programs from revenue budget, loans and advance payments, ADP and non-ADP Food for Work programme, etc.). 

The government should increase the capital expenditure rather than purchasing of goods and services leading to the creation of new productive assets. 

Health budget 

People in general have a concern about transparency of the health sector. However, the total allocation of budget in the health sector is equivalent to just 2.34% of the total GDP of Bangladesh whereas the ratio is more than double (over 5%) for South Asia as a whole. 

Similarly, per capita health expenditure (PPP, current USD) of Bangladesh stands to be $110 and the amount is almost four times higher ($401) for South Asia as a whole. 

The health budget has been soaring about 5% of the total budget. Assuming that if health budget could be increased at least over 7% to 7.5% in the next financial year, it would be 3.5% of total GDP. 

But at the same time, proficient decisions must also be made to map the exact areas of investment (to channel the extra allocations) to get more output from low costs. 

Usually, only one-fourth of the allocation of budget in the health sector goes into primary healthcare. This ratio should be increased to one-third as soon as possible. 

Social protection budget 

Allocation of budget 2021-2022 on social protection could be increased which are 16.83% of total budget and 3.01% of GDP in FY 2020-21 in this current fiscal year. 

A lot of people have to be provided support for quite some time for poverty reduction. 

A large portion of social protection budget is spent on pensions for retired government employees which to be continued. 

Incentive for production  

To increase production, the Bangladesh government could increase the allocation of budget (FY 2021-2022) following some strategies which include: the Export Processing Zones (EPZs) construction of which has to be completed without delay, reforming government expenditures with greater emphasis on pro-poor growth, increasing labor productivity by providing more trainings, increasing employment, and human capital development with better access to the poor, etc.

Measures against unemployment (local and foreign repatriate) 

Although unemployment has become a major problem in Bangladesh since independence, yet there is no significant and specific plan to reduce unemployment, even in the 8th Five Year Plan during this pandemic situation. 

The government should find out the alternative IGAs for local and foreign repatriate by increasing government expenditures taking more development projects. 

There is a positive relationship between government expenditure and velocity of money leading to augmentation of citizens’ income. 

It increases the gross domestic demands that would strength the economy. 

BISR proposes that the coming budget should give due emphasis on creative planning and implementation strategies in a more well-organized and systematic manner to create employment including self-employment.

Poverty and food security  

Due to the Covid-19 pandemic about 1.64 billion people became newly poor and living below the poverty line (BIDS, 2020) adding with the existing 18.06% poor in the economy (MoF, 2020). 

The seasonal farmers like paddy cultivators and newly unemployed persons migrating from the cities and abroad due to Covid-19 may be employed adopting IGA Mapping, an innovative model developed by Khurshed Alam of BISR. 

This mapping enables the people to identify the location-specific scope of carrying out income generating activities in the area.   

Agriculture is one of the main safeguards ensuring food security in overcoming the financial stagnation caused by Covid-19. 

Apart from paddy and rice, other sectors such as cattle rearing, vegetable production and poultry are also to be taken care of. Bangladesh government could increase the allocation of budget for providing more training and advocacy on the respective economic activities, accessing easy and adequate credit facilities with low interest, supply agricultural subsidies (seeds, fertilizers, pesticides, etc.) to the poor farmers directly, and besides securing mobile banking, amplify the mobile communication using apps for agricultural marketing and setting up collecting points for agro produces. 

Agricultural insurance may be created and to be made easily available for people living in the disaster prone areas.

Covid-induced business (positive) 

Demands in foreign markets due to Covid-19 has serious been reduced. 

The government could increase the budget allocation on corona induced business (manufacturing medical equipment and devices and personal protection equipment and producing other medical supplies, etc.) and on business diversity (i.e. E-commerce, online marketing, online services, etc.) that would be the effective remedies to reduce the growing burden of an emerging economy.

Promoting quality education, research, and innovation

Like the previous years, in FY 2020-2021, the allocation of budget for education and innovation was 15.1% but the research sector (was .017% only for integrated medical research) was neglected like always. 

Bangladesh government could increase the allocation of budget to promote quality education, research, and innovation. 

Budget for this sector to be increased at least 1.0% in the coming financial year 2021-2022 creating a separate research budget considering as an important sector. 

Bangladesh is improving in agriculture and achieved almost self-sufficiency in food production in 2014 by dint of conducting lot of researches on agriculture so far. 

In this case, research can be increased by formulating research policies in other sectors like industry, health, social sciences, etc.

Efficient use of resources 

Bangladesh government should focus on preventing the inefficient use of resources of the government projects. 

There is a negative relationship between efficient use of resources and corruption. In order to prevent the inefficient use of resources, a monitoring cell/committee could be set up centrally in each ministry ensuring good governance. 

There needs to be a provision for better monitoring of allocations. Even the budgeting system could be changed. 

It is better to follow the needs-based budget (proposed by the BISR) to reduce inefficient use of resources.

In the forthcoming budget, the stagnation in import-export including readymade garment exports, manpower exports, inefficient stock market, remittances, environmental protection, protection of the Sundarbans and tackling natural disasters could be given more importance.

Bangladesh government needs to be much more innovative and dynamic in Budget (ADP) preparation to combat Covid-19 pandemic and to secure sound economy strengthening our capacity to attain prosperity.

 

 

The author is a researcher at the Bangladesh Institute of Social Research (BISR) Trust. He can be reached at [email protected]

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