Budget 2020-21: A little real, a little unreal

As the COVID-19 pandemic escalates steadily, every day is ridden with anxiety, alarm and uncertainly. It is still very unclear where the coronavirus health hazard will lead us. The global economy is in recession and no one knows when things will turn around. Just a day ago the prime minister had said in parliament, “No power seems to be effective. Coronavirus is the most powerful.”

It is certainly no easy task to present a budget under such circumstances. Finance minister AHM Mustafa Kamal, in this budget speech, said he was aware of all the risks. And yet his budget remained stuck in routine facts and figures.

COVID-19 has hit government revenue and private investment hard, yet there are hardly any adjustments to that end in the budget of FY 2020-21. According to the finance minister, revenue earnings this fiscal will fall only by Tk 297.46 billion (Tk 29,746 crore.) Based on that assumption, he has come up with the proposed massive budget of income and expenditure for the 2020-21 fiscal. And his GDP target is even more ambitious, at 8.2 per cent.

It would be possible to meet the finance minister’s target if the mighty coronavirus weakened and disappeared in the shortest possible time. And certain other factors would also have to be in place. It would require the global recession to clear up rapidly and for Bangladesh’s readymade garments to secure an increased demand in the US and European markets. The Middle East countries would have to take back the migrant workers, and people at home would have cash in their hands, demands would go up, no one would lose jobs, no one’s wages would be cut. And the biggest factor would be for private sector investment to increase from 12.7 per cent of the GDP to 25.3 per cent.

But in reality it took up to 5 years for private investment to increase by 1 per cent. The damage done by coronavirus to the private sector-dependent economy is evident from the fall of private investment from 24.2 per cent of the GDP to 12.7 per cent.

The budget may be a routine one, but the presentation on Thursday was not routine at all. The minister did not deliver a lengthy speech. He did come up with certain measures to address the coronavirus crisis. He said that he had moved away from a routine budget in order to tackle coronavirus and to firmly overcome its economic impact. He said that the health sector was being given the highest priority.

Allocation has been increased in the health sector, true, but it does not have the highest allocation in the budget.

The finance minister has mentioned several proposals for economic recovery and had come up with all sorts of plans. He has also highlighted the risk and fear factors that confront the economy. He even said what he had wanted to do and what he had been unable to do. He even gave a message of hope for the economy.

He has given rebates to local industries. After a long five years, even rebates have been offered for individual income tax. He has acquiesced to the long-standing demand of entrepreneurs to cut corporate taxes. These steps will provide relief to the economy and also provide praise for the finance minister. He has stepped up taxes on cigarettes, cars and mobile phones. It is, of course, easy to lever taxes from these sectors and this easy way out is used in every budget.

Routine figures

Big budgets are nothing new for the economy. However, the basis for such budgets is revenue earnings. But coronavirus has had a serious impact on income. The budget has no explanation of the minister’s contention that this fiscal revenue collection will fall by only about Tk 300 billion (Tk 30,000) crore. Yet it is based on this revenue estimate that he has cut budget expenditure by around Tk 220 billion (Tk 22,000 crore). This will mean an only 5.5 per cent budget deficit.

On the other hand, experts, and even the National Board of Revenue (NBR), feel that the revenue shortfall this time will be at least Tk 800 billion (Tk 80,000 crore). Some feel the deficit will be even more. The new budget sets the revenue collection target at Tk 3,300 billion (Tk 3,30,000 crore). That means growth will have to be 40 to 50 per cent. This certainly is an ambitious projection.

A month ago, IMF (International Monetary Fund) had said Bangladesh’s GDP growth rate could be 9.5 per cent. But that would call for a rapid subsiding of coronavirus, an increase in investments and a speedy recovery of the economy.

Two days before the budget was presented, the World Bank said that growth in the new financial year would be only 1 per cent. The finance minister chooses to adhere to the IMF projection and hence the big budget, big GDP and the same old routine. In the meantime, the rest of the world has pushed GDP to one side and is in pursuit of saving lives and livelihood.

Yet there had been scope

This is the second budget presented by finance minister AHM Mustafa Kamal. He had six months to prepare the last budget. This time there is a pandemic and so he couldn’t come up with a budget in accordance to his own plans.

The people at present have two main concerns. On one hand there are the health risks and on the other are the economic risks. Coronavirus has revealed the ugly truth of the state of the country’s health sector. The whole world is thinking anew about health services, but over here, there was supposed to have been an increased budget for health, outside the declaration that the health sector would be given priority.

A bulk allocation of Tk 100 billion (Tk 10,000 crore) was declared for the health sector, but it is questionable as to how far this will be able to provide an immediate increase in the number of hospital beds, ICUs, ventilator procurement, ensuring rapid testing for all and rapid treatment of coronavirus cases. The budget proposal has no mention of new thinking and reforms in the health section, outside of the allocation.

How far will the budget be implemented

The new budget is of Tk 5,680 billion (Tk 5,68,000 crore). This includes development expenditure of Tk 2,150.43 billion (Tk 2,15,043 crore). The deficit has been estimated at 6 per cent or Tk 1,900 billion (Tk 1,90,000 crore). Budget deficit is normally kept within 5 per cent, but circumstances are different this time. So even if the deficit is more, IMF will not disapprove. But every year the budget is bit and earnings are less than expenditure. Then the Annual Development Programme or ADP is slashed and the deficit is kept in line.

The general people are not likely to show much interest in the budget this year and least of all about the GDP. Everyone is concerned about saving lives and livelihood. The upside and downside of the budget depends on how far it can deal with these two factors. The success of the budget depends not on the expenditure, but on how effective the expenditure will be.

*This report has been rewritten in English by Ayesha Kabir