Commentary

How to further consolidate the proposed budget?

Dr. Atiur Rahman

24 June, 2021 12:00 AM printer

How to further consolidate the proposed budget?

Despite many challenges due to the unprecedented global pandemic, Bangladesh economy has been showing sufficient resilience to move on. Thanks to its stunning macroeconomic stability and early investments in digital inclusive finance and administration, Bangladesh has been able to prepare two consecutive budgets aiming at addressing both the challenges of lives and livelihoods.

Notwithstanding huge erosion of income of the lower middle and usual middle-income groups and sharp rise in poverty due to sudden closure of many informal micro, cottage and small enterprises, both the budgets have tried to be as responsive as possible to the immediate and long-term needs of the people. The budget for the next fiscal year is still being scrutinised in the parliament by its members and outside by members of the civil society and professional organisations. The media have also been equally active.

Certainly, we cannot claim that this is an ideal budget. It could not be either at a time when the whole world is fighting for survival. So, the proposed budget could not be prepared in a conventional way. I was not, therefore, surprised to see a cautious budget proposal and yet aspiring to be growth oriented to support the slogan ‘Made in Bangladesh’ (please see my commentary on the budget in this daily on June 4, 2021).

The budget has rightly recognised the inherent strengths of three vital pillars of Bangladesh’s inclusive growth: vibrant agriculture, growing exports and best performing remittances; and continued to put its needed weight behind these tested sectors. Simultaneously, this budget has also been forward looking by supporting domestic industries in addition to providing additional tax incentives to the frontier industries like motorcar manufacturing, electric and electronic industries to meet the demands of the middle and advance consumers. It has also continued to maintain all the tax facilities given to the medical equipment and pandemic-related raw materials and intermediary goods.

It has also kept a significant amount as block allocation for meeting the pandemic emergencies including procurement of the vaccines. Since procurement and production of vaccines are the best economic policies of the time, the budget didn’t lose sight of it. However, it is not the allocations but the quality of implementation of the budget which deserves to be more sharply focused.

Naturally, the current pandemic situation would expect more focus on the health budget. And that’s what should have happened. The health allocation (almost BDT 33 crore) in the proposed budget is under sharp public scanner. Health allocations constitute 5.4 per cent of the total proposed budget. As this share has been hovering around the 5 per cent mark for many fiscal years, many expected it to go up to at least 7-8 per cent. Indeed, the budget-makers could have been a bit more liberal on the health budget in the context of the pandemic. It is most likely that they were extremely cautious considering the budget implementation capacity of the relevant ministry and widespread discussion on the huge ‘leakages’ of public resources in this sector.

As usual, the education and technology sector has received the largest share (almost 16 per cent) of the budget. The allocations for the coming fiscal year have been increased to BDT 95 thousand crore. Given the damage done to education by the pandemic, this increased allocation is welcome. However, we must have proper planning in place to decide where and how these additional allocations are to be invested. We must take special care to ensure that learners from poorer families do not fall back due to the ‘digital divide’. The skilling and re-skilling of the workforce are also of critical importance.

Over BDT 1 lac crore has been allocated for social protection programmes. This will surely help provide some protection for the vulnerable people amid the pandemic. But we also need to think about enhancing coverage of the existing programmes to more remote areas like char and coastal areas. The urban poor is not covered by the social safety nets as much as the rural poor. This needs to be looked at immediately. The low-income households and even a significant share of the middle-class households are finding it hard to cope with the expenses of corona treatment. Budget makers may think about coming up with a voucher scheme to provide subsidies to those seeking corona treatment in private healthcare facilities. Also, the health budget must find ways to provide more support to the patients using public hospitals in a way so that their ‘out of pocket’ expenditures are reduced. We should also move forward with universal health insurance and pension schemes so that we can be a healthy nation.

I am happy to note that the policymakers have seriously considered the contribution of agriculture in safeguarding our economy. Hence, allocations for agriculture have been increased by 7.3 per cent to almost BDT 32 thousand crore. The development allocations for local government and the rural development sector constitute almost one-fifth of the total development budget. Agriculture will benefit from these allocations as well. The initiatives like establishing 32 vegetable-nutrition gardens and 100 family-nutrition gardens in each union will not only enhance economic resilience of the rural households, but also contribute towards the enhancement of the overall food security of the country. ‘Regional SAARC Seed Bank’ is another commendable and farsighted initiative. Huge subsidies in agricultural mechanisation and assistance provided in developing agricultural equipment domestically are also commendable. The ADP project on model Bangabandhu villages is likely to be a smart move.

Given this perspective, the commentary has already shed some light on the sectoral support and lack of it by the budget. Now we can make a few recommendations for further improving the same before the budget gets passed. There is still time to revise some aspects of the budget proposals based on the discussions going on both within the House and outside to further consolidate it. If addressed judiciously, these revisions will make the proposed budget more people-friendly and aligned with our medium and long-term aspirations as reflected in the five-year plan, perspective plan, SDGs framework and the delta plan.

