The novel coronavirus pandemic has created extraordinary circumstances and an extraordinary mission is called for to win the war of containing and defeating the pandemic and rebounding from the socio-economic upheavals suffered. The circumstances in which the national budget for the fiscal year 2020-21 is to be prepared are, therefore, very different from the usual and the challenges formidable. Yet, the budget prepared is expected to guide socio-economic development efforts in the coming year to help rebuild the economy and regenerate social and economic dynamics towards restoring the country's pathway of robust national progress experienced prior to the appearance of Covid-19.
The basic approach
Broadly, the trajectory of progress needs to follow the process of rehabilitation, rejuvenation and consolidation to return to the launch position the country was in before the Covid-19 onslaught began.
It is essential to enlist the active participation of all stakeholders in this process of rehabilitation-rejuvenation-rebuilding. That will best be done under a broad framework developed and coordinated by the government, at least in the early phases when the focus is on saving lives and getting the wheels of the economy to restart and keep turning.
It seems to me that the planning exercise is best begun by building on the three-phased – short, medium and long term – four-pillar assistance and stimulus programme announced by Prime Minister Sheikh Hasina on April 13.
The Prime Minister also rightly prioritised the following three issues: saving lives from Covid-19 – through lockdown, testing, treatment, isolation, and quarantine, as well as expanding necessary hospitals, PPE and other facilities, plus increasing the numbers of doctors, nurses and other caregivers; ensuring the food security of all those whose livelihoods have been decimated, by expanding social security activities including cash transfers; and focusing on agriculture – crops, poultry, fisheries, livestock – to maintain national food security. She has also emphasised increasing government expenditures to assist distressed people and help raise domestic demand – which in turn would encourage domestic production.
I feel the April 13 announcement, and priority ordering of sectors outlined by the prime minister, constitute a worthwhile basic framework for preparing the 2020-21 national budget.
Let me now offer some comments on some specific aspects of the national budget to be prepared for 2020-21.
Size of the budget
I have always supported an ambitious budget size. However, the country is now faced with extraordinary internal and external circumstances, which will certainly continue into the next fiscal year and may, then, even be worse than at present.
Achieving the current year's budget will likely be significantly lower than normal. The dynamics concerning budget implementation in the next fiscal year are likely to be much less conducive than in a normal year.
Resource mobilisation in the next fiscal year also seems destined to face a major setback. Hence, serious consideration should be given to the likely resource availability – without incurring an unmanageable budget deficit on one hand and implementation capability and governance efficacy on the other in determining the size of the next budget. For one thing, less important and non-strategic projects should be cut out. Less important public expenditures may also be eliminated. Also, implementation-related reality, if taken into account, can help fix allocation levels to the projects included in the budget year.
An initial thought may be to consider keeping the budget size at about the current year's level. An unrealistically large budget may disturb focus and create unnecessary and wasteful pulls and pushes, thereby telling upon budget implementation.
The circumstances are so uncertain that it is hazardous to put forward a figure on the GDP growth rate. Also, I do not have all the relevant detailed information. The World Bank has projected GDP growth rate for Bangladesh as of 2020 at 2 percent to 3 percent and as of 2021 at 1.2 percent to 2.9 percent. These figures seem to be based on an inadequate understanding of the realities on the ground and depth of resilience of the people of Bangladesh. If the assistance and stimulus package already announced is effectively implemented and more support is provided as required, things should look up. I would say, let us do the right things in earnest under the prevailing and emerging circumstances. A respectable growth rate will surely be achieved.
There is going to be a significant setback in resource mobilisation this fiscal year, 2019-20. It's going to be very difficult in 2020-21. Tax collection will decline because of non-payment of taxes, given financial problems created by the Covid-19 pandemic. Moreover, there are and will be demand for tax exemptions on the same ground. Both may be widespread under conditions of economic slippage – the people concerned are suffering and may suffer more in the coming months, maybe well into the next fiscal year. Here, a matter for attention is to find ways of ensuring that the decline in tax collection is as low as possible. In this context, one area to focus on could be VAT. Efforts for increased flow of funds from development partners, that the government is known to be pursuing, maybe redoubled. The pipeline is large. Also, new funds may be sought for contributing to actions needed to be taken to ride over the virus-caused difficult days. Additionally, of course, borrowing from central and commercial banks and from citizens through savings certificates and issuance of bonds are various ways of raising money domestically. However, deficit financing must be kept within a manageable limit – at five percent of GDP, and in any case not much higher. Also, in the case of borrowing from commercial banks, care should be taken that much-needed private borrowing for investment is not crowded out.
Increased government expenditure and funding support to help people devastated by Covid-19
As mentioned earlier, the prime minister has called for increasing government expenditures to help people devastated by Covid-19. This is an important policy step as, in the wake of Covid-19, the livelihoods of many have been decimated due to widespread employment losses and collapse of other income-earning opportunities – which in turn caused aggregate domestic demand to decline sharply, accentuated by sharp reductions in remittances. I expect more funds will be made available for the purpose of helping these people. Indeed, it has to be ensured that money goes appropriately to the people in need via, for example, employment opportunities created for them in public works and other activities.
