Bangladesh budget leaves some key areas obscure. Health is just one

Clarity is the key to budgeting. And the need for it is deeply felt at a time when the pandemic makes the future terribly uncertain, with coronavirus cases and deaths relentlessly plotting an upward curve. The arrival of new virus variants adds to the worry.

The budget laid down by Finance Minister AHM Mustafa Kamal on Thursday was short on specifics, especially in his health budget plan, failing to light up the road to the future.

In his budget speech, Kamal mentioned that the government devised plans to vaccinate 80 percent of the people in phases. In the first phase, people with risks will be inoculated, and 2.5 million vaccines will be given a month. That’s his optimistic pledge to ride out pandemic gloom. But he was quiet on how the colossal task would be executed in a country where vaccination ground to a halt due to a supply squeeze.

Critics seized on it.

“I was hoping the government would give us an outline on how it would vaccinate 120 million people,” said Ahsan H Mansur, executive director of the Policy Research Institute. “It is a massive undertaking. Not having a plan is unacceptable. We can’t just sit on the money.”

‘WHERE IS THE COVID FOCUS?’

Instead of setting aside funds for the vaccines, Kamal is banking on loans from regional lenders for the procurement of the doses. “The health sector has been given the highest priority to address the impact of the COVID-19 pandemic, and necessary allocations have been made in the next budget," he said.

Prime Minister Sheikh Hasina and Finance Minister AHM Mustafa Kamal enter the parliament building to present the budget for the 2021-22 fiscal year on Thursday, Jun 3, 2021. Photo: PMO

But the allocation for the sector is 5.4 percent of the total outlay, less than 6.2 percent for even the defence sector, which has frustrated many like Dr Rashid-E-Mahbub, chairman of the National Committee on Health Rights Movement.

Although the latest health budget is higher than the revised outlay of Tk 314.72 billion in FY21, he fears that inflation will diminish the impact of the extra funds. “From another perspective, the budget allocation for health is not even 1 percent of the GDP.”

A former president of Bangladesh Medical Association, Mahbub believes the current structure of the health sector is 'outdated' and needs to be reformed.

“The health sector needs to be revamped but it hasn't happened yet. There is a bulk allocation of Tk 100 billion, with which vaccines can be purchased and other works can be done. But in the general sense, there is no allocation in that budget for health management.”

Prof Syed Abdul Hamid of Dhaka University's Institute of Health Economics said the coronavirus pandemic provided a chance to make necessary changes in the health sector but the proposed budget represented a “missed opportunity”.

The money set aside for the outgoing fiscal year had hardly any “visible effect” on the pandemic situation because it lacked precise planning, according to Ahsan H Mansur.

“What was the result of those funds? You can’t just buy vaccines with money. You need to have a plan you can execute.”

The economist said the only way to overcome the pandemic was with a coordinated national plan for a mass vaccination campaign.

There isn’t such a plan in the proposed budget, he said.

“The thing that is missing is, No. 1, what is our plan to tackle COVID? Do we actually have a plan? Do you know what it is?”

CAN EDUCATION BE PULLED OUT OF CRISIS?

And there is no specific guideline on the allocation for education, one of the hardest-hit sectors, which needs more attention for sustainable development.

With schools and universities shut since mid-March 2020 as part of the efforts to keep coronavirus infections under control, the education sector has continued to reel from the effects of the pandemic.

The disruption led to calls for greater attention to the education sector but the proposed allocation for the education and technology sectors combined has increased by only 0.6 percentage points in proportion to the size of the total budget.

It is not enough to help recover the losses caused by the huge gap in study and dropouts, said Rasheda K Choudhury, executive director of Campaign for Popular Education.

The former advisor to the caretaker government believes the budget is not as friendly to the businesses as it is to the students.

BUSINESS-FRIENDLY?

Zahid Hussain, a former lead economist at World Bank’s Dhaka office, agrees that the budget is business-friendly, but not to all businesses.

In an effort to boost the ratio of private investment to GDP and ‘to pave the way for the rapid growth of trade and commerce’, Kamal proposed a reduction of tax for non-listed companies to 30 percent from 32.5 percent and the rate for listed companies to 22.5 percent from 25 percent.

“Bangladesh’s rate was not competitive internationally. The cut by 2.5 percentage points has taken it to the right track. But who will benefit from it? The big businesses who operate in the international market,” said Zahid Hussain.    

The proposed budget gives corporate tax breaks to incentivise business, but as Kamal is searching for ways to finance the outlay, he has proposed an increase in the tax rate on mobile financial services, or MFS. The tax hike would raise the rate from 32.5 percent to 35.5 percent for listed MFS companies and 40 percent for non-listed ones.

Ahsan H Mansur opposes the decision because it would hurt the poor. So does Zahid, who said it was unclear why the government would take such a decision when MFS is playing a key role in tackling the pandemic by helping people stay at home.

“Mobile banking is a way to involve the poor in the financial sector. It is a developing sector. It needs a lot of investment and it needs foreign investment,” said Mansur.

Zahid pointed out that tax exemptions for some industries, coupled with hike in duty import of products from their foreign rivals, will help them wade through the pandemic.

But Professor Selim Raihan, executive director of South Asian Network for Economic Modelling or SANEM, believes the budget needs to more focused on long-term policy change.