1. We need to come up with a roadmap to increase the share of the health sector in the budget to 10-12 per cent within the medium term. Structural changes are also needed. Primary healthcare is receiving only around 25 per cent of the health budget. This needs to go up to 35-40 per cent within the period of the 8th five-year plan. We are allocating 20 per cent of the health budget under the head of ‘medical and surgical supplies’. People get free or subsidised medicine from the funds allocated here. Hence this also needs to go up to 25-30 per cent. Health research remains neglected. There is an allocation of Taka one hundred core on research. But this gets hardly implemented. To address this, the government may think of building partnerships with universities and research organisations.

2. While the business-friendly tax proposals are the strongest points of this budget, there are certain tax proposals that may be reconsidered. The proposal to impose taxes on mobile financial service providers does not auger well, given their record of invaluable services to keep the pandemic-affected economy going. Hence, imposing taxes on them should be postponed at least until this crisis is over.

3. We are still reliant on the private sector for education. This is especially true for higher education. A large share of students in private universities is from middle and lower-middle-income households. And these educational institutes are already under pressure due to the pandemic. Hence, it would be best if the budget-makers reconsidered the decision of imposing taxes on the income of these institutes that are providing a public good called education.

4. The tobacco taxation proposals also deserve reconsideration. Experts and activists came up with proposals for increasing prices of all tobacco products and imposing specific supplementary duties on those increased prices. But these have not been adequately reflected in the budget. If they were, then two million people could have been prevented from smoking cigarettes along with BDT 3,400 crore additional taxes. It may be noted here that the parliamentarians have already raised their concerns during the budget session to increase tobacco product prices and impose specific supplementary duties as argued above.

5. The subsidies and tax abatements for the agriculture sector are commendable. However, preserving and processing agricultural products are also critical challenges for the sector. We must not forget that many of the workers returning from abroad will not be able to go back. This is true for many of the nonformal sector workers returning to their villages from urban areas as well. We must think about engaging them gainfully in the rural sector. The more the educated youth join agriculture as entrepreneurs the better. Such young entrepreneurs need to be supported from the ‘BDT 500 crore start-up fund’ already created by the Bangladesh Bank. The same fund could benefit 10-20 model women entrepreneurs from each of the districts on a test case basis. District level women chambers could facilitate this as social guarantors. Policymakers must also think about how best to implement credit guarantee schemes for rural micro-small-medium enterprises.

6. We are already reaping the benefits of the government decision to keep the RMG factories open (upon ensuring all the safety measures). Exports are coming back to the pre-pandemic levels. Businesses are gaining pace in developed countries. As such the demand for our main export has started increasing. We have managed to make progress in compliance and ensure environmental safety in the RMGs factories to a great extent. But the RMG workers, most of whom are women, still live in congested housing environment (and hence are at risk of corona infection). We could think about developing cluster-based safe housing for RMG workers. There is a fund for establishing women hostels for the workers which is jointly run by the Prime Minister’s Office and Bangladesh Bank. The rate of interest of this long-term credit is only 2 per cent. However, the offtake of it is very poor. The RMGs stakeholders can certainly help build these hostels in clusters. They need to be encouraged to do so.

 While it is obvious that we need to increase our allocations, it must also be acknowledged that the government has not been able to collect adequate revenue. We are the worst performer in South Asia in domestic revenue mobilisation. National Board of Revenue must be reformed to live up to this expectation. Some specific steps could be taken to help attain this goal- (a) Complete automation of the tax return process (so that a taxpayer could submit the return via online); (b) Engaging an efficient panel of lawyers to deal with the pending tax suits in addition to encouraging faster settlement through ADR (this could ensure collection of a huge amount of due taxes); (c) Electronic VAT recording and payment machines should be provided free-of-cost or at subsidized prices. To incentivize these businessmen to adopt VAT culture 10 percent incentive on the total VAT collected could be provided; and (d) One or two tax areas could be selected as model areas where everyone eligible will have TIN numbers and pay their taxes. The TIN holders could be given incentives in terms of reduced rates of holding tax and other urban taxes. They may also get priority in terms of urban infrastructure facilities including better roads and waste management. This will encourage others to join the fray. We ought to establish a culture of paying taxes as a patriotic duty.

It is understandable that revenue mobilization is under pressure amid the ongoing economic slowdown. This pressure is most likely to continue in near future. Budget-makers had to be stringent in allocations because of this. But we have observed that whenever there is a need to curtail budget allocations- the so-called ‘soft sectors’ like health, education and social safety nets become the first victims. This should not be the case. In fact, we need to think about how to further increase the share of these sectors. For that, if needed, we can even increase the budget deficit, at least in this difficult time. There is not much risk of inflation currently as the economy is yet to be overheated. Also, there is no risk of imported inflation now. Also, most people have been reducing the consumption of daily necessities. So, the demand is subdued. And even if inflation raises its head, the Central Bank has the regulatory prows to tame it. Hence, we should rather focus now on how to defeat the virus while continuing the incentive packages to keep the businesses vibrant. If needed, we can surely raise the budget deficit by another 0.5 to 1 per cent to channel adequate allocations for health, education and social security. Let us not forget that these are not normal times. Hence the structure of the budget need not be within the conventional framework. We ought to think creatively to make the budget more people friendly.

 

The writer is the former Governor of Bangladesh Bank and Chairperson of Unnayan Shamannay


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