Published in The Business Standard on Sunday 24 May 2020
Budget 2020-21: Economic priorities not reflected in development expenditure
The Business Standard spoke to senior economists about the upcoming budget for the fiscal year 2020-21 – how our economic priorities have changed because of Covid-19, and how our expenditure priorities should change with it. Opened by The Business Standard Editor Inam Ahmed and moderated by Dr Zahid Hussain, the discussion was joined by Brac Chairman Dr Hossain Zillur Rahman, Distinguished Fellow of the Centre for Policy Dialogue (CPD) Professor Mustafizur Rahman, and Senior Research Fellow at the Bangladesh Institute of Development Studies (BIDS) Dr Nazneen Ahmed.
Inam Ahmed: Welcome to the fifth episode of The Business Standard’s videoconference. Dr Zahid Hussain is moderating this series. Today we have Dr Hossain Zillur Rahman, Dr Mustafizur Rahman, and Dr Nazneen Ahmed with us. We will discuss the expenditure side of the upcoming budget – how, where, and why these expenditures will be and the logic behind these decisions.
Now I am requesting Zahid Hussain to start the discussion.
Zahid Hussain: Thank you Inam. At first, I want to thank Dr Hossain Zillur Rahman, Dr Mustafizur Rahman, and Dr Nazneen Ahmed for giving their valuable time to this discussion. This is the third session of our discussion, which is again divided into different parts.
The topic of today’s discussion is where and how will we spend in the budget. We want to emphasise on expenditure.
At first, I thought that the necessity of revisiting the expenditure priorities of the budget are inevitable, but after reading about the ADP allocation in different newspapers, I felt there is something to be said about that.
There is no debate on the economic priorities in this different reality. But if the economic priorities have changed, how can the expenditure priorities remain the same? I want to begin the discussion from this point. Here we have to address the challenges about which Hossain Zillur Rahman, Mustafiz and Nazneen have said in different articles and talks.
The first one is the challenge of the health sector, i.e., flattening the curve. And this attempt to flatten the curve is making our poverty curve steeper. So, the challenge is flattening both curves at the same time.
How we will intervene here with both pharmaceutical and non-pharmaceutical intervention depends on where we are standing on the curve of the virus infection right now. In Bangladesh, there is a lack of information on this. And Hossain Zillur Rahman has said it many times that if there is any lack of transparency about information, it will be very hard for us to determine the tactics, both in health sector and the economy.
In Bangladesh, we have not been able to collect the necessary data for calculating the ideal index – the virus reproductivity rate. Especially, if we do not have the data about tracing, it is very hard to calculate this index.
I monitor a calculation regularly, which I want to share with you. So far, we have 70 observations about testing and information; every week I calculate the elasticity of this data as to how the number of infections increases with number of tests. I calculate it using stock data and flow data. For the last four weeks, in stock data – the daily number of total infected cases and total number of tests – the elasticity of infection in comparison to testing is 1.27. This means that if testing increases 10 percent, we see a 12.7 percent increase in the number of infections. If we calculate it using flow data, then the elasticity is 1.16, which means if the testing flow increases by 10 percent, infections increase by 11.6 percent. In both cases, elasticity is more than 1.
And I am calculating this elasticity for the last four weeks. What I observed is that the number is almost at the same level – 1.26, 1.27, 1.16 or 1.17. That means the elasticity is not decreasing. If the elasticity came down below 1, then we could understand that if we increase the number of tests a great deal, we would find fewer infections. As long as the elasticity is above 1, we will not be confirmed that we have identified all the infected cases. It is clear from this data that the number of tests is inadequate. Testing must be increased on a massive scale. Then we will understand if we are able to bring any kind of changes in terms of flattening the curve. So, my conclusion is we have not achieved any success in flattening the curve. In this situation, we are going to prepare a budget where we have to emphasise flattening the poverty curve or flattening the unemployment curve.
Now, the question is, on which sectors we have to emphasise in the budget – high priority on the health sector, on social protection, food security, agriculture, or SMEs? Because we cannot expect much from international business dependent economy in this situation at this moment, so we our growth will come from businesses based on the local market. The education sector is also getting high priority. But we have not seen any reflection of these priorities in the information concerning the budget, especially in the ADP.