“Investment is a long-term issue. It does not depend only on VAT and tax. We need to fix long-term policy, but it was missing in the budget.”

WHAT ABOUT THOSE HIT HARDEST BY PANDEMIC?

Media workers leave the parliament building with documents after being denied entry to join the budget session for fiscal 2021-22 to prevent the risk of coronavirus transmission. Photo: Asif Mahmud Ove

The government has widened its social safety net programmes by increasing the budgetary allocation by 12.5 percent in the fiscal year 2021-22 as part of the efforts to alleviate the plight of lower-income and vulnerable groups which have been hit hardest by the pandemic.

Finance Minister Kamal earmarked Tk 1.1 trillion for social protection, which is 17.83 percent of the proposed budget and 3.11 percent of the GDP. It was Tk 955 billion in the current year's revised budget.

He also outlined the plan to protect the people with disabilities, third gender, senior citizens and homeless.

AB Mirza Azizul Islam, a former adviser to the caretaker government, praised the proposals to raise allocations for social protection, agriculture, and job generation. But he added, “I think the targets set in the budget are acceptable. But there is less possibility of getting the budget implemented.”

Fahmida Khatun, executive director of Centre for Policy Dialogue or CPD, also sees gaps in the plan.

“The allocation for social protection has increased slightly. But it’s not as big as it seems because it includes the pension of government employees,” she pointed out.

Selim Raihan said the budget lacks something new for those who have fallen below the poverty line due to the pandemic. He thinks there was room to announce large-scale cash and food aid.

And a lack of efforts to help the small and medium industries in the budget will hamper creation of jobs in the sector. “I haven’t seen anything to tackle the huge crisis created by COVID in the labour market,” said Raihan.

“No direction is there in the budget on how the financial assistance targeting those who lost their job during the coronavirus pandemic will be ensured, or on how employment will be generated for them,” said GM Quader, chairman of opposition the Jatiya Party.

Sayema Haque Bidisha, research director at SANEM, said there is nothing for the urban homeless in the budget while the steps taken for the SME sector are far from enough.  “There is nothing specific for the women who have been hit hard by the pandemic.”

‘NOT IMPLEMENTABLE FOR GOVERNMENT’

After missing the ambitious 8.2 percent GDP growth target set in the outgoing financial year despite the pandemic situation, Kamal has downsized the target to 7.2 percent for FY22 by increase the spending by 12 percent to more than Tk 6 trillion.

Some doubt whether the government has the ability to implement the budget.

It could spend less than one-third of the allocations for the health sector that increased after the pandemic hit Bangladesh last year.

Finance Minister AHM Mustafa Kamal delivers the budget speech for the 2021-22 fiscal year in parliament on Thursday, Jun 3, 2021. Photo: PMO

“Financing won’t be a big problem. The problem is spending the money on the right area at the right time,” said Mirza Azizul, pointing out that the local banks are eager to lend the government which will also get help from abroad.

Mirza Azizul praised the proposals made in the budget for social protection, agriculture, and job generation amid the coronavirus pandemic. “I think the targets set in the budget are acceptable. But there is less possibility of getting the budget implemented.”

Kamal is planning to rely on revenue collections to finance 65 percent of the proposed spending plan. He has set a revenue target of Tk 3.89 trillion, about an 11 percent increase over the current fiscal year.

The government is seeking to raise Tk 3.3 trillion through the National Board of Revenue, with Tk 1.28 trillion coming from value-added tax. It also plans to draw an estimated Tk 160 billion from non-NBR sources, while the non-tax revenue is estimated at Tk 430 billion.

The proposed budget runs a record deficit of Tk 2.15 trillion, or 6.2 percent of the GDP, crossing the conventional 'red line' of 5 percent gap, much of which will be offset by heavy borrowings from domestic and foreign sources. The government plans to borrow Tk 1.01 trillion from foreign sources and Tk 1.13 trillion from domestic sources to cover the shortfall.

“The estimated deficit finally decreases because spending drops along with revenue. It won’t be difficult to make up the deficit.

"We are getting enough support from foreign sources. The domestic banking sector is also interested in lending the government. It will be good for them (banks) as the private sector lending rate has been cut,” said Mirza Azizul.

“We expected some specific steps for the spending,” said Prof Raihan, who is also frustrated to see no discussion in the budget on the irregularities and lack of capability in the health sector.

Selim Raihan pointed out that the tax-to-GDP ratio targeted in the budget is the highest in Bangladesh’s history at 11.3 percent. “After reviewing the past records, it appeared unrealistic to me. It's not possible to collect so much tax in this situation.”

He also doubts whether the government will be able to borrow nearly Tk 850 million from the troubled banking sector.

He suggested reducing the salaries and allowances at the top tier of the administration, and cutting funds for unnecessary projects to reduce the spending.

Researcher Ahsan H Mansur found no concrete measures to augment tax collection.

“We aren't getting more by increasing the tax rates. We could increase the efficiency of collection."

The CPD’s Fahmida described weak assumptions and shortcomings to execute the budget as the challenges the government will face in the new financial year beginning on Jul 1. 

To achieve the growth target, more money funds to be injected. “It’s not clear how there will be growth without public and private investments.”