Originally posted in Dhaka Tribune on 10 May 2021
The impact of the second wave of the pandemic is going to be much harsher on the economy than the first wave that hit us last year
The budget for fiscal year (FY) 2022 is going to be placed by the Finance Minister in the backdrop of the second wave of the Covid-19 pandemic. Following the outbreak of the pandemic in early 2020, the country experienced economic contractionas the production and supply chains were disrupted both at the domestic and global levels.
Reduced economic activities in the face of the pandemic had led to loss of employment and income that had squeezed the aggregate demand.
The impact of the second wave of the pandemic is going to be much harsher on the economy than the first wave that hit us last year.
This is because the economy has not been able to turnaround from the fallouts of the first wave of the pandemic yet.
In this context, the upcoming budget will have to take a number of bold and prudent measures for the immediate as well as medium terms.
One may recall, before the outbreak of pandemic in Bangladesh, the economy was already exhibiting slower performance in FY20 which were reflected through downward trends in a number of key economic indicators.
Exports, imports, private investment, foreign direct investment, revenue collection, and balance of payment situation were not performing well and remained below their projection levels.
The only exception was remittances that manifested robust growth. Following the pandemic, the situation had deteriorated. All these had an impact on the overall economic performance of the country. It achieved a growth of 5.2% as opposed to the projected 8.2% in FY20.
In this context, when the budget for FY21 was formulated one expected that budget strategy and numbers would reflect the reality.
And the reality is that we are passing through unusual times with health and economic crises like no other.
So, the budget has to take that into consideration. It was expected that adequate allocations would be made for easing the stress among the people, making up the sectoral losses and revival of the economy.
This would be done within an expansionary fiscal and monetary framework so that there is enough resources to revamp the economy.
Unfortunately, the budget for FY21 could not rise to the occasion.
It was not a pandemic budget but a business-as-usual one with allocative adjustments here and there.
There was no innovation in terms of expenditure plan and sectoral shares to deal with the pandemicin a holistic manner.
Most importantly, it did not come up with a short to medium term recovery plan to build the economy back from the wreckage caused by the pandemic.
As a result, when the economy is again hit hard by the pandemic, there is no contingency plan in place to address the health and economic crisis in a coordinated and efficient way.
We had suggested for a medium-term recovery strategy for three to five years to fight back the pandemic and make a robust recovery.
Such a strategy would ensure healthcare to the Covid-affected people through establishing more hospital beds, intensive care units, testing facilities, and above all, vaccinating all.
The plan should have also included the provision for direct cash support to the poor and low-income people to have food on their plates, and interest free funds in the hands of the cottage, micro, small and medium entrepreneurs to keep them afloat.
Besides, the plan for education at all levels during the pandemic would also be an important component as the pandemic has forced educational institutions across the country to remain closed leading to a huge learning loss.
However, in the absence of such a clear roadmap, the government is now addressing the crisis in a piecemeal basis, often in a disjointed manner.
And the outcome is thus less than satisfactory. In fact, the government was stuck in the narrow objective of growth of the gross domestic product (GDP) rather than the recovery. So, in the end there was low expectation from the budget for FY21 in terms of its success in addressing the need of the hour.
But the budget for FY22 will have to take a broader approach and make economic targets more realistically.
The National Board of Revenue (NBR) and the Ministry of Finance (MoF) had done a number of consultations with various stakeholders, including the professionals.
The consultation practice is now in place for the last several years. But this is more like a routine work by the concerned authorities.
Therefore, the recommendations, which emanate from those consultations, are hardly reflected in the budget.
Many in the consultations have echoed the emphasis for a medium-term recovery strategy.
The upcoming budget will have to strike a fine balance between higher expenditure and adequate resource generation.
But allocations will have to be made in such way that the investment expenditures have employment intensity.
The government has intention for a higher public expenditure in the upcoming budget.
This is a welcome proposition.But one would like to see its implementation also. During July-March of FY21, the implementation of the Annual Development Program (ADP) has been only about 42% of the revised ADP of FY2021.
So, one can imagine what should be speed of ADP implementation in the next six months of FY 2021. This raises the issue of quality of expenditures which keeps coming again and again.
While, the government’s effort should be to increase public expenditure and expedite its implementation, financing of such expenditures will have to be designed judiciously. One of the challenges that a slowing economy faces is the shortage of resources to underwrite its expenditures.
With the slowdown of the economy, tax revenue growth also slows down unless specific targeted measures are taken to increase tax revenue.
In the current circumstances, revenue mobilization effort has faced challenges in view of domestic and global uncertainty.
The ability of businesses and individuals to pay taxes has shrunk in view of the income erosion due to the pandemic.
Therefore, the revenue target is facing pressure to fulfill its targets.
Of course, the revenue targets have always been set at a much higher level than the capacity of the NBR.
Thus, the upcoming budget will have to work on two fronts.
It has to allocate more resources for supporting the Covid-affected economy on the one hand, and mobilize adequate resources to finance those additional requirements, on the other.
While planning an expansionary fiscal framework, budget deficit is likely to increase.
In a pandemic year, the budget deficit could go higher than the usual level given the urgency to boost the aggregate demand and create jobs.
As far as resource allocation is concerned, the priority should be on five areas such as health, social protection, employment generation, human capital, and innovation and technology.However, in the end, implementation of the budget will be most important to make a strong comeback from the losses. With the current level of efficiency and capacity this is not possible. So, the upcoming budget should not also lose sight of the urgency for strengthening the institutions and undertaking reform measures.
Of course, the national budget is not the panacea to solve all the problems created by the ongoing pandemic.
But it reflects the policy directions and indicates the priorities of the government which are generally in line with the political mandate of an elected government. So, it is an important tool for driving the economy.
The FY22 budget should thus aim towards reducing the wounds of the pandemic, recovering the losses and moving forward in a resilient and sustainable manner.
The author is the executive director at the Centre for Policy Dialogue (CPD)