I want to begin with Mustafizur Rahman because they have submitted a detailed budget proposal on behalf of the Centre for Policy Dialogue (CPD). What I want to know from him is how do we explain that the reality is being acknowledged rhetorically by the civil society, experts and the government, but it is not being reflected in any action. What is the explanation for this? And the advices that you have given, what do we have to do to reflect that in the budget?
Mustafizur Rahman: Thank you Zahid bhai. You depict the reality beautifully. And the elasticity rate that you presented is a matter of fear for us. This has created a perspective for how we should perceive the next budget.
You have asked why our understanding of this reality is not being reflected in the budget.
Covid-19 has brought us towards a new reality where we have to rethink our priorities, but the fact is we are not being able to come out of our stereotypes. We say that we have to allocate more in the health sector, to the social safety programmes, etc., and then stop thinking. But as you have said that we have to flatten both the virus and the poverty curves. So, from this perspective, we had a chance to change the philosophy of our budget. For many years, we have not been able to go beyond this stereotype budget. This year we had a chance to focus on the economy that we need in our future.
In the first eight months of the current budget, 38 percent was realised. According to data by the Ministry of Finance, we see that the number is 30 percent. I think the next year’s budget should be prepared in coordination with the current budget because we will have a big amount of money left from this budget as they have been unused in the fourth quarter.
I want to begin from here, with that unused money. We generally have three kinds of projects: current projects, projects which will end this year and new projects. Generally, we have very few new projects in our budget. Most of them are current projects and the projects that will end. As a result, we do not have any chance to play around with these. So, we have to focus on new projects. And also, we have to allocate enough money for the projects which will end.
I want to divide the current projects into two parts. We have around 1,150 projects – around 85 percent of total projects – being financed by our own funds. It could be hard to renegotiate the projects which are financed with foreign money, but defer projects financed by ourselves and those with low implementation. From CPD, we proposed that we can audit the projects with less than 30 percent implementation and identify those which we can suspend. From there, we have to allocate in the sectors that need to be prioritised, like health, social safety, agriculture, etc.
To implement new projects, the target of the annual development plans should be how we can use the private sector. Because in terms of our economy, our budget is below 20 percent, the other 80 percent is private sector.
We should also focus on the projects with high labour density, because many people have lost their jobs to the pandemic. We need Padma Bridge and the Metro Rail project. But if we can allocate money to some other projects with high labour density, it will be helpful.
I will conclude for the moment by answering your last question, that is, the weakness that we have in implementing our understanding of the reality – things that cost Tk1 end up taking Tk3 or one-year long projects run for several years. Here we can use our capacity of social auditing and our non-state social actors to maintain the authentic cost and duration of project implementation.
Zahid Hussain: Thank you Mustafiz. You have discussed about two very specific criteria about the prioritised expenditure of our ADP. One is the progress of our self-financed projects and if the progress is below 30 percent they could be reviewed. And the other is the projects which could be used as catalyst to finance the private sector. So, we are finding scopes for savings.
Now, Nazneen Ahmed, you have written many articles, and in one you provided some guidelines for a two-year plan. You can elaborate on the discussion of Mustafizur Rahman if you want, but I want to ask you another specific question: How much scope of savings can you identify in a non-development budget? And in which sectors?
Nazneen Ahmed: Thank you Zahid Bhai and all others who are present here. I do not want to repeat the perspective that is given by Mustafizur Rahman. I just want to add some points.
Mustafizur Rahman emphasised on our efficiency of implementation, that we should not spend Tk3 where it would be possible to do the same task for Tk1. You have asked the same question, i.e., how could savings be possible?
I will begin my discussion with a background. Our export sector is dependent on RMG. They said at the beginning of the crisis that around $3 billion of orders had been cancelled. They said the future orders would also be cancelled. So, the sector asked for help from the government to pay wages. The government gave them a stimulus package of Tk5,000 crore from which they would be able to take loans at 2 percent interest. And this money could be used to pay the wages.
At first, they said they had no order, but later they said some factories have orders so they should be given permission to be open. On April 26, some factories were reopened. Now we see that the government has increased the size of the export development fund and yesterday, there was a circular that said that the BGMEA and BTMA will be able to take extra money – which was previously $25 million, but has now increased to $30 million – to import raw materials.
