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Redefining goals of the upcoming budget – Fahmida Khatun

Published in The Daily Star on Monday, 13 April 2015.

MACRO MIRROR
Redefining goals of the upcoming budget

Dr Fahmida Khatun

fahmida-khatun-column-feat3THIS is the time of the year that draws the attention of most people on economic and financial matters. The Finance Ministry and the National Board of Revenue are busy doing their math on annual income and expenditures for preparing the budget of FY2015-16. They are also engaged in organising consultations with professional groups, the business community and other stakeholders to discuss recommendations while professional bodies, economists, the private sector and non-government organisations actively make suggestions on the upcoming budget. It is encouraging to note that more and more organisations, associations, groups and individuals are taking interest in making their points on a subject which was typically an issue mainly of the government and the business sector in the past.

Most people are of course interested in the issue of taxation since it directly affects their income, purchasing power and lifestyle. How much tax they have to pay to the government, which items will be dearer due to the imposition of higher and new taxes, and how they have to adjust their expenditure patterns are issues that common people are concerned about prior to the budget announcement. Tax is also the most important agenda of the business community as they want to remain competitive both in the domestic and global markets.

Budget, however, is not only about collecting taxes from various sources and utilising those resources for economic activities. National budget also reflects the vision of a government for sustained economic growth to be attained through budgetary allocations and policy incentives. In the recent past, along with short term objectives, budget documents also included a number of medium and long term objectives such as securing and sustaining growth of gross domestic product, achieving self-sufficiency in food production, reducing poverty, generating employment and so on. Usually, these objectives are spelt out in line with the election manifesto of the ruling party. The challenge, however, is to support these objectives through sufficient allocation and efficient implementation.

Since resources are limited, priorities have to compete with each other. As a result, many issues do not receive adequate importance in the budget. Moreover, issues for which there are no strong lobbies tend to lose sight of budgetary allocation. While voices are always raised on issues such as maintaining macroeconomic balance, keeping budget deficit low, boosting investment, reducing tax for the business sector and special support for specific sectors and areas such as human development, social protection, environment and climate change do not feature as strongly in their agenda. This column picks up the subject of social protection in the budget, an area that comes as an add-on rather than a mainstream issue in the policy discourse. Of course, the recent initiative of the government to launch a National Social Security Strategy (NSSS) in FY2015-16 that intends to tackle poverty and inequality is a noteworthy step. It aims to bring 3.57 crores of the poorest and most vulnerable of the population under a social safety net.

However, resources for social safety programmes (SSNP) have always been far below the requirement. During FY2014-15 allocation for SSNPs, that includes social protection and social empowerment programmes, was 2.3% of GDP. Therefore, the ambition of the Sixth Five Year Plan that intended to increase public expenditures on SSNPs to 3% of GDP in FY2014-15 remained unfulfilled. Allocation for SSNPs in Bangladesh is much lower than the South Asian average of 4% of GDP. East Asia and Pacific countries spend about 8% of GDP on SSNPs while the European countries make an expenditure equivalent to 20% of their GDP on social protection. Though the allocation for SSNPs has almost been doubled since FY2009-10, the share of this allocation in total budget has declined from 15.1% in FY2009-10 to 12.3% in FY2014-15.

The other aspect of SSNPs is the distribution and utilisation of resources. Access to SSNPs by the extreme poor is limited. Apart from the targeting problem, leakage of resources in these programmes reduces the efficiency of SSNPs. Considering the requirement of the poor, the upcoming budget should increase allocation for various programmes.  However, we ought to be mindful of the fact that the nature and extent of poverty among the poorest of the poor are different from those who are ‘poor’ with the consumption threshold of <=2122 kilocalorie per person per day. Therefore, separate and targeted porgrammes and allocation are needed for the ‘ultra poor’, who are the most vulnerable section of the population, with a threshold of only <=1600 kilocalorie per person per day. Without uplifting these people from their poverty trap, poverty reduction strategies will remain incomplete.

The efficiency of resources allocated for SSNPs could be improved through harmonising programmes. At present there is more than one programme in each category of SSNPs that deal with the same types of projects, target areas and groups. Similar programmes can be consolidated and merged to reduce administrative leakages, duplication, pilferage and spill over transfers to the beneficiaries. The selection processes of the target group could also be improved through a participatory process where the local community can be involved in selecting poor participants in the SSNPs since the number of potential participants is large in a country like Bangladesh.

The most important objective of SSNPs should be to empower the poor by creating employment opportunities for them. The Employment Generation Programme for the Poorest (EGPP) that aims to enhance income of the poorest section through short-term employment generation during lean periods and develop small scale rural infrastructure has been very useful for the poorest section such as the unemployed, seasonally unemployed and marginal farmers. Programmes such as EGPP should be expanded through higher budgetary allocation. EGPP should also have a legal basis similar to that of the National Rural Employment Guarantee Act of India so that the poorest have a guarantee for employment.

The underlying philosophy of SSNPs should be meeting the right of the poor.  These are not ‘relief’ programmes for the poor, but their ‘right’. A modern democratic government will have the moral obligation to fulfill this right in order to make development long-lasting. As we are in the process of finalising another budget for a new fiscal year, both allocations and programmes for SSNPs should be guided by the broader objective of making development sustainable through empowering the poorest of the poor.

The writer is Research Director at CPD, currently a Visiting Scholar at the Earth Institute, Columbia University, New York.

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