Essentials of the national budget: A policy tool?

A well-designed national budget is of utmost significance to warrant economic stability and growth for any government in the world. Understanding the matrix of a national budget necessarily means one must also understand how a budget is a potent policy tool. 

Youth Policy Forum (YPF) is a platform for policy dialogue that connects the passage between the experts and the youth.

On 6 June 2021, YPF hosted a live Q&A session with Dr Mohammad Tareque in partnership with UNDP (United Nations Development Programme) to kick off the Budget Dialogue 2021. Dr Tareque is a former finance secretary of the Government of the People's Republic of Bangladesh, a former alternative executive director of the World Bank, and an honorary fellow of Youth Policy Forum. Aamer Mostaque Ahmed, executive director of Youth Policy Forum, moderated the session.  

The purpose of the session was to help the youth and professionals learn about the essential utilities of the National Budget from the in-depth and experienced lens of a former finance secretary. The session was circulated in the YPF group consisting of 10,000+ active members. Over 1,500 people joined the live Facebook session and asked questions. The following is a brief excerpt of the live Q&A session.

YPF: What is the essence of a national budget?

Dr Tareque:  Budget is a fiscal policy and the most powerful tool in the Government's hands. This fiscal policy can influence health, education, environment, and all other policies. Budgets are not just mere numbers. We need to be critical at evaluating beyond just numbers to comprehend the essence of a national budget compared to the size of the budget against GDP, and other countries globally. The primary target is to create a better Bangladesh where poverty, discrimination, regional disparity, and human poverty will not exist. It aims to achieve economic instability, achieve SDGs by 2030, and craft a developed Bangladesh by 2041. 

YPF: What is the process of formulating our national budget? 

Dr Tareque: The budget formulation starts in a strategic period. In the second quarter of each year (October-December), a preliminary indicative ceiling called budget circular-1 is created. A detailed budget is submitted from January-March by ministries based on a six-month outcome. Upon carrying out tripartite meetings by the finance ministry, planning ministry, and other concerned ministries, budget circular-2 is created. By the end of March, a draft of the budget is almost formed. Upon finishing this strategic period, many groups are consulted, including the honourable prime minister, Cabinet, and are taken forward to the national Parliament for approval. After this approval phase, it is brought forward to the third phase - implementation and is carried along by dedicated line ministries. The final stage then is monitoring, accounting, and auditing the national budget. In short, the four phases of crafting our national budget are, 1. strategy, 2. preparation, 3. approval, and 4. monitoring, accounting, and auditing. 

YPF: What factors are accounted for while allocating budget resources to different ministries? 

Dr Tarque: Since resources are limited, a plethora of factors are taken into consideration while allocating resources. This includes revenue collection (across tax, non-tax, non-NBR tax, and foreign resources), justification of details allocation, coherence of policies with the Government's FYP (Five Year Plan), SDGs, Delta Plan et cetera. The KPI (Key Performance Indicator) or concerned line ministries are also taken into account. The current timeline framework provides a rough allocation within February, which is subject to change based on the issues involved. 

YPF: For a complete reformation post-Covid-19, how vital are budget allocations towards the negatively impacted sectors? Among the affected sectors, which ones should get higher priority and why?

Dr Tareque: Resources have relatively increased for social and physical infrastructure and decreased for general administration. This should be the general direction of resource allocation. The health sector is a part of the social infrastructure and should be given precedence especially due to the ongoing and after-effects of the pandemic.

We are not prioritising mental health and social well-being enough as these are prevalent but not apparent, unlike physical health deterioration cases. Preventive healthcare, especially now, should be put more focus on. Allocation priority should be given to inclusive education too.

YPF: The local government can collect taxes. To what extent do the local governments assist in budget preparation, and how effective can the implementation be?

Dr Tareque: Local governments operate utilising the transferred resources of the central government. Increased connectivity of markets and cities have significantly facilitated social mobility in Bangladesh, and the local governments have made a focal contribution towards enabling connectivity. However, in terms of ministry, local governments as a sector of resource allocation places at the top. Their efficiency and impact have deteriorated as they failed to produce effective deliverables. We need to strengthen the local governments as much as possible.

YPF: According to SANEM Research, around 25 million people live below the poverty line during the pandemic. They need monetary assistance and social protection. Was any priority given to the Social Protection Sector to combat the post-pandemic poverty situation?

Dr Tareque: For social safety with pension schemes, a budget representing around 3% of the GDP has been allocated. Without a pension, a budget representing approximately 2.4% of GDP has been issued. The numbers are good enough as they signify priority towards social protection. Around 5,000 crores worth of money have been assigned to Economic and Climate Shock this year, and we can hope there would not be a misallocation of resources.

YPF: Can alternatives such as taxation implementation in the rural economy and incentivising the shift of black money to the national money supply be explored to increase the narrow tax base of Bangladesh? 

Dr Tareque: There are wealthy non-tax-payers who need to be brought under the taxation net. Income tax implementation in the rural economy can be exercised, too, as many farms have been produced due to agricultural efforts.

In 1975, the first attempt was taken to convert black money. This time too, the opportunity to whiten black money is given under Income Tax Ordinance. Evidently, we have not seen a significant amount of black money becoming converted.

YPF: Is there any systematic procedure to manage the debt we are incurring from foreign loans, or might there be a case of intergenerational debt?

Dr Tareque:  In Bangladesh, total debt as a percentage of GDP is now around 35%, where external debt is very low – approximately 13% of GDP. We are doing better in terms of managing external debt in comparison to our adjacent countries. Our total expenditure envelope is 7.5%, one–third of which is the budget deficit. An ideal budget deficit should be around 2% to 3%.

However, international debt-equity has not been a problem for us and is not likely to be one either soon.

YPF: Should we aim to achieve a welfare state? What strategies can we take?

Dr Tareque: The resources required to mobilise to achieve a welfare state shall be challenging for the Bangladesh government. Welfare can be maximised through inclusive cooperation from both the private and public sector. This can be truly achievable when the revenue collection reaches at least 30% of the total GDP. Around 30% of the employment is generated by Small-Medium Enterprises (SMEs); therefore, the private sector needs to be incentivised.

Both authors are research associates at Youth Policy Forum.