AR Prof Dr Feroz I Faruque
|Heading||All amounts are in crore BDT||Remarks (if any)|
|Size of the Budget 2020-21||568000 (5.68 trillion)||17% increased from 2019-20 which was BDT 523000 (5.23 trillion)|
|Development Expenditure||205145 (2.05 trillion)||36.12% of the budget|
|Non Development Expenditure||362855 (3.63 trillion)||63.88% of the budget|
|Total Revenue||378000 (3.78 trillion)||NBR revenue 330000 (3.3 trillion)|
|Deficit||190000 (1.9 trillion)||6% of GDP|
|Domestic Loan||19.4% of the total budget||Bank borrowing BDT 84980, non bank borrowing BDT 25003|
|Non Tax Revenue||5.8% of the total budget|
|Tax Revenue (non NBR)||2.6% of the total budget||BDT 48000|
|Tax Revenue (NBR)||58.1% of the total budget|
|Foreign grants||0.7% of the total budget||BDT 4013|
|Foreign Loans||13.4% of the total budget||Foreign Loan BDT 76004|
|GDP Growth||8.2%||Over ambitious, revised to 5.2% by the parliament during supplementary budget approval on 16 June, 2020|
Government Revenue income distribution by major sectors
|Sl. No||Sector||% of change|
|4.||Goods & Services||9.8%|
|5.||Acquisition of Assets||5.9%|
|7.||Subsidy & Incentives||13.9%|
|8.||Non development investment||4.6%|
Note: Public Administration & govt. Pension alone accounts for 26.5% of the revenue income
Break up for Tax collection Targets in FY 2021
|Tax Type >>||Excise duty||Customs duty||Supplementary duty||VAT||Income Tax|
|Amount in BDT crore>>||5271||37807||57815||125162||103945|
Comparative Budget Deficit-GDP ratio for 5 FY years
|Deficit amount in billion BDT||675||1054.9||1397.6||1535.08||1900|
Note: Highest deficit (6%) FY 2020-21
Overview: The proposed budget for the fiscal year 2020-21 (FY21) was unveiled, despite the ongoing COVID 19 pandemic. The budget size is BDT 5.68 trillion (BDT 568,000 crore) which is a little higher than the previous fiscal year which was around BDT 5.23 trillion (BDT 523,000 crore). BDT 568,000 crore budget proposal was placed in the National Parliament on June 11, 2020, which is 17.9 percent of the GDP. Bangladesh stimulus package is the second highest among the peer countries being the combined package 3.7% of the GDP. Government has set a target to mobilize BDT 17000 crore in budget support from development partners for FY 2021 to meet the additional financing owing to the COVID 19 pandemic. The budget support for next FY accounts for 18.31% of BDT 92837 crore external borrowing target set. The debt level goes up by another 1.2 percentage points to BDT 117000 crore in FY 2021. Domestic debt would account for 63% and external financing for 37% in the next FY.
The estimated overall revenue collection target is Taka 3.78 trillion for FY21 and was expected to contain suggestive measures to offset the impact of COVID-19 on the country’s economy. The estimated overall revenue collection target of Taka 3.78 trillion for FY21. Of the amount, BDT 150 billion is expected to be drawn from the taxable sector and BDT 330 billion from the non-taxable sector beyond the National Board of Revenue (NBR) target. The government is also eying for an estimated amount of BDT 40.13 billion as foreign grant. They said that NBR set a target of mobilizing BDT 3.3 trillion as revenue in the next fiscal expanding tax nets to augment government income alongside granting full amnesty to black money investors. Government simultaneously expecting an 8.2 per cent GDP growth in the coming