On the one hand, they took loans from the Tk5,000 crore stimulus package saying they had no orders, then they said they had some orders, resulting in factories being reopened, and now almost all the factories are open. They are also getting $30 million at 2 percent interest rate.
So, the Tk5,000 crore that the government provided as stimulus package could be saved and allocated to other sectors. And in the next budget, the money could be allocated in the export development fund where 2 percent interest rate is fixed. There are at least 1,000 businessmen among 4,000 in the RMG sector who are doing their business on a large scale, and according to the conditions of the stimulus package, only industries which export 80 percent of their products will be eligible for the loans. If we summarise the story, we will see that the money that the government provided to this sector could be allocated to other sectors.
Dr Mustafiz was speaking about the private sector, that we need to diversify our export sector. But if we provide all our facilities to a certain sector – I am not against the RMG sector – all I am trying to say is that if I look at the macroeconomy and the development of other sectors and the government’s stimulus for those, we will see that there was a possibility of savings here. If they do not have any orders, then why do they need so much money to import raw materials?
We know that the stimulus the government will provide for the informal sector will not be delivered to many of them for various reasons. So, we need to ensure that this money goes to the right place. One of our economists suggests that groups could be made by credit wholesaling. I see that a project is being developed by IPDC which says that if anyone has an online platform it will be considered as formal.
What I want to say is that the government expenses in the budget should go to a maximum number of people. We have to think innovatively about the development and non-development expenditures how we can reach more people and how we can give priority to the other sectors, not any particular sector like RMG.
Zahid Hussain: Thank you Nazneen Ahmed. You have presented an important fact. And that made it easy for me to go to Hossain Zillur Rahman. We have read a beautiful piece of writing in The Daily Star where he has made a new coinage – power of voice muscle. They garment industry has the muscle of the voice. So, if you can explain the role of the muscle of the voice in terms of disconnection between our words and deeds. And you can also add your comment on the priorities that was discussed by Nazneen and Mustafiz.
Hossain Zillur Rahman: Thank you. Mustafiz and Nazneen discussed the problems very clearly. Here I want to make another coinage. A syndrome I have observed which I will call ostrich syndrome. We have been witnessing a global pandemic Covid-19 but if you look at the discussion about our health sector you will not understand that it is a severe problem. It will seem like a mild problem. So, we have been approaching to the budget making process with two self-contradictory syndromes. One is ostrich syndrome that we have put our head beneath the sand and pretending to not see anything. At least we have to identify the syndrome and talk about it. The other syndrome is the voice muscle.
On the one hand the government is like the ostrich, pretending to not seeing anything, not hearing any good advices; on the other hand, they are ready to hear the proposals for some selfish advices. Nazneen has given clear example of this that the garment owners take stimulus package saying there is no order and also take extra money later to import raw materials. Here you will find the total aspects of voice muscle.
The government has failed to meet the challenge of proposing a budget beyond its stereotype ideas. We also have a limitation in budget overview. We also go beyond our limitation. We need to have clear idea about what is the type of our policy audience. In East Asia you will find a policy audience who are uninformed but interested to be informed. There is a big demand for expert advisers. Because they want to know. What their civil rights issues are is a different thing, but they have a demand for expert opinion. Here, we need to understand the nature of the policy audience.
We do not have an uninformed policy audience – we have an uninterested policy audience. There is a difference between the two. You can try to give good advices to an uninformed policy audience that can be helpful. But if you give advice to an uninterested policy audience you will be frustrated. We need to change the type of our budget overview. For the last ten years I have seen that the budget document is divided into two parts. One is the part of the economy where the allocations are mentioned, and the other part is the part of the literature where we see the visions, goals, quotations from Shakespeare and many others. We need to confront the literature part head on. Of course, we have to talk about the economic part. But we need to confront the literature part. It is a time, the moment of the budget discussion of corona period is not an opportunity merely to rearrange the budget priorities, it is a moment to rethink the economic strategy for Bangladesh.
