Seven aspects of budget for FY2021

Fahmida Khatun | 15 June 2020
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The finance minister of Bangladesh deserves thanks for presenting the national budget for fiscal year (FY) 2021 at a time when the implications of Covid-19 (C19) pandemic is dire. However, apart from reshuffling of numbers here and there the proposed budget could not meet our expectations. This is because the multi-dimensional aspects of Covid related crisis have been ignored. Instead, the budget focused on the usual sectors in the usual manner. Moreover, due to unrealistic assumptions and unreliable numbers, the budget could not gain the confidence of larger sections of people.

 GDP coming from nowhere!

 The loss to the economy due to C19 is insurmountable and beyond control. Therefore, all economic aggregates are to be re-estimated constantly in the new context. The Centre for Policy Dialogue (CPD) estimated that Bangladesh's growth of gross domestic product (GDP) would be 2.5 percent in FY2020. The World Bank, in its June 2020 estimation revised Bangladesh's growth downward to 1.6 percent in FY2020. In April 2020, the International Monetary Fund (IMF) estimated Bangladesh's GDP to be 2 percent in 2020. The IMF projected India's growth to be 1.9 percent and China's 1.2 percent in 2020. The World Bank forecasted India's growth to be negative (-) 3.2 percent and China's only one percent in 2020.

 But the Bangladesh's finance ministry ignores the impact of C19. Belying all facts on the ground, it projects Bangladesh's GDP growth to be 5.2 percent in the outgoing FY2020 and 8.2 percent for the upcoming FY2021. Where will Bangladesh's GDP come from? The following numbers will give us a clue.

 'V' shaped recovery path?

 While impact of C19 is still uncertain, the finance ministry seems to already imagine a "V" shaped recovery path with the hope that Covid will vanish soon and Bangladesh economy will turnaround by June 2021. In the budget document, private investment which is a major source of growth, is revised downward to 12.7 percent for FY2020 but projected to be 25.3 percent of GDP in FY2021—a magical jump of 12.6 percentage point in a Covid year. What this implies is that in order to achieve this additional investment growth, about Tk 446,000 crore will be required in FY2021. This is indeed a 125.2 percent increase from Tk 356,330 crore in FY2020 estimated by the finance ministry. And this humongous increase in private investment is supposed to be achieved by a credit growth of 16.7 percent in FY2021. Really!

 Similarly, export growth target has been set at 15 percent in FY2021 from a negative (-) 10 percent in FY2020. Import is projected to grow by 10 percent in FY2021 from a negative (-) 10 percent in FY2021. Growth of remittance is projected to be 15 percent from 5 percent in FY2020. When oil price is estimated to fall by 47.9 percent in 2020 and most of Bangladesh's remittance flow comes from the oil rich middle eastern countries, how remittance will pick up within such a short period is unclear.

 Resource mobilisation to have a magical rate!

 Challenges of domestic resource mobilisation through National Board of Revenue (NBR) is well known. Narrow tax net, high tax avoidance and large illicit financial flow could not be resolved in the absence of any meaningful reform of the tax system. As a result, tax-GDP ratio remains shamefully low at 11.2 in the revised budget for FY2020. In the upcoming budget revenue mobilisation is estimated to grow by 8.6 percent. However, this projection fails to take into account the fact that the shortfall of collection in FY2020 will be much more than what is projected. Revised target is Tk 348,069 crores, but CPD projects it to be Tk 252,811 crores. And budget target for FY2021 is Tk 378,000 crores. Which means revenue mobilisation effort has to be 49.5 percent higher in FY2021. Do we have a magic wand to do this during Covid year?

 Futile and unfair opportunity for black money

 Keeping the tradition of previous years, the opportunity for whitening untaxed and undisclosed money has been upheld in the budget for FY2021. Individuals are allowed to disclose any type of undisclosed house property including land, building, flat and apartment by paying tax at a certain rate. Such individuals having untaxed and undisclosed money can also invest in the capital market and show this in their tax returns on paying tax at a rate of only 10 percent on the value of the investment. Needless to say, government's desperate attempt to attract the black money holders has hardly been successful. Since independence, only about Tk 18,000 crores were collected through this measure. Out of this Tk 9,683 crores were collected in 2007 and 2008 during the regime of the caretaker government. This indicates that without a massive drive, only the mere announcement does not work. After all, if these people really wanted to pay tax on their income, they would not be tax evaders in the first place. And once they enter the tax net they are recorded forever. So why would they fall into this trap?  But the most important issue regarding such opportunity is that this measure is wrong on ethical grounds and an injustice to honest taxpayers.

 Where is the money for priority sectors?

 None of the priority sectors such as health, social safety net, agriculture, and employment generation could make it to the top five in the Annual Development Programme (ADP). The share of health, nutrition, population and family welfare in ADP of FY2021 remained at 6.4 percent as it was in FY2020. In terms of sectoral allocation, the health sector saw a rise of only 0.08 percent in terms of its share in GDP. Allocation depends on the utilisation. And budget utilisation has worsened significantly over the past decade. However, during the pandemic the health ministry could have formulated a few projects quickly. In the ADP, there is only one new project namely "Covid-19 emergency response and pandemic preparedness" co-financed by World Bank. Of course, inadequate resource is only a part of the story, and mismanagement and corruption are another story in the health sector.

 Employment generation and new world of work

 Along with domestic informal and formal sector employees, thousands of returnee migrants have joined the pool of jobless people. But, ministries such as Ministry of Industries, Ministry of Youth and Sports, Ministry of Labour and Employment, and Ministry of Expatriates' Welfare and Overseas Employment have received insignificant amounts to deal with the C19 induced unemployment problem.

 It is a harsh reality that many people will not see their jobs returning to them even during post-Covid period. This is not only due to long recovery path, but also because the need for those jobs will disappear. C19 has exposed us to a virtual world and a technology-based world. Many will not need to be physically present at the workplace anymore. A laptop or even a mobile phone with internet connection is all that is needed. The increase of supplementary duty on mobile phone services in the budget is not a measure in that direction. This is contradictory to the desire of giving more opportunity to access smart phones to facilitate our work. This will be a burden on the poor.  

Social safety net for all?

 Good news is that the allocation for social safety net programmes (SSNPs) has been increased to 3 percent of GDP in FY2021 from 2.58 percent in FY2020. But as before, pension for government employees takes a large share of SSNP allocation. This year another component titled interest payment on savings certificate has been added on the SSNP list. Two issues need to be clarified here. First, the finance ministry officials claim that pension payment is not for government employees. Then who are they? They are not retired employees of the private sector or non-government sector. Moreover, the SSNP list clearly includes a line item on pension for government employees. Second, they also say that SSNPs are not for the poor only, it is for all. Yes, of course, that is what it should be. In many countries there are schemes such as universal pension schemes, universal healthcare, education for all, etc. Understandably, given the resource constraints, Bangladesh is not in a position to introduce those schemes now, though the proposed National Social Security Strategy of Bangladesh has suggested those in 2015. Therefore, until and unless we introduce those universal schemes, SSNPs should only be for the poor, not for any other sections of the society. There should not be any confusion on this simple message.

 Dr Fahmida Khatun is the Executive Director at the Centre for Policy Dialogue.

 This article was originally published on The Daily Star. 
Views in this article are author’s own and do not necessarily reflect CGS policy.