In the context of government support and stimulus funding intended to help various groups of particularly distraught people in the wake of Covid-19, an allocation of Tk20,000 crore has been made to provide working capital loans to cottage, micro, small and medium enterprises (CMSMEs) in: agriculture, agro-processing, manufacturing, services, trade, etc. It is a worthwhile step aimed at rejuvenating these activities.
While small and medium enterprises, being in the formal segment of the economy, can be reached through the banking system, the cottage and micro enterprises cannot generally be reached through the banking system, as they are too small, in terms of financial scope, to be of interest to the banks and many of them may not even be banked. Also, they are not generally in a position to offer acceptable collateral. Micro (inclusive) finance institutions may be used for the purpose under appropriate arrangements, which are nongovernmental organisations (NGOs). These institutions have the experience and outreach in dealing with them. Most of the medium and large NGOs and many small ones work as partner organisations (POs) of the government-established Palli Karma-Sahayak Foundation (PKSF). Other innovative ways may also be devised if possible. The bottom line is that collateral-free loans must reach their intended cottage and micro enterprises on time and in appropriate amounts.
Let me just point out two tasks in which fiscal and monetary processes may best work together. Given the large-scale economic disruptions and downturn in the country due to Covid-19, it is widely agreed that monetary expansion is needed, particularly in the interest of the downtrodden and distressed people. Already, the money supply is being increased by Bangladesh Bank in pursuance of the policy stance announced by the prime minister on April 13. In the process of monetary expansion, it is necessary on the part of the appropriate authorities to keep watch and take necessary steps to restrain inflationary tendencies. In this task, coordination with fiscal operations would be essential.
The downtrodden and distressed people in Bangladesh, who are in urgent need of access to money, are mostly outside the purview of banks and usually cannot, therefore, be reached through the banking system. The fiscal process can work with the monetary system to channel money to those groups through appropriate channels as discussed above, while money supply is increased by Bangladesh Bank using various tools, including printing money as the last resort if circumstances warrant.
Top priority sectors include health, the social security net, plus agriculture – crops, fisheries, poultry, and cattle. These have already been identified by the prime minister, as noted earlier. Let me add education, mobilisation of the vast youth power, and rural non-agricultural and urban informal activities – cottage, micro and small enterprises – to this list.
We may remind ourselves that human capability development is the single-most important key factor for the sustainable forward march of society – and this is a function of the education and health services. However, these two sectors have traditionally been kept at low levels of budgetary allocation in Bangladesh.
The persistent gross underfunding of health and education has always been, at budget-making times, a subject of intense discussion. However, this has not impacted allocations.
The health sector has been monotonously receiving less than one percent of GDP, annually, year after year. The novel coronavirus must have given the most telling argument for the health sector to receive top priority in resource allocations. In fact, the Prime Minister has rightly identified it as such. In this regard, there is the immediate need to save lives – through testing for Covid-19, isolating at homes or in hospitals, quarantining at home or in institutions, hospitalisation including in ICUs, supply of PPE, the availability of doctors, nurses and other caregivers, etc. This requirement is highly likely to continue into the next fiscal year and there may be a second Covid-19 wave or more waves after the current wave subsides. Then, there is the medium and longer term needs to modernise, expand and deepen health services – not forgetting the need to revamp primary healthcare for all citizens, particularly the masses. In addition to a high allocation to the health sector in the forthcoming budget, it is suggested that this budget provides for the preparation of a longer term – say, for five years – health sector roadmap. However, while increased allocations are necessary, they are not sufficient – dedicated and accountable implementation is equally important.
The critical importance of education is recognised by everybody, but budgetary allocation has been hovering around just over two percent of GDP for years on end. There have been proposals every time the national budget has been prepared – ever since the National Education Policy 2010 was adopted – to raise the allocation to the sector gradually to four percent or 4.5 percent by now. I suggest that this forthcoming budget makes a noteworthy beginning along this road, followed up by proper and upright implementation.
(c) Social security net programmes
An additional large number of people have, due to Covid-19, joined the ranks of those dependent on social security support. These devastated people are dependent on handouts of food and other consumer necessaries. This phenomenon is going to persist well into next fiscal year, and the number to be served in this way until they turn around may depend on the spread and duration of the pandemic and whether or not new wave(s) will emerge after the current one subsides. The budget should make an additional allocation based on the estimated additional – to the usual size of safety-net outreach – number of people, along with duration of time, to be served.
(d) Mobilisation of youth power
Bangladesh is passing through a phase of demographic transition which is characterised by the presence of a huge youth population – known as the phase of demographic dividend. The importance of enabling the youth to make their best possible contribution to their own and national development is well recognised in policymaking circles in Bangladesh, but progress has so far been limited.
