Bangladesh expands spending lifeline to offset virus fallout. But big numbers mask clarity

In the face of the indiscriminate devastation wrought by the coronavirus epidemic on lives and livelihoods, all eyes turned to AHM Mustafa Kamal as he geared up to deliver his second national budget as finance minister to steady the wobbling ship.

The new budget gave the government greater spending flexibility and leeway to unveil big numbers to counter the impact of the pandemic on an economy running on fumes.

In the run-up to the budget for fiscal 2020-21, economists were at pains to stress that shoring up the country's healthcare, agriculture and social protection was of the essence rather than economic growth.

For his part, Kamal mostly appeared to take heed as he rolled out a mammoth Tk 5.68 trillion budget for the upcoming fiscal year, the biggest in Bangladesh's history, with an increased emphasis on public health, food security and social safety net.

Prime Minister Sheikh Hasina led Finance Minister AHM Mustafa Kamal to parliament as he presented the budget for 2020-21 fiscal year. Photo: PID

However, he did not budge from his target of 8.2 percent GDP growth in the 2020-21 fiscal year despite the bleak economic outlook presented by experts both at home and abroad.

In his speech to his colleagues in parliament on Thursday, the finance minister pointed out that the whole world was in dire straits because of the COVID-19 pandemic, and Bangladesh was no exception.

That was part of the reason why he deviated slightly from the traditional budget, resetting priorities to effectively combat the deadly coronavirus and overcome its economic ravages.

Quite understandably, the health sector emerged as the most urgent subject in Kamal’s speech which the budget gave a new impetus.

To widen the spending room, Kamal increased the budget deficit to a record Tk 1.9 trillion or 6% of the country’s gross domestic product, surpassing the typical 'red line' of 5% gap.

Kamal’s speech, however, lacks a clear outline for how his government will spend the money in the health sector at a time when public health experts demand clarity. He just gave away what he had in his arsenal without explaining the strategy enough.

He described the spending plan for the fiscal year starting July 1 as the pathway to recovery from the coronavirus crisis that upended lives and a once-thriving economy.

To bridge the budget gap, a real headache, Kamal is banking on increased borrowing from banks while economists questioned the revenue target of Tk 3.78 trillion for fiscal 2020-21.

Wary of the fallout from the pandemic-induced lockdown on the economy, Kamal revised down the GDP growth to 5.2 percent for the outgoing fiscal year from the original 8.2 percent target. But he failed to let go of his obsession with the big number even as the 8.2 percent growth target for the next year drew derision from some economists.

Economic researcher Ahsan H Mansur dismissed the FY21 growth target as “laughable”, “unrealistic” and “fantastical”. AB Mirza Azizul Islam, a former caretaker adviser, believes this level of economic growth is “not possible” in the current circumstances.

A SHOT IN THE ARM

Kamal proposed a 23 percent increase in the outlay for the tottering health sector, admitting that the COVID-19 experience has exposed a number of weaknesses in the sector. Experts have welcomed the rise in the health budget but questioned a lack of details on its implementation.

Mushtuq Husain, a public health expert, said at least a third of the population should have been brought under universal health coverage as a starting point in the upcoming financial year. “But there is nothing like this in the budget,” he added.

IMPORTANCE TO SOCIAL PROTECTION

A two-month lockdown and a plunge in consumption caused joblessness or eroded the income of a vast swathe of the population, which Kamal said threatened Bangladesh’s achievements in poverty alleviation and social security.

In his speech, he said the government prioritised job creation to offset surging unemployment, but he mentioned no significant plans for this in the budget. 

The minister, however, has kept 17 percent of the budget, or Tk 955.74 billion, for social security by adding hundreds of thousands from the marginal groups, such as the elderly, vulnerable women and people with disabilities who have been hit hard by the crisis, to existing allowance programmes.

FOOD AND FARMERS

The risk of a famine in the post-COVID-19 world means that one of the main challenges for the government is to ensure food and nutrition security for the large population of Bangladesh, while protecting the lives and livelihoods of farmers and farm labourers, Minister Kamal said.

To ensure uninterrupted supply and fair prices of food amid the outbreak, he wants to cut production cost by spending more on farm machinery.

The minister has earmarked Tk 225 billion for the agriculture sector as part of the initiative to keep up the momentum of the sector.

An additional Tk 20 billion has been allocated to incentivise farm mechanisation while the government also proposes Tk 95 billion in the fiscal year for agricultural subsidies.

 

The target for the procurement and distribution of rice and paddy has been raised by 200,000 tonnes in the coming fiscal year.

FUNDS FOR EDUCATION FAR FROM INSPIRING

Kamal proposed to raise the allocation for the education sector to Tk 664 billion, but its ratio to the total budget remained almost unchanged despite the fact that the students are staring at a lost year, due to the pandemic.

The disruption led to calls for greater attention to the education sector but the proposed allocation for the education and technology sectors combined is far from inspiring.

The proposed budget for the upcoming fiscal year is equivalent to 17.9 percent of the GDP, as the GDP is estimated at Tk 31.71 trillion. Accordingly, the allocation for education and technology is equivalent to 2.70 percent, compared to 2.75 percent earlier.

International standards dictate the education sector ideally get an allocation of 6 percent of the GDP or 20 percent of the budget.

With assistance from Osham-ul-Sufian Talukder and Turaj Ahmad.