Hossain Zillur Rahman: You can highlight some points in budget literature. One, why is an overall rethinking of public health is necessary after Covid-19 experience? Allocations and other things come with it. Health rethinking is very necessary in development strategy rethinking. The concept of health should not be restricted to healthcare in our mind. Healthcare and public health together constitute health sector. Sometime we think that health sector is only the budget of the health ministry. But public health is absolutely critical like cleanliness, hygiene etc. Hygiene is particularly important. We need to add this concept in the budget literature.
The second one is our thinking about poverty. This also needs overall rethinking. We were in a satisfactory zone thinking that our people are getting out of poverty line. Covid-19 has taught us forcefully that we should not only think about the people who are below the poverty line, but also about a part of those who are above the line. BPRC and BIGD conducted a survey on April, the full report of which will be published on the day after tomorrow. Our ministers and many others think that our poverty population has gone below 20 percent so in near future there will be no poverty in Bangladesh. But in this survey, we see that we have to include more 20 to 25 percent people with the existing poor. So, we are talking about 45 percent of the population. The World Bank has shown it with a much bigger number of the vulnerable non-poor. This reality of the poverty must be included in the budget literature. Because if it is true, we have to think about allocation differently.
Third, there is a conception that – especially some people of the political orientation have made this conception – RMG is the lifeline of our economy. We need a full audit about this. If we can achieve 2-3 percent growth that is predicted by the World Bank it will be achieved because of our domestic economy, from the informal sector. They are contributing 3 to 4 percent of our growth. So, we need to be free our national psyche from the psychological domination of the RMG sector.
And finally, I will say about the topic of last mile delivery. We have heard about corruption in relief distribution. Now there is corruption in cash distribution. We can see names of around 200 people against one mobile number. So, the last mile delivery must be central part of our budget literature.
Inam Ahmed: You spoke about the survey which will be launched the day after tomorrow. Has it included the matter of corruption in delivery?
Hossain Zillur Rahman: Our surveys started in April when this relief delivery was not started. We will conduct the second survey on the second week of May which will focus on this.
Zahid Hussain: Before I move to my third question, I want to ask you a follow up question. I am completely agreed with you that the concept that RMG is the lifeline of our economy is a complete myth. It is almost like we need ventilator for ventilator, if RMG was ventilator why it needs help from us in this critical moment. They are supposed to provide us the life support if they are the lifeline of the economy. And the calculation of 20 percent poverty is just an estimate. The data based on survey said that it is 24 percent. I think we will find a real scenario in the survey of BPRC and BIGD.
So, what I want to ask that you said about ostrich syndrome and voice muscle, I think to reach your voice to the ostrich you need voice muscle. To do this you need to pull the head from the sand. Now we have to understand the law of voice muscle. What is the basis of the voice muscle? One is economy, big bank balance, monetary power; the other is we have Awami League, BNP- which are the real muscle power; and the third is knowledge which is based on science and data… the power of knowledge is based on the evidence of data. Here is the role of economists like you all. I have no answer of this that’s why I am pressing and Nazneen and Mustafiz you are free to come in- how can we bind this voice muscle based on knowledge?
Hossain Zillur Rahman: It is a tough question. I can venture an initial answer on this. Voice muscle is absolutely necessary. But I can see, and I am self-critical here, that in Bangladesh the economists’ community or development practitioners or the NGOs, though the NGOs do not want to focus on voice, here I feel that there are several parts of voice muscle. One is the capacity to challenge the official narrative with real time data. This is very important. I have not been out of home amid the lockdown. I just go to the upstairs for exercise. Initially we thought it will not take so long. We will get back to normal early. But now organisation like us is overworked and the telecom innovation has allowed us to generate real time data. I think if you want to create voice muscle based on knowledge you need real time data. You can challenge the dominant narrative with this real time data.
Secondly, the discourse spaces, like these discourses activate around some moments, like what we are doing right now surrounding the budget. The boundary is created by the uninterested audience. Here is a challenge for us how to create new boundaries. I have seen that our economist colleagues try to give good advice to the government and then getting frustrated that nobody is hearing anything. But in a sense, we need to rethink. We need to understand the difference between the uninterested and the uninformed policymakers. Flooding the uninterested policymakers with tons of information doesn’t make sense.
So I conclude that real time data can make us strong like the poverty data that we have we can now press a good challenge that if you only talk about the 20 percent below the poverty line we can say that there are 25 percent more above the line and if you do not count them it will be a total failure.