Where facilitated, young people are, in fact, helping the people shattered by Covid-19 by, for example, delivering relief and other services. In fact, there are instances of youth doing so on their own. The PKSF has, over the past several years, mobilised over 150,000 young people in 202 unions across the country. Most of them have been given an elaborate digital training on human and social values. They are now undergoing skills development training of various durations on subjects of their choice. Most of those who have completed skills training have, assisted by the PKSF and its NGO partners, found jobs or have set up micro enterprises. Many of those young people are now in action, facilitated by the PKSF and its partners, to help alleviate the miserable conditions of people devastated in the wake of Covid-19.
The huge number of youth in the country, not yet properly enlisted, must not be left untapped. It will certainly be a worthwhile move if the forthcoming budget includes a useful allocation along with appropriate policy planning for mobilisation and activation of the youth still waiting in the wings – and this as a building block for major thrusts in the following, say, five years.
The usual forms of support, such as subsidies and loans – as well as improving supplies of various inputs and services needed for crop, livestock, poultry, and fish production – not only need to be continued but also increased in view of the more difficult conditions faced by farmers in the wake of the pandemic. In the past, farmers faced broadly similar conditions relating to their financial abilities, every year, so the task mostly was to determine how much to allocate and how to roll it out.
However, this year there are additional adverse things to be considered, which are the setbacks caused by Covid-19 in terms of sharply-reduced financial abilities of the farmers and the disruption of supply chains. However, first let it be noted that rice production this year is good – hopefully the harvesting of Boro paddy will be successfully completed – and the government has announced increased procurement of rice as a price support measure for the farmers.
However, the marginal and small farmers in general have been shattered by lockdowns and disruptions. Poultry and egg producers have suffered severely and so have the milk producers. Also, producers - regardless of their size - of, for example, flowers, tomato and watermelon have taken hard hits due to demand and transportation problems. These and similar other instances should be duly considered, in addition to the usual arguments, while setting total allocations to the agriculture sector to be provided under different heads such as: subsidies, loans, and non-financial services like training and extension.
(f) Cottage, micro, small and medium enterprises
CMSMEs constitute a major economic force in the country and directly support millions of people – including owners and employees of these enterprises and also others who operate in conjunction with these enterprises. Realising their importance, Tk20,000 crore has been allocated, out of the assistance and stimulus package announced by the prime minister, to provide working capital loans – at an effective interest of four percent – to these enterprises.
The small and medium enterprises are in the formal economic segment. However, the cottage and micro enterprises are located in rural areas across the country and in urban informal sectors. Both cottage and micro enterprises are poverty-alleviating and growth augmenting from the bottom. Hence, these enterprises deserve to be included on the priority list of sectors to be supported with finances and necessary non-financial services. In my judgement, a reasonable budgetary allocation to CMSMEs, specifying at least 50 percent for cottage and micro enterprises, deserves serious consideration.
As mentioned, the small and medium enterprises, part of the formal economic segment, can be reached easily through the banking system; however, the cottage and micro enterprises cannot generally be reached through banks and are not in a position to offer collaterals against loans. Hence, other effective ways should be used to deliver timely collateral-free loans to them.
Although the importance of decentralised planning, budgeting and implementation is recognised by the present government, centralisation still essentially remains the name of the game. In the recent past, for several years, the expressed official intention was that district level budgets would be prepared. However, that has not happened. In the wake of Covid-19, the importance of decentralised management has surely again come sharply to the fore in relation to addressing the needs of the people in local spaces. Can a beginning be made with regard to, say, district level budget preparation on a limited scale, starting with 2020-21 national budget?
However realistically and purposefully a national budget is framed, unless it is implemented properly and efficiently, the results will fall short – maybe significantly short – of the targets. The conditions to fulfil for the best possible budget implementation are well known to the authorities concerned. Yet, let me mention some key ones by way of a reminder:
- Project directors or leaders must be appointed on the basis of merit and their track record. The same must apply to the appointment of all other project staff. There must not be any room for favouritism and cronyism.
- All appointments, especially the appointment of the key personnel, must be completed ahead of the designated start date of each project.
- The chain of command must be clearly defined and adhered to.
- Deliverables and milestones must be clearly defined.
- Funds must be released as stipulated in the implementation schedule.
- Strict and upright monitoring must be carried out.
- Efficient and successful performers should be recognised and those showing failure and negligence must be taken to task.
Obviously, the total budgeted outlay is the sum total of all allocations to all sectors, prioritised or not. The priority-setting exercise for a budget is ideally carried out with a view to maximising the total societal benefit from the total resources available for the budget. Those sectors that are assessed, at the relevant time, to be ahead of other sectors in terms of intrinsic and strategic importance are prioritised. Hence, these sectors need to be assigned larger allocations. This article has focused on some of the essentially pertinent issues relating to the national budget for 2020-21 being prepared under extraordinary circumstances created by Covid-19.
The writer is a senior economist and development thinker.