Budget 2021-22: Reality and Expectations

On 30 May 2021, SANEM organized a pre-budget virtual dialogue titled “Budget 2021-22: Reality and Expectations” to discuss the importance of the national budget in addressing the challenges of the ongoing pandemic. Dr Selim Raihan, Professor, Department of Economics, University of Dhaka and Executive Director, SANEM, moderated the event. The keynote presentation was delivered by DrSayemaHaqueBidisha, Professor, Department of Economics, University of Dhaka and Research Director, SANEM. Economists, researchers, academicians, development practitioners, journalists and students were also present during the webinar.

In her presentation, DrSayemaHaqueBidisha acknowledged that the budget for the next fiscal year would have to consider both pre-COVID as well as post-COVID challenges. She pointed out that the existing budget structure suffers from low revenue generation and slow implementation of ADP. Furthermore, despite the consistently high growth in GDP, the pace of employment generation has not been impressive and there has been low spending in human resource development. In addition, the pandemic has now impacted the livelihoods of millions due to job losses, business closures and reduction in income. A digital divide has become evident in the education sector and rise in dropout rates and early marriages have emerged as major concerns. In this context, the upcoming fiscal budget will play a critical role in dealing with the pandemic fallouts. 

The presentation highlighted a declining trend in revenue collection in the recent budgets: 83% of the actual revenue target was met in the fiscal year 2016-17 which decreased to 75% in 2017-18 and 74% in 2018-19. A closer analysis of the composition of the NBR tax revenue reveals that the proportion of income tax in the overall revenue has also declined over the past 5 years. In the fiscal year 2016-17, income tax made up 35.4% of the total tax revenue while in 2021, it declined to only 31.5%. The government’s Annual Development Programme (ADP) implementation rate has also been staggeringly low in the current fiscal year. ADP implementation progress over July 2020-April 2021 has been below 50% across several key ministries and divisions including Health Services Division, MoPME, MoHPW, Ministry of Industries, Medical Education and Family Welfare Division, MoWCA, MoSW, Food, Labor and Employment, Planning Division. Furthermore, government domestic borrowing in financing the national budget has also increased from 14.8% in FY 2019-20 to 19.4% in FY 2020-21.

DrSayemaHaqueBidisha stressed that the prime objective of the upcoming fiscal budget should be to ensure better health management while restoring the income level of people through employment generation. To attain this objective, she mentioned four key areas of priority: Health, Education, Social Safety Net and Agriculture. 

In the fiscal year 2020-21, 5.15% of the total budget and 13.60% of the development budget was allocated for the health sector. Current health expenditure in Bangladesh stands at 0.92% of GDP which is much lower than the South Asian average of 3.48%. Furthermore, out-of-pocket health expenditure has also increased steadily over the past years and stood at 73.9% of the total health expenditure in 2018 which is much higher than both the South Asian average of 64.2% and the LDC average of 49.3%. A number of key policies related to health have been introduced in the FY 2020-21 to combat the challenges related to the pandemic including the “National Preparedness and Response Plan”, “COVID-19 Emergency Response and Pandemic Preparedness Project”, and “COVID-19 Response Emergency Assistance” project. The government has advanced a proposal to spend a lump sum of Tk 10,000 crore for COVID-19 related health expenditure. However, during the COVID-19 emergency, a slump in ADP utilization and ADP Implementation rate in health has been noticed. ADP implementation rate has been much lower (28.7%) in the current fiscal year compared to the previous years. 

In the education sector, inaccessibility of digital devices, internet facilities and the high cost of internet have caused disparities in online learning. Nationally, only 14.8% of rural households have been able to participate in online classes compared to the 26.2% non-poor households. Moreover, only 18.5% rural households have participated in online classes compared to the 26.9% urban households. The growing inequality in access to education between rural-urban and poor-non poor households is alarming because it can further aggravate socioeconomic inequalities in the long run. On the other hand, education budget as a percentage of GDP has been hovering around 2% in Bangladesh which is much lower than the LDC and South Asian averages. Furthermore, ADP implementation rate across primary, secondary, madrassa and technical education have not been very impressive. During the presentation, DrBidisha mentioned that increasing the share of education expenditure in the next fiscal budget and ensuring the proper implementation of the budget is extremely crucial to ensure inclusive development and overcome the losses that have been incurred over the past year. 

DrBidisha referred to several studies conducted by SANEM which have indicated a rise in the national poverty rates. According to these studies, the pandemic has caused the national poverty rate to increase from 21.6% to 42%, but no specific program for the new poor was introduced in the budget of FY2020-21. In order to bring the new poor households over the poverty line, the government is required to transfer Tk 5132.65 crore each month which is equivalent to 1.9% of average monthly GDP. DrBidisha indicated that although the safety net allocation was around 16.8% of the total budget in FY 2020-21, this figure is much lower if allocations for pension for retired government officers, savings certificate interest and secondary and higher education stipend are not considered. Furthermore, she suggested that major social safety net programs including old age allowance, allowance for the widowed, deserted and destitute women, allowances for the financially insolvent disabled, education stipend programs and school meal program should be readjusted and modified according to the recommendations of the National Social Security Strategy (NSSS).This will be useful in order to overcome the existing concerns in the social protection programs including low coverage, improper targeting, leakages etc. Special attention should also be given in the upcoming budget to the urban poor households who have been negatively impacted by the pandemic. Currently, less than 2% of the SSP budget is allocated for urban poor. 

