Around June last year the country was deep into the first wave of coronavirus infection. Yet, the government could at least present the budget for the fiscal year 2020-21 despite acute health challenges.
I must say the government demonstrated a commendable coordination between the fiscal and monetary policies and managed to cope with the pandemic-induced economic slowdown better than most other countries.
The government declared numerous stimulus packages worth about 4.4 per cent of GDP with potent and timely support from the central bank. As a result, supply of liquidity in the market was maintained and even increased in a manner so that there was no pressure of rising inflation in sight.
Import was low, and the economy was running at less than full capacity. So, there was no threat of inflation uptick.
However, for the coming FY 2021-22, the core challenge will be how best to utilise this surplus liquidity when the demand may have nosedived due to another round of strong lockdown.
And this time fiscal policy measures will be more important as there is a slump in the demand side of the economy. The government is apparently aware of this predicament and has therefore allowed the continuation of construction activities related to infrastructures even during the lockdown.
Similar prudent policy direction must prevail even for small infrastructures like the reconstruction and maintenance of rural roads, culverts, bridges, school buildings, digging of ditches and strengthening riverbanks to create more employment and bolster domestic demand.
The social protection measures must also be revamped at the same time.
With the budget session of the National Parliament around the corner, it appears that the government will have to once again present the same amid a pandemic unless we can defeat the virus comprehensively.
However, we are optimistic that the policymakers, based on their past experiences of facing the first wave, will be able to come up with a budget which will guide the country in the right direction despite this crisis.
But what still worries us the most is that people have become too complacent and not always adhering to health measures that are so vital when there is a surge in infection.
And here comes the need for the whole society approach to raise the consciousness of the people. Bangladesh is well-known for its capacity to fight disaster. Why should we then be laggard this time? Surely, we can fight it out provided we all stand together and do the needful.
Like last year, the upcoming budget must also focus primarily on healthcare. Over the last few fiscal years, although the health budget allocations have been increasing by around BDT 2,400 crore per year, the share of the health sector in the total national budget has still been staggering at around 5 percent.
This 'business as usual' for the health sector will not do. This share must be increased significantly not only in the coming budget but also for another two to three years to give a signal to the world that Bangladesh is prepared to invest more on the people.
We must also be very careful about identifying the avenues to spend the additional allocations.
For example, as per the Household Income and Expenditure Survey 2016 data - of all those suffering from health problems in Bangladesh, 12 percent do not seek any kind of formal healthcare. This ratio is almost double (23 percent) for metropolitan areas.
Moreover, survey data also reveals that only 14 to 19 percent of the inpatients rely on government health facilities. Data such as these clearly point towards the directions where increased budget allocations should go.
Like the health sector, the education and skills development sectors also require special attention in FY 2021-22. These sectors are also facing critical challenges due to pandemic-induced shutdowns. Indeed, the onslaught on education has been no less devastating than the health sector. Maybe, more.
However, to increase the size of the budget as required we must also increase the pace of our revenue collection.
The 8th Five Year Plan has set the target tax-GDP ratio to be 12.3 percent, which experts perceive to be much lower than what it should be. I believe we could easily attain a 15 percent tax-GDP ratio within the plan period if we could focus more sharply on the efficiency of NBR and the available digital technology.
In addition, we could generate additional revenue by adopting innovative approaches as well. For example, if the declared retail prices of tobacco products are significantly increased and specific supplementary duties are imposed on those prices, not only will the government be earning an additional BDT 34 billion in revenue, but also 2 million people could be saved from smoking.
Similarly, if the revenue generated from the 1 percent Health Development Surcharge imposed from tobacco products could be channeled to the health sector and spent well in collaboration with non-state organisations, particularly for consciousness raising, this could really be helpful in coping with the pandemic.
Also, the pace of vaccination must be accelerated to contain the virus, which will help raise the business confidence.
Implementation of the budget is as important as collecting additional revenue. Recent reports in mass-media have revealed that of the BDT 10 thousand crore stimulus package previously declared by the government to support poor households, 56 percent is yet to be distributed.
This clearly implies that we have got to enhance our governance capacity to improve the efficiency in implementation of safety net programs. Otherwise, prudent policy initiatives alone will not yield desired outcomes.
Finally, I would like to put forward some additional proposals for the budget of FY 2021-22 to make it operationally smarter:
Pilot large-scale health insurance programs based on the experiences gathered from the pilot programs in three upazilas of Tangail with support from development partners. Go for creating a regulator for coordinating the same.
Initiate smart monitoring using digital dashboard to understand the pace of implementation and end-use of the stimulus packages. Bangladesh Bank is claiming to have completed developing one such dashboard for monitoring implementation of stimulus packages for MSMEs. The proposed financing of start-ups should also be monitored similarly by the central bank.
Ease the conditionalities for buying national savings instruments (may be up to BDT 1 million) for at least a certain period (may be for 6 months) to incentivise depositors who have been badly affected by the liquidity glut. The stimulus packages helped only borrowers and not depositors. Tax identification number (TIN) related conditionalities may also be eased for small depositors including the kids involved in school banking who too are forced to pay 15 per cent taxes for deposits.
Increase public expenditure for infrastructure development. This will channel money to the people all over the country. Indeed, infrastructures are both growth and employment multipliers.
Encourage further utilisation of digital financial services to curb the cost of printing money. For example, the Merchant Discount Rate (MDR) paid by the small merchants to banks (when customers pay through QR quotes of mobile financial services) could be exempted. If needed, create a fund (as was done by RBI) to subsidise the micro-merchants opting for digital payments.
Further utilise Mobile Financial Service (MFS) to channel money to the poor for smart social protection. The beneficiaries could be targeted through analysis of their MFS activities using artificial intelligence (monthly bill payments, flexi loads etc.).
The 'ten taka per kilogram of rice' program has been found to be very effective. For the coming fiscal year, this program should be further expanded at least in urban and industrial zones. A 'hotline' could be established so that families suffering from hunger could contact public administration.
BSEC has already initiated the Green Bond worth BDT 100 crore. This initiative needs to be further expanded (more bonds could be floated in the market) to mobilise resources domestically.
Continue food and cash support for the urban poor using local government representatives, NGOs, community leaders and government officials during the lockdown.
As rightly emphasised by the HPM, our primary target now should be how to save lives. Hence, instead of worrying too much about growth and budget deficit for the next fiscal year, we must focus on increasing the purchasing power of the people.
If we can do that, not only will the people be saved but also the increased domestic demand pushed by the fiscal measures will ensure macroeconomic vibrance and stability, defying the pandemic.
*The writer is the Bangabandhu Chair Professor of Dhaka University and former Governor of Bangladesh Bank. He can be reached at [email protected]
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.