AKM Asaduzzaman Patwary,
Additional Secretary, Sr. Research fellow, DCCI.
The national budget 2020-21 was revealed in a critical time of the country to combat the disastrous impact of the COVID-19 pandemic. The budget of FY2021 was declared considering the 2nd perspective Plan (2021-41) and achievement of SDGs. In addition to COVID-19 recovery, 8.20% GDP growth and private investment to 25.3% and public investment to 8.1%. In line with the post COVID-19 recovery need, the growth rate was projected at 8.2% for FY 2020-21 which is apparently inappropriate and raising the current revenue-to-GDP ratio at a more rational level.
GDP growth target was revised down to 5.2% in FY2020. This fiscal year of 2021 has nearly ended and another fiscal year is round the corner but our economy is far behind the achievement of the most of the given targets. The COVID has affected the normal economic dynamics, trends and expected to V shaped recovery. But, the recovery has been faltered again due to second wave of COVID-19 outbreak across the country and most of the parts of the world. Apparently, the FY2021 budget was somewhat ambitious but to the large extent recovery friendly but economy crawled and many exogenous factors have slimmed the economic revival pace. The peace of my mind is that our economic operations have become largely functional despite huge COVID outbreak, challenges and implications whereas many economies are going through harsh lockdown.
Amidst this current economic vulnerability worldwide, Bangladesh keeps trying to ensure the economic operations functional so that desired economic growth is achieved with positive implications with the spirit of balance between life and livelihood. The national budget of current fiscal year was BDT. 568000 crore which was 13.24% higher than revised budget of FY20 and around 54% of the budget was spent for non-development expenditure. The revenue shortage was around BDT 1 trillion crore against the target. Based on this extensive deficit budget, the upcoming budgets size would be larger this current budget as implication of COVID on entire economy has to be rebounded and additional cost liability of current fiscal year would also aggregate the expenditure budget. The deficit budget was limited to 6% of GDP at Tk. 190000 crore but the escalating and diverse stimulus support by the Government and slow revenue collection stream may affect the upcoming budget management.
This current state demands more expense for health and safety concerns management, across the all avenues of the economy and social safety. Unemployment, poverty and lower productivity in industry and low industrial trend, incremental banking sector backed subsidy have squeezed the economic mobility and resource creation and mobilization.
|In our context, we are required to check and balance the slim revenue generation and essential sources of expenditure. The current socioeconomic context is not supplementing revenue rather incrementing expenses of Government. If economy recovers then it will help other local sectors and industries to revive and perform likewise earlier state.|
The legacy of Bangladesh economy is increase the budget size every year as the economic activities increase accordingly we are required to enhance the size of national budget. Keeping all previous practices aside, we are required to follow the road to recovery to rebound the economic activities and business confidence containing the COVID induced challenges and fiscal stress. Most of the pandemic devastated economies in the western world including the US and UK government are heavily concentrating on cash stimulus for individual and business aiming at economic revival. In our context, we are required to check and balance the slim revenue generation and essential sources of expenditure. The current socioeconomic context is not supplementing revenue rather incrementing expenses of Government. If economy recovers then it will help other local sectors and industries to revive and perform likewise earlier state. On the other hand, Bangladesh has off late qualified the second triennial review of LDC graduation as per UNCDP assessment and might be granted fully in 2026. Economy will come across more challenges due to massive transformation in export market competitiveness, industrial compliance, quality, productivity, institutional borrowing, product and service export volume reduction and many other challenges. And, this transitional time for economic graduation until 2026 is also very crucial. Hence, national budget is required to incorporate the clear and result-oriented and time bound roadmap to contain these challenges so that economy remains progressive, well equipped and addresses these transitional challenges ahead. Most of the countries in the world have failed to control their inflation and sustain economic growth. Bangladesh with immense economic resilience has so far better dealt the economic vulnerability and economy is shaping up. Taking into account the imminent rehabilitation of economy, the following are recommended to consider in the upcoming national budget:
- Individual and corporate tax rate may be slashed and minimum 5% is to be reduced in the corporate tax so that SME and large business get some relief in the current tough time. Individual tax free limit can be raised to TK. 3.5 million to benefit mass people and low income group people in tax bracket.
- Vat and tax system including rebate, refund automation need to be ensured for lower human mobility in the office of Tax commissioner. Vat and AT waiver in import of raw and capital machinery can be followed to support the local and export-oriented industries.
- Cash incentives are to be continued to support the export oriented industries in Bangladesh.
- Rationing the budget of large project under the ADP and off set that budget into priority infrastructure on Industry, healthcare, Skills and agriculture sector as these are immediate priorities for the economy in the transitional time.
- Expenditure budget in Government ministries are to be rationed and revised quarterly for efficiency and accountability in budget.
- Widespread and inclusive social safety net needs to be ensured to support the extremely vulnerable people as well as unemployed mass from informal sectors.
- Focused, effective and inclusive stimulus package aiming at CMSME sector at second round with innovative distribution approach for maximum reach out so that that business revival and employment retention can be ensured.
- Banking sector and saving certificate backed borrowing for budget deficit reduction is not ideal for a resource constrained economy and low-cost borrowing in refinancing scheme using ODA or grant could be used. Capital market led long-term lending mechanism needs to be implemented to balance in the financial sector for the best interest of the economy.
- Private investment to GDP needs to be raised back to 25% at pre-covid state which has fallen to 8.1% as surge in private investment has multiplier positive impacts on rational expenditure budget, revenue generation and local industrial investment growth with huge employment generation.
- Efforts to keep the tariff and non–tariff barriers minimum to ease the supply chain process for uninterrupted international trade state recovery.
The economy of Bangladesh went through a critical and challenging time as the pandemic effect has wounded almost all heavyweight economies and global trading system and all projections of IMF and WB on global growth recovery were proven wrong. The extreme poverty and unemployment rate in Bangladesh have gone up soon after COVID outbreak with some adversities. And, revenue shortfall of the Government and frequent subsidy across all industries have also aggravated the fiscal health of the economy and almost all sectors are in dire need of policy and fiscal support from Government. In this stark reality, Public health care facility needs to be improved and inclusive to protect the mass people from unrelenting disasters. The upcoming budget should be cautious, balanced, pro people and business towards sustaining the recovery so that economy can heal and gain its momentum towards its expected transformation graduating into a developing economy and developed economy by 2041.