The Centre for Policy Dialogue (CPD) on Saturday recommended allocating 2% of GDP for the health sector in the upcoming budget for the fiscal year 2020-21 to fight the Covid-19 impact on the country's health sector.
The think-tank also urged the government to cut down on unnecessary expenditure and actively seek budgetary support from potential external sources as such funds could allow for more flexibility in mobilizing resources to combat the economic fallout of Covid-19.
CPD executive director Fahmida Khatun made the proposal while addressing a virtual media briefing, titled “CPD’s Recommendations for the National Budget FY21”.
Considering the present status of Covid-19, the CDP put emphasis on the health sector, agriculture, employment and social safety net in its proposal.
“Budget allocation for the health sector is lower than its demand and is 0.9% of GDP. What kind of health service can we expect from this allocation in a country of 160 million people?” Fahmida asked.
Bangladesh's individual healthcare expenditure is the highest in South Asia, where people spend 70% on health from their own resources.
"The outbreak of Covid-19 is a lesson for us, which has made it clear how much strength we have to tackle the crisis. So the allocation for the health sector must increase and should be 2% of our GDP," she said.
On top of that, Bangladesh needs to improve infrastructure and train more human resources, while the management system should also be reconstructed, said the economist.
The scale of the pandemic proved that there was no way to contain the spread of Covid-19 without the necessary investment in the health sector, said the CPD report.
It also suggested necessary fund allocation towards the establishment of emergency facilities and procurement of health-related equipment.
Revenue mobilization
In generating better revenue, the fiscal framework for FY2020-21 will need to break free of the traditional mould due to the pandemic.
The National Board of Revenue (NBR) must be restrained from all ad hoc provisions of tax incentives and will need to be selective in the next fiscal year as more demand for incentives will be lined up, said the CPD.
In addition, the corporate tax rate should be unchanged in view of the fact that a number of measures had already been taken in support of large entrepreneurs, it said, adding that all types of tax evasions and illicit financial flows (IFF) would need to be curbed with a strong hand.
The planned procurement and installation of EFD and SDC devices by NBR must be accelerated in order to ensure effective implementation of the new VAT law and to augment additional revenue at a time of resource constraints, it said.
It also suggested raising the tax-free income threshold from Tk2.5 lakh to Tk3.5 lakh for FY21.
The CPD would like to reiterate its earlier proposals urging the NBR to initiate wealth and property taxes in Bangladesh.
Keeping food prices low to ensure food security for low-income people, the CPD suggested a reduction of import related tariffs such as AIT and VAT on essential food, including onions, lentils, garlic, ginger and soybean oil.
Budget deficit
In view of the favourable debt situation and the need for increased public expenditure to combat COVID-19, there is a possibility of the budget deficit being increased beyond the traditional cap of 5% of GDP.
To mitigate the losses incurred by individuals, enterprises and entrepreneurs, the government had to go for large amounts of unforeseen expenditures. These include stimulus packages for export-oriented and domestic market-oriented enterprises and the agriculture sector, mostly in the form of subsidised credit and expansion of safety net programmes for vulnerable groups, the think-tank explained.
“It is critically important to give heightened attention to seeking and utilizing new funding opportunities available from external sources. It is particularly those from multilateral and bilateral sources which must be mobilized to combat the Covid-19 pandemic,” said Towfiqul Islam Khan, senior research fellow at CPD.
Mobilization of idle funds lying with state owned entities could be accelerated to finance the increased deficit in view of the added expenditure required to tackle the ongoing pandemic, he added.
Public expenditure
To reduce public expenditure pressure, the government needs to identify non-development expenditure which may be deferred. Some of these are expenditures on foreign travel, acquisition of assets, investment in shares and equities, recapitalization of state-owned enterprises. These should be de-prioritized, the CPD suggested.
In addition, in selecting projects and completing the ongoing ones the government has to be more careful, while the Annual Development Programme for FY21 should be designed with due caution to ensure adequate and priority allocation for the health, agriculture, social protection and labour and employment sectors to respond to the ongoing Covid-19 pandemic.
Additionally, efficient utilization of the allocated funds needs to be ensured so that no major revisions are required towards the end of the fiscal year.
Social safety net
Although the social safety net budget excluding pension increased, it is much lower than the target of 2.3% of the GDP outlined in the Seventh Five Year Plan. The government should allocate at least 3% of GDP for safety net, CPD suggested.
Government should take support of NGOs and local level social organizations in identifying, selecting and distributing the support, and address ‘inclusion’ and ‘exclusion’ bias in the selection process.
Agriculture sector
The agriculture sector should get special priority in the national budget for FY2021 as it will create employment opportunities for people who are likely to lose jobs and livelihood opportunities in urban and informal sectors and for migrant workers who have been forced to return home.
Given the demand for additional funds, particularly for implementing important priority projects associated with providing food security and creating employment opportunities, the allocation for the agriculture sector needs to be raised at least 3% of total budget in FY2021.
