Optimistic budget in pandemic time

I don’t think there is any precedent of preparing a national budget in such a tough time with so much uncertainty as in this year. We are yet to understand where the COVID-19 will pandemic reach. That is why any plan to save the economy and free it from risks is bound to be based on speculation. The finance minister, with his ‘Economic Transition and Pathway to Progress’ budget, expressed hope. But I could not but extend my sympathy to him seeing him almost groping for solutions in the dark. At this moment it is uncertain where the depression and stagnancy in economic activities will reach. The burning issue in adopting policies is, how to maintain balance in saving lives and livelihoods with an eye on the spread of the pandemic. Sector-wise allocation in the budget has a big role to play but to face the crisis, a coordinated policy is necessary, which is not visible here.

Logically, the issues given importance in the proposed budget are: saving people’s lives considering the COVID-19 situation, widening social safety net including food security and arranging money as subsidies and incentives to various businesses including the agriculture sector. The question is, is this allocation enough to attain the goal, even if we think that the waste and corruption could be kept in check in its implementation process?

The budget has proposed to increase allocation to widen the social safety nets. But there are doubts whether this would be enough, especially if we consider the families who have fallen below the poverty line because of unemployment due to pandemic situation. Several survey reports said around four per cent of the GDP would be required in the social safety sector to meet the sustenance of the new poor families. However, that would depend on how the pandemic would spread and how strongly social distancing would have to be maintained to curb that. Here comes the question of saving lives and livelihood.

It can be said, the absence of a truly representative and strong local government system is being felt while implementing the social safety net schemes amid the COVID-19 situation. India’s state of Kerala is being regarded as a model in this case. The pandemic was brought under control there by implementing social distancing, detection of patients and distribution of relief materials through the strong local government.

The allocation for health sector in the proposed budget has been raised to almost one per cent of the GDP, which is almost double than the previous years. Still we would lag behind the lower-middle income countries in allocation in the sector. To manage the pandemic effectively, we would require, on the one hand, to arrange hospitals for the severe and critically ill patients and on the other hand, to arrange a large number of tests to detect the infected and those who already were infected and have grown resistance. According to the epidemiologists, no effective technique to curb the infection could be developed unless those two types of tests are done. In that case, a huge amount of money would have to be spent even if we could find a cheaper testing method.

The budget had to be planned amid serious fund constraints this year. Realising the projected revenue income, 12 per cent of the GDP, would be very much unlikely. It is also unsure how much speed the economy would gain after recovering from the depression. Despite the assurance of help from various international financial institutions, it is highly unlikely that that help would even come close to around US$ nine billion, or 40 per cent, of the budget deficit. The total budget deficit this year is almost around six per cent of the GDP, which is almost double than the average of previous years. The rest of the deficit, almost 45 per cent, would be met through bank loans and through selling savings bonds.

But the silver linings is, the amount of local and foreign loans of the government is not huge enough to create a risk for planning a sustainable budget in the future. That is why there is not much threat from the increased budget deficit. Above all, there should not be much problem in meeting the demand for loans in the private sector even though the government borrows money from the banks, especially because it could be considered that the recovery of private sector would take time and the affected businesses will have the chance to take loans as part of the government’s incentive initiative through refinancing by the Bangladesh Bank.

Austerity measures would be required in government expenditures, because of resource limitations. Scrapping the not-so-important projects will be required. Shrinking the allocation of over 1000 development projects could be necessary. There could be questions that decreasing the allocation would lead to delay in completing the projects, but since we are, for long acquainted with the delay and rise of expenses of projects, this is nothing to be worried about actually.

Some projects should be given priority like the foreign funded projects or the mega-projects, delay of which could incur a huge loss, or the projects that could create more jobs. That’s why instead of decreasing the allocation of prioritised projects, we need to increase the allocation, if required. Those are: health safety sector because of COVID-19 situation, social safety net schemes including food security and required subsidies and incentives for recovery of the economy. There is no way but to think outside of the box in this critical period.

* Wahiduddin Mahmud is an economist and adviser to a former caretaker government. This piece, originally published in the print edition of Prothom Alo, has been rewritten in English by Shameem Reza