As the COVID-19 pandemic rages on, Bangladesh is in a risky position to ensure the economic growth achieved in the last decade is sustained throughout FY 2021-22 and beyond. Among other economic challenges, the pandemic has posed an additional threat to the growth potential of the country and the budget needs to reflect the government’s initiatives that are poised to tackle these challenges.
The Health-Humanitarian-Economic risks originating from the ongoing pandemic make FY 2021-22 budget a budget with a difference. Hence, the budget for FY22 has to be looked at not only through the economic lens, but also health, humanitarian and social lens. In other words, the next budget needs to be virus-centric.
Centre for Policy Dialogue (CPD’s) report on budget recommendations reiterated the need for an expansionary macroeconomic stance in the budget for 2021-22, accommodating the required additional public spending.
SPENDING MORE WITH LESS TAXES
Most countries are following an expansionary fiscal stance and the Bangladesh government is no different. The government is expected to place a Tk. 6.0 trillion national budget for the fiscal year (FY 2021-22) in parliament on June 3. In the original budget for the current financial year, the National Board of Revenues (NBR) revenue target was set at Tk3.3 trillion, which was 10.4% of the GDP.
A mass vaccination for protection against COVID-19 infection will be a major focus of the Tk 602,880 crore budget themed as ‘Priority on lives and livelihoods, tomorrow’s Bangladesh.’ The upcoming national budget for fiscal 2021-22 will be focused on saving lives while creating more opportunities for livelihoods to cope with the fallout caused by the pandemic.
Keeping mass vaccination in mind, the revenue target for the next fiscal has been set at Tk 389,078 crore, which is 11.02% of the GDP, according to the finance ministry and National Board of Revenue (NBR) sources. For the first time, the revenue target of NBR is not going to rise in the new budget as compared to the original budget for the outgoing fiscal. However it is suspected that the non-tax revenue target is going to increase in the budget for the next financial year. The finance ministry hopes to raise extra funds from the savings of the autonomous corporations and the recent auctions of 2G and 4G spectrums. In addition, there will be initiatives to boost the morale of general citizens by increasing money flow.
Moreover, the country is expected to receive a record amount of foreign aid as the development partners are chipping in liberally to help Bangladesh weather the pandemic gale. And at home, banks are sitting on excess liquidity and nowhere to lend given the shaky state of the economy.
The government is hoping to use a record amount of Tk 115,000 crore (about $13 billion) in foreign funding in fiscal 2021-22, up 35.4 percent year-on-year, according to the information finance ministry. While the World Bank, the Asian Development Bank and other development partners have expressed their intent to provide budget support to the Bangladesh economy to better manage the pandemic whirlwind, at present, about $50.4 billion of foreign aid is present in the pipeline.
In an interview with TBS, Zahid Hussain has described deficit financing as not an issue for Bangladesh, adding, “Banks have excess liquidity. The government’s debt-to-GDP ratio is very low. The government has the opportunity to borrow from domestic sources as well as those outside the country. If good programmes can be formulated, there is a possibility of getting help from foreign agencies.”
At the same time, the government has approved the Annual Development Programme (ADP) involving Tk 225,324 crore for 1,426 projects for the 2021-22 fiscal year with focus on transport and communications, power, housing, education and health sectors. Besides, Tk 11,469 crore was allocated for autonomous entities. ADP spending in the current financial year is not satisfactory. For the 2020-21 financial year, the government had authorized ADP to the tune of Tk 2.05 trillion but it was revised down to Tk 1.97 trillion.
The allocation is also 6.5% of the GDP, and more than the target in the Eighth Five Year Plan.
PLEASE SIR, MAY I HAVE SOME MORE?
In the proposed budget the deficit will be Tk 213,802 crore which will be 6.1% of the GDP. The deficit will mainly be filled from the banking sector as there is sufficient liquidity in the sector. The government has targeted to borrow some Tk 100,000 crore from there while Tk 30,000 will come from savings certificates and rest of the money will come from foreign grants and loans. However, this means that the government will be considering increasing interest rates of savings certificates to attract more investment.
As of September last year, the total stock of domestic loans stood at Tk 540,935 crore — and 58 percent of the sum is attributed to the high interest-bearing national savings certificates. The government is offering about 11.3 percent interest on an average on the savings instruments, whereas most of the banks are collecting deposits at 4 percent interest at most.
At the granular level, the higher interest payments mean the government has less to spend on important areas such as infrastructure, health and education systems, and social protection.
Inflation rate for the next fiscal year would be the same as this year, 5.3%, even though the 12-month average inflation at the end of February stood at 5.6% due to a surge in rice prices, as the government is expecting a good production of food in the country like the previous year. This has also been helped by the belief that the price of fuel oil in the international market may remain within $60-85 per barrel.
In the next budget, the government will create a fund styled “Vaccine Support Fund”, for which the government is expecting to receive $2 billion or about Tk17,000 crore in loan assistance from foreign sources in addition to the budget allocation.
Amid the coronavirus crisis, the government has been working according to what it believes to be ‘a comprehensive plan’ with four main strategies. The four-pronged strategy entails discouraging luxury expenditures, prioritizing government spending that creates jobs, creating loan facilities through commercial banks at subsidized interest rates for the affected industries and businesses, and finally expanding the coverage of the government’s social safety net programmes.
The Virus willing, Bangladesh’s Gross Domestic Product (GDP) will increase by 3.6% in 2020-2021 fiscal year, due to better than expected remittance inflows as forecasted by the World Bank. Hence expanding economic operations and growth, not having an obsessed mindset on growth, rolling out social safety net schemes for the urban poor, boosting business confidence through necessary measures, increasing budget implementation and ensuring some visible reforms should be the primary focus for the next budget.