Budget lacks ‘innovative policy’ to tackle pandemic

The government has overlooked the challenges of meeting the targets set out in the proposed spending plan for fiscal 2021-22, while the budget also lacks a results-based framework geared towards better implementation of the proposals, observesCentre for Policy Dialogue (CPD)

At a time when the country is battling a damaging second wave of the coronavirus pandemic, the budget document also fails to offer much in terms of effective steps and innovative policies to combat the challenges posed by the ongoing Covid-19 crisis, according to the think-tank.

The CPD's reaction on Friday came a day after Finance Minister AHM Mustafa Kamal rolled out a Tk 6.04 trillion budget for the fiscal year beginning on Jul 1.

Continuing with the theme of safeguarding lives and livelihoods amid the pandemic, Kamal's third national budget, 17.5 percent of the GDP, is about 12 percent higher than the revised outlay for the outgoing fiscal year. And it is a 6.34 percent increase from the original spending plan for the outgoing year.

But the government is seeking to mobilise revenues to finance 64.45 percent of proposed expenditures, setting a revenue target of Tk 3.89 trillion, about an 11 percent increase over the current fiscal year.

However, the proposed budget runs a record deficit of Tk 2.15 trillion, or 6.2 percent of the GDP, crossing the conventional 'red line' of 5 percent gap, much of which will be offset by heavy borrowings from domestic and foreign sources.

While public debt as a share of GDP is at a reasonable state for Bangladesh, it may to some extent in FY22 (40.3 percent) due to higher domestic and external borrowing in view of the ongoing Covid-19 pandemic, according to the CPD.

Barring the GDP growth and inflation targets, the macroeconomic framework of the budget is “largely flawed” with public expenditure projected to grow faster than revenue mobilisation, the think-tank said.

It also expects the deficit to be offset by a significant increase in foreign borrowing and reduced bank borrowing.

"The proposed targets in FY22 Budget are far from reality if most likely actual figures at the end of the ongoing fiscal year (FY21) are taken into consideration. This has significantly weakened the fiscal framework of that informs FY22 budget."

While the allocation for the health sector in the ADP has increased from FY21, it still falls short of requirements amid the pandemic.

"No new project has been proposed to particularly address Covid-19,” the CPD said in a report.

The allocation of resources in the ADP also fails to reflect the government's promises of prioritising healthcare, agriculture and employment generation in the budget, it added.

The share of funds for the agriculture sector in the ADP has decreased to 3.4 percent in FY22, from 4.1 percent, at a time when ensuring food security remains a high priority.

The government outlined plans to boost spending by 4 percent on healthcare, a key sector in the battle against the coronavirus pandemic, in FY22. Accordingly, Kamal announced a Tk 327.31 billion outlay on health and family welfare.

But CPD believes the budget allocation for health, which has been less than 1 percent of the GDP for the past 13 years, indicated that healthcare was never a priority sector for the government.

"Out-of-pocket expenditure on health in Bangladesh is not only the highest in South Asia, but also increases over time."

Meanwhile, analysts have also stressed the need to provide extensive social security coverage to protect the poor and marginalised groups, particularly those driven to poverty during the pandemic.

And while the allocation for social safety net programmes has crossed Tk 1 trillion, from Tk 957 billion in the revised budget for FY21, this represents an increase of only 12 percent, which is lower than the average rate of 17 percent increase between FY10 and FY22.

The allocation for pension, included in the social security budget, has also risen 16 percent, which is higher than the rate of increase of overall social protection.

The social safety net budget, excluding pension, as a percentage of the budget dropped to 13.41 percent from 13.41 percent in the revised budget for FY21, according to the CPD's analysis.

"Allocation has been cut for programmes protecting livelihoods, such as 'Work For Money and Skills' and 'Employment Programme in Bangladesh'. The allocation has also been cut for several programmes which address the needs of marginalised, vulnerable, and left behind communities."

In terms of education, CPD said a greater allocation is needed for this sector. The primary education sector saw an “insignificant” rise in funds for FY22 in light of the pandemic.

While the allocation for the secondary and higher education division continued to increase in the FY22 budget, it has experienced a declining rate of budget utilisation from 95 percent in FY19 to 91 percent in FY20, indicating the scope for more development in the higher education sector.

The drop in expenditure raises concerns of addressing the issues such as low quality teachers, poor infrastructural management and chances of dropouts, according to the CPD.

It called for the corporate income tax levied on private universities and private medical colleges to be

withdrawn as it will ultimately raise the cost of higher education. English-medium education should also be exempted from the 7.5 percent VAT, it added.

The budget also fails to lay out a concrete framework for reforms in many areas such as taxation, customs duty, banking, health and social sectors to improve the efficiency of the economy. The unfinished reform agenda has constrained the achievement of budgetary targets and its ability to cope with adverse impacts of the pandemic, according to the CPD.

The research organisation had also stressed the need for a medium-term strategy to facilitate economic recovery in the aftermath of the Covid-19 pandemic. However, the budget for FY22 has failed to address this issue, it said.

"This puts under risk the fulfilment of the promise made in the 50th budget to move towards a resilient future by giving priority to lives and livelihood."