Nazneen Ahmed: I will say that already if there was anything to worry or discuss anything about the rise of inequality and the household income expenditure survey data says that the top five percent of the country have 28 percent earning and 50 percent of the population has 20 percent.
Hossain Zillur Rahman: What Nazneen said is absolutely true. The thinking of development discourse has already been started based on inequality. But I found a very interesting response from the uninterested policy makers. They sometimes notice these sorts of discussions. And suddenly I found that all of them have become Kuznet expert. They never read any book on economics but have become Kuznet expert. And they said I understand that the inequality has risen but famous economist Simon Kuznet said that in the first stages it rises, so we have to consider this. So, we have to be aware of this sort of responses.
Mustafizur Rahman: The last point that Zillur bhai made is very important. Kuznet made his theory many years earlier and after the economics have changed a great deal. But later economists like Dani Rodrik have shown that the countries that start with lower inequality they achieve growth at a faster pace. The U-shaped theory of previous time has proved wrong. Zillur bhai said that voice muscle is very important for non-state actors but the original sin is the way we organized our political construct. And how we should raise our voice in that sphere is very important. This sort of discussions should be happened in the parliament that how we will think differently etc. But that scope is very limited.
We have not included shock absorb capacity in our discussion on the narrative of our economy. We tried to say it before in a limited sense but it has come back louder amid the Covid-19 crisis. So, we need to rethink the shock absorb capacity. Third, I want to say about the RMG myth. The workers and specially women workers who are contributing on this sector is another very important part of that narrative. So, we also need to include the contribution that it made in women empowerment not only in the export earnings to this narrative. In the last 30 years around 60-70 lakh people worked in this sector. So, their contribution is also a big factor.
Zillur bhai said about the rearrangement of the discourse. We had a big chance to bring forth the debate of universal health care. Covid-19 showed us that how vulnerable the general people us, so we need to ensure universal healthcare for all. Then how can we provide universal healthcare? And we have to see that if there is any first step of that in this year’s budget. And we can push the discourse with this.
Nazneen Ahmed: Zillur bhai talked about changing the framework of our thinking. I think we have a fear for alternative thinking because we think that we have done a miracle achieving such economic growth in the previous years. In the budget discussion we focus on one year, besides this, if we could extend our focus for the next two years, for a long-term perspective, that Covid-19 has taught us to think differently. In a drastic change there is a tightness of doing things… so if we could include the next two or three years into our thinking it would be helpful.
Another thing, of course, the RMG sector has a great contribution in the economy, especially in women empowerment. But in the beginning of this crisis we see that these workers could not get the security of their wages. And what happened, the government gave the stimulus package but then the owners decided that the workers will not get only 60 percent of their April salaries. And this raises the question that why will this vulnerability still remains in this sector? Here comes the question of the muscle power that of whose muscle power we are talking about?
We can talk about the voice muscle of people like us, the non-partisans, but the voices of those workers are not being raised as it should be. As a result, even if the government wants to help the workers, some people capture all the benefits. I think a lot more people could be helped with this money.
Zahid Hussain: I want to clarify that Nazneen or Zillur bhai is not disclaiming the contribution of RMG sector in the economy or in employment. But the fact is some big fishes of this sector are taking advantages from the government by taking hostage these workers. It is a kind of blackmailing; I do not find any difference.
Now I will come to my last question which I will start with Mustafiz. I think in this budget we need to focus on use rather than on the size. We always have an obsession on the size that the size of the revenue, growth and ADP should be big. But where this size should be bigger it is not happening. Like the allocation of health sector that is mentioned in the ADP is actually less than the previous year.
Now my question is how will we ensure the right size and use sector-wise? And please start with health sector and social protection.
Mustafizur Rahman: Thank you Zahid bhai. I know the sentiment that Nazneen and Zillur bhai talked about the myth of RMG sector, of course, I agree with them.
Now come to your last question. As a country we have a better infrastructure than many other countries. Using these infrastructures in the upazila or thana level we could reshuffle our health sector amid the Covid-19 crisis. It was also a possibility to introduce universal health care. It is not possible in one year but we could start it probably focusing on the next five years in the eighth five years plan of which it is the first budget.
