Financing the budget and proper implementation of the budget without corruption, and fighting the covid-19 pandemic, would be the biggest challenge for the government, the Centre for Policy Dialogue (CPD) said on Sunday.
An anticipated 35% rise in poverty and inequality caused by the Covid-19 pandemic should be another concern for the government. This needs to be addressed in the next budget with adequate allocations, CPD recommended.
In a virtual briefing on the “Challenges of Policy Making in Times of Pandemics: State of the Bangladesh Economy in FY2020,” the think-tank made these observations.
“This year, the government is going to announce a different budget in the context of the Covid-19 pandemic and we have no previous experience in this regard,” said CPD executive director Fahmida Khatun.
The government must come out of the traditional practice of a 5% budget deficit, said the economist.
The big challenge would be financing the budget as revenue generation will face a huge shortfall, she forecasted.
The CPD recommended giving utmost priority to four sectors – health, social protection, agriculture, and employment generation.
How to generate revenue
“In the present context of Covid-19, it is important to see how much money we have and how much can be spent for the crisis and from where will it come, without creating instability in the economy,” said Towfiqul Islam Khan, Senior Research Fellow, CPD.
Based on the latest data, the CPD forecast the revenue shortfall for FY20 would be around Tk1.25 crore , while the revenue growth target for FY21 would be a whopping 56.2% higher than the revenue earned in the current fiscal year.
In increasing revenue, the government could use fiscal policy to boost domestic demand, and raise disposable income and consumption, particularly for the lower- and middle-income class, the think tank suggested.
It suggested raising the tax-free income threshold levels from Tk2.50 lakh to Tk3.50 lakh in the upcoming budget.
On top of that, the CPD urged the government to take measures to stop all types of tax evasions and bring back laundered money.
Historically, there has been some ‘fat’ in the non-ADP budget where ADP tended to remain unutilized. So it was time to shed ‘fat’ in the ‘non-ADP public expenditure and utilize funds for other sectors, it added.
How to meet the budget deficit.
Against a backdrop of subdued revenue mobilization, the possibility of pushing the budget deficit beyond the traditional cap of 5% of GDP may be a necessity in view of the upcoming FY21.
Bangladesh currently enjoys a robust debt sustainability index as the public debt to GDP ratio is around 34% and it could afford a couple of additional percentage points of fiscal deficit, perhaps up to 7-8% of GDP, said the CPD.
However, this increased budget deficit should be managed through an appropriate diversion of available resources, proper sourcing and the prudent use of resources, it suggested.
CPD urged the government to seek additional funding from external sources. The country should take advantage of the G-20 decision regarding providing low income countries with funds at zero or low interest to combat the Covid-19 pandemic, it suggested.
Raise health budget
The present crisis is not of the type that is generally associated with a usual business cycle or recession. Saving people from loss of lives and suffering ought to be the highest priority and economic recovery should be measured and monitored in terms of poverty, inequality and employment, said the CPD.
“Considering the present status of the health sector, the allocation for the sector should be 2% of GDP and the target should be increased to 5% in the Eighth Five Year plan,” said Fahmida.
The allocation for health as a share of the total budget fell from 5.1% in FY19 to 4.9% in the budget for FY20.
She also called for reform in implementation of the health budget. This year the government could not allocate enough for health due to the poor utilization and implementation of allocated funds in the previous budget.
Also, there were problems which crippled the health sector and people were deprived of much needed services, said Fahmida.
Khondaker Golam Moazzem, CPS Research director said prolonged health risks would prolong the problems of economic recovery.
As such, economic recovery would depend on proper policy and implementation of it.
The decision to open up economic activities without proper precautions, plans, or preparation, will have a significant cost in the loss of lives and the suffering of citizens, and the economy, CPD added.
Positive indicator in the economy
Inflationary trend has broadly remained stable as of May 2020, and stood at 5.61%. To keep it within limits, the think tank suggested an import duty waiver for essential commodities.
On the other hand, food security seems good. The outlook for Boro production seems promising even as super-cyclone Amphan hit the country.
Remittance inflow remains buoyant and during Jul-May of FY20, the growth in remittance was 8.7%.
Though the remittance inflows have been positive there is risk as a good number of migrant workers have returned home and many are likely to return in the coming days. For migrant workers, CPD suggested a stimulus package to facilitate self employment.