Bangladesh budget to chart a pathway from crisis

As the government weighs measures to salvage the economy battered by the coronavirus while saving the lives of the people, the finance minister is about to present the national budget for fiscal 2020-21 to bolster the twin efforts.

The coronavirus pandemic has stalled the journey towards a "prosperous tomorrow" that Bangladesh set out in the 2019-20 budget.

AHM Mustafa Kamal, the finance minister of Bangladesh, shifted his focus to how to survive the crisis, away from what his predecessors had charted, as he tailored the Tk 5.68 trillion budget to be unveiled on Thursday. It will be 13 percent bigger than the revised outlay of the outgoing fiscal year.

“It’s not the size of the budget that matters; rather it is how we confront the COVID-19 pandemic and salvage the wrecked economy. That's what is reflected in the budget,” the minister told bdnews24.com.

Kamal will set goals to ensure a well-equipped health sector to tackle the outbreak, boost farm production to avert food scarcity, widen access to social security for low-income people who lost jobs and keep unemployment in check to avert another social crisis.

He hopes for higher-than-expected GDP growth in the outgoing fiscal year against the target of 8.2 percent though international agencies have forecast much lower achievement citing impacts of the pandemic on consumption. The finance minister is not abandoning his hopes for growth in the next year as well. He is keeping the target unchanged at 8.2 percent.

“The biggest challenge is to confront this crisis, which will be the main objective of this budget,” the minister said.

Finance Minister AHM Mustafa Kamal had Prime Minister Sheikh Hasina by his side while walking into parliament to present the budget last year, but the picture will be different this time due to the coronavirus outbreak.

A LOAN-BASED, BIG DEFICIT BUDGET

The budget Kamal presented for 2019-20 was 18 percent bigger than the previous year’s revised budget, while the 2018-19 budget presented by former finance minister Abul Maal Abdul Muhith was 25 percent bigger than the revised budget of the previous year.

The upcoming budget will also look bigger as the government revises the current fiscal year’s budget down by a bigger margin due to the pandemic. Though the rate of increase in expenditure in Kamal’s new budget may look small, it may turn into a big challenge with shrinking sources of earnings.

For the proposed budget, the government is targeting Tk 3.82 trillion in revenue income, including Tk 3.2 trillion to be raised by the National Board of Revenue.

The proposed budget will have a deficit of Tk 1.85 trillion, which is 5.8 percent of GDP, way above the typical gap. Without the foreign grants, the gap will widen to a record Tk 1.89 trillion, or 6 percent of the GDP.

Economic activities have stalled in the last three months due to the pandemic with export and import hitting rock bottom. Financial losses will increase further if the crisis lingers, which makes the government worry about realising the revenue.

The COVID-19 pandemic may push down the revenue collection to Tk 2.1 trillion in the current fiscal year from its original target of Tk 3.77 trillion, Ahsan H  Mansur, executive director of Policy Research Institute, told bdnews24.com. He raised the question on why the government is targeting a big revenue collection.

"Nobody knows when things will go back to normal. Then how to collect the revenue  more than 55 percent of the total budget? Who will pay tax if there's no earning, no business?"

The government has to manage the deficit by opting for domestic and foreign loans. Therefore, it plans  to include Tk 1.09 trillion in domestic loans and Tk 760 billion in foreign loans. Among the domestic sectors, the government plans to take Tk 849.8 billion in loans from the banking sector, Tk 200 billion from savings certificates and Tk 50 billion from other sectors.

People from the low-income working class have been hit the hardest by the two-month lockdown over the coronavirus outbreak.

HEALTH, AGRICULTURE AND SOCIAL PROTECTION

Different quarters have proposed increasing the funds for the health, agriculture and social security sectors in the 2020-21 budget, in the light of the coronavirus pandemic.

Health and agriculture sectors received the “highest" importance, Finance Minister Mustafa Kamal told bdnews24.com. "This budget will reflect the announcement of the prime minister, where she said 'not an inch of land will remain uncultivated,” he said adding that funds will be allocated for the agricultural sector to have new technology.

As a result of the "learnings" from the present pandemic, the health sector will be refurbished and the budget will include "initiatives" in this regard, the minister said.

The hardest-hit section of people during the pandemic were those from lower-income groups; almost 30 million people have lost their livelihoods. "We must provide food to the poor during this crisis and we'll continue our efforts to do so in the upcoming budget. We'll increase the allocation for it,” Kamal said.

The health sector is likely to receive an allocation of Tk 292.46 billion, which is 23 percent more than the revised allocation in the outgoing fiscal year. For the agriculture sector, allocation may rise by almost 11 percent to Tk 299.83 billion.

A research conducted by BRAC showed that the COVID-19 pandemic caused a loss of more than Tk 565.36 billion for the farmers in the past one and a half months.

To address the loss, the sector will need more subsidy and the upcoming budget may include Tk 95 billion to subsidise the agricultural sector. A total of Tk 550 billion is likely to be used as subsidy for other sectors.

The finance minister has planned to bridle the running cost of the government in the upcoming budget. Government employees are discouraged to travel abroad while ministries are asked to reduce printing work and not to hold seminars.

Despite the planned frugality, the government running cost is fixed at Tk 3.48 trillion. This will include Tk 3.11 trillion in revolving cost, of which Tk 582.53 billion will be spent on paying the domestic loan interest  and Tk 55.48 billion on the foreign loan interest.

Over the past few years, the government focused the highest on the development sector. The coronavirus pandemic halted some of the big projects including the construction of Padma Bridge. As a result, there is no big leap in the development budget. The Annual Development Programme has an allocation of Tk 2.05 trillion.

Photo: PID

BIG GROWTH TARGETED

Bangladesh reached 8.15 percent growth in fiscal 2018-19 and aimed for 8.2 percent growth in the present fiscal year, which faced a hard blow due to the lockdown imposed to curb the pandemic and the stagnant global market. The GDP growth may nosedive to 1.6 percent in the present fiscal year with dropping further in the next year, the World Bank said in its latest report, while the International Monetary Fund predicted 3.8 percent growth for Bangladesh this year and 5.6 percent in the next.

INFLATION IN CHECK

The government expects a positive impact on the national economy as oil prices and prices of daily staples dropped in the global market. It aims to limit the inflation rate to 5.4 percent. The present budget set a target to limit the inflation to 5.5 percent while the average inflation rose to 5.61 percent at the end of May.