I want to review this budget with three audits- health audit, poverty audit, employment audit. These three will help the people who are the sufferers of this crisis. If I keep this in head, say, how should we consider the labour displacing technologies in this budget? Should we try to discourage this technology on the ground of taxation so that we could incentivize the labour-intensive sectors.
Another thing is standard implementation of projects which we lack severely. It is like a cancer. We have shown in different projects with analysis why project expenditure in Bangladesh is highest in the world. When we say that here per kilometre cost is more than that in the European Union, they oppose us instantly saying it is a riverine country and we need to make many culverts and so on and so on. If I count these expenditures, still the cost is very high. So, in this aspect we need to raise our voice that how the implementation could be done with a minimum cost along with good governance and maintaining the standards. Here this social audit and continuous participations of citizens could be applied. It could be in the framework of the government or it could be independent.
The other thing is there will be a question of financing this year. The reality is this year the revenue collection will be less… we have to negotiate how we can use the foreign aids. But to do that we have to spend the money accordingly. Recently the Economist said that we are at number nine… we have to remember that our cost of borrowing is increasing. As we are a middle-income country, we have to take foreign loans at two to three-fold rate. So, we have to keep in mind that we have to implement the projects financed by foreign loans, otherwise we could fall in a death trap. We have to have a new perspective considering this for the budget.
Zahid Hussain: Nazneen I want to know the role of your organisation?
Nazneen Ahmed: When anybody involves us to do this kind of work, sometimes we involve on our own.
I want to add a little point with Mustafizur Rahman about the implementation of the budget. I agree with him that we have many infrastructures in health and education. We have talked much about their quality. And the government shows that if you have good will you can take some quick decision like in the harvest time of boro rice in the haor areas and other areas. There could be some mismatch, but I can say that we are successful here. I think in the next budget we have to emphasis on the supply chain of agriculture. We should also have support for agricultural technologies though it could impact on the employment of labour in this sector. And we all know that in the international market the price of oil is very low, and our petroleum company has big loans in public banks, I just want to say that if they could pay back their loans and government could borrow from them it could be important. Because domestic borrowing can be expensive than foreign borrowing, but it saves time. So, it is necessary to get the loans back from BPC. And our quick rental power plants can import oil directly. So, the production cost of their electricity will be less this year. We can also use this saved money in our budget.
Zahid Hussain: Zillur, we will end our session with your answer.
Hossain Zillur Rahman: We have been working on the health sector for the last four or five years. From that, I got some idea about the sector. It is true that we have some infrastructure in the health sector. This government sometimes talks about community clinics with pride, but I have not heard the word community clinic through the entire period of Covid-19 so far. There are infrastructures, but what role they are playing is debatable.
Though our policy makers are uninterested, we have some opportunities to put some pressure. One big sector is urban health, particularly urban primary healthcare. This a very important area where we need a breakthrough. The second big issue is that of public health – particularly, waste management. I said before that by health we must understand healthcare and public health. We have said this many times, but there has been no allocation for public health. If the local government, especially the municipalities get some allocation, it would go a long way. We have an easy chance here. I will end with three or four more points.
First is social protection. Covid-19 has made urban social protection a policy agenda, which it was not before. We have now a window to offer our advice on how to shape this. How can we arrange this including listing and all that?
The other thing is that there are some existing platforms which we have to use properly. For example, around 78 lakh primary students get stipends. They get Tk100 per month. We worked with Unicef 4-5 years earlier and found that this Tk100 was fixed in 2004. If it could be increased to Tk200-300, and this money goes through banks so there is no scope of corruption, you have a platform there.
Another interesting window has opened in the form of school meal programmes. This project is being experimented in the southern areas of the country. We have created a policy paper for school meal programmes, which is a very important new vehicle. What I want to say is that there are some points in the policymaking process where some pressure could be useful. We need to use those opportunities.
Zahid Hussain: Thank you everyone. You have discussed some important issues. One is real time data-based challenges of the current narrative, and I will expect researchers like you – Nazneen, Mustafiz and Zillur – will continue your efforts in that challenge. Mustafiz spoke about social audit, which is very important. How will we make the uninterested policymakers interested in social audit? We have to think about it.
Inam Ahmed: Thank you all for giving us your valuable time. We will invite you again in the future for this kind of discussions. Thank you.