CPD projects 2.5% economic growth in FY20 amid pandemic

The Centre for Policy Dialogue has projected a GDP growth of 2.5 percent at best for Bangladesh in FY2020 provided that further lockdown measures are not enforced going forward as the country continues to grapple with the coronavirus epidemic.

The think-tank also called on policymakers to focus on the impact of the ongoing pandemic on poverty, inequality and employment as the government gears up to unveil the budget for the upcoming fiscal year on June 11.

In a report analysing the extent to which the COVID-19 pandemic and an associated downturn in economic activities may impact the GDP growth outcome for the ongoing FY20, CPD, however, pointed out the decline in economic growth should not be perceived as something unexpected and exceptional.

Sectors such as manufacturing, construction, hotels and restaurants, transport, storage and communication and community, social and personal services are likely to be the hardest hit in this period, according to the report.

"Even if the claim of some policymakers is taken to be true that the economy was on course to attain an 8.2 percent GDP growth in FY2020, our estimates of likely adverse impacts of the lockdown indicate a significant decline in GDP growth in FY2020," it said.

But the think-tank reiterated the need for the national budget to pay special attention to healthcare and social safety net programmes (SSNPs) amid the pandemic.

The disruption of economic activities led to a loss of employment, in terms of the number of jobs and working hours, leading to a decline in income for a large section of the population, be it extreme poor, moderately poor, vulnerable non-poor or non-poor households, it noted. 

"It is true that budgetary allocations for SSNPs have grown in absolute terms as well as a share of GDP over the years; however, the majority of the vulnerable groups are still not adequately covered and protected under the programmes."

The COVID-19 pandemic has worsened the situation for vulnerable groups, reinforcing the need for additional public investment in the SSNPs, according to CPD.

In this connection, the government’s strategy to expand SSNPs as one of the four strategic priorities for the next three fiscal years needs to be proactively pursued, it said.

"SSNP budget excluding pension has been stagnant at 1.7 percent of GDP over the last decade. It is also much lower than the FY2020 target of 2.3 percent of the GDP outlined in the 7FYP."

The think-tank urged the government to allocate at least 3 percent of the GDP for SSNPs as outlined in its National Social Security Strategy (NSSS) formulated in 2015.

The allocation for health as a share of the total budget has also fallen from 5.1 percent in budget of FY2019 to 4.9 percent in FY2020 while it has remained stagnant at 0.9 percent as a share of GDP, the report noted.

The COVID-19 pandemic should induce the government to follow up on its commitment to achieving universal health coverage (UHC), according to CPD.

"The government should be reminded to revisit its election manifesto commitment to provide health services to every person below one and above 65 free of cost.

"The next budget will also be a good opportunity for the government to follow-up on its commitment of raising the health sector’s share in the total budget to 12 percent in 2021 as outlined in the Health Care Financing Strategy 2012-2032."

CPD also expects the revenue shortfall to increase further, having earlier projected that the total in FY2020 may reach Tk 1 trillion.

Based on the latest available data from the Ministry of Finance and other relevant sources, CPD has revised the revenue shortfall figure for FY2020 to around Tk 1.25 trillion.

"This implies, the revenue earnings in FY2020 are likely to record a minuscule growth of 0.4 percent, hence, the revenue-GDP ratio may see a decline."

A key objective of the government must be to use the fiscal policy to boost domestic demand, and raise disposable income and consumption, particularly of the lower and middle-income class, according to CPD.

In the FY2021 budget, raising the tax-free income threshold levels from Tk 250,000 to Tk 350,000 should be considered, it said. Also, the first three slabs of income tax from 10, 15, and 20 percent may be restructured to 5, 10, and 15 percent respectively, at least for the next two years.

It also called for policymakers to consider allowing payment of individual income taxes for FY2020, by instalments, by March 2021.

"With a view to ensuring food security of low-income people, the reduction of import-related tariffs (including AIT and VAT) on essential food items should be considered."

CPD noted that the government is set to propose a fiscal budget of about Tk 5.6 trillion for FY2021, which is higher than the original budget of FY2020 and the revised budget of FY2020 by about 7 percent and 11.3 percent respectively.

"The policymakers involved in the preparation of the budget are no doubt aware of these pre-existing ‘fat’ in the budget and the likely under-implementation at the end of the fiscal year. This, along with the over-ambitious revenue mobilisation target has persistently undermined the robustness of the fiscal framework of successive national budgets."

However, CPD urged the government to make an early assessment of the real scenario and formulate a revised budget with a credible fiscal framework when the final budget figures for FY2020 is available. This will be critically important to address the adverse impacts of COVID-19 with suitable fiscal measures, it said.