Although the agricultural sector has fared better than the other sectors during the pandemic, it must not be neglected in the formulation of the upcoming budget. Undoubtedly, the agriculture sector plays a fundamental role in ensuring food security, poverty alleviation and overall sustainable development and therefore, must be a top priority area for the government. However, for the last four financial years, spending in agriculture has been only around 0.45% of GDP. Moreover, during the pandemic, 68.2% wage employed workers observed reduction in their income and around 73% self employed workers observed reduction in production/sales/profit. In this context, the agriculture refinance scheme is expected to play a crucial role and although the Bangladesh Bank has extended the timeframe for disbursing the scheme thrice, only 69.32% of the total amount has been disbursed until now. 

Several studies have indicated that, among the major industries, RMG, textiles, and leather have been the highest recipients of the stimulus packages announced by the government. On the other hand, only 9% of micro and small firms have received some form of stimulus support compared to 30% medium and 46% large enterprises. Moreover, the implementation rate for several key stimulus packages including agriculture refinance scheme, pre-shipment credit refinancing scheme, export development fund, working capital loans to affected industries and service sector and CSMES and refinance scheme for low-income earning professionals/farmers/small traders have been low. 

According to DrBidisha, understanding the impact of the pandemic on PIE (Poverty, Inequality and Employment) remains an essential prerequisite. Poverty and inequality reduction and employment generation should be key priorities in the government’s efforts to initiate the recovery process and safeguard the economy. The research team also listed a number of recommendations for the upcoming budget including: greater allocation in health and education along with efficiency in utilization; monitoring and evaluation of budgetary allocation on a regular basis; additional incentive packages to incorporate some of the affected sectors which were not sufficiently covered in the existing ones; quarterly monitoring of incentive packages; reform in revenue collection through greater focus on income taxation; curtailing the operating budget and being selective in case of development programs; creating a digital database of the new poor along with those in the informal sector with the help of NGOs, development partners etc; incorporating the new poor, urban poor in the allocation of social safety net; targeting safety nets towards employment generation through small scale low interest loans/training etc; materializing implementation of incentive packages for CSMEs through non-traditional means; prioritizing allocation in farm mechanization, storage, agriculture research; giving special emphasis on MoEWOE in budgetary allocation and through stronger diplomatic means, administrative support and incentives, welfare of migrants’ and returnee migrants should be incorporated; allowing provisions for vaccination, capacity building of health professionals, COVID related research and equipment in health budget; introducing stipends and meal programs to reduce school dropout rates; making specific allocations for tackling digital divide in education including device availability, cheap internet facility through tax/VAT rebate etc.

After the presentation, Dr Selim Raihan expressed his views and aspirations for the upcoming national budget. He started off by mentioning that, since the budget for FY 2021-22 is going to be the second budget announced during the pandemic, policymakers should primarily focus on addressing the urgent needs that have emerged due to the ongoing crisis. It is extremely important for the policymakers to come to terms with the reality of the current situation and acknowledge the gravity of the socioeconomic crisis that the country is currently facing. He stressed upon the importance of COVID-19 management related budget allocations to salvage the health sector through ensuring timely vaccination drives, border controls and building capacity of the medical workforce. One of the key issues that he highlighted is the lack of proper data collection and monitoring since the beginning of the pandemic. According to Dr Raihan, in the absence of comprehensive data collected by national statistic agencies such as Bangladesh Bureau of Statistics (BBS), it is extremely challenging for policymakers to identify, target or design effective policies to help the worst affected groups of the populations.He also referred to the findings of SANEM’s ongoing quarterly Business Confidence Surveywhich reveal that micro, small and medium enterprises (MSMEs) have been most negatively impacted due to the pandemic. Despite the severity of the impact, government stimulus packages for MSMEs have been inadequate, making it even more difficult for them to survive through this unprecedented crisis. As these MSMEs play a vital role in the supply chain and also create employment opportunities for majority of the workers working in the informal sector, recovery of the MSMEs is a major contributing factor to the recovery of the economy as a whole.Dr Raihan also urged the government to focus on policy reforms to boost private sector investment which is essential to stimulate the post-COVID recovery process. Lastly, Dr Raihan mentioned that, although GDP growth rate is an important measure to assess the advancement of the economy, itis high time for policymakers to come out of the obsession of repeatedly using GDP and instead focus on socioeconomic indicators such poverty, inequality and employment to assess the wellbeing of the nation. 

We think that such a crisis situation cannot be tackled by the government alone. Therefore, the government needs to properly define the corporate social responsibility of the various business associations. Business associations have an important role to play in this time of crisis. But unfortunately we have seen that at this time they are more occupied with their own demands. BGMEA, one of the most established associations in Bangladesh, the world's second largest exporter of garments, do not need to rely on government support to such a high extent. Rather, they should step forward to take on some of the responsibilities of the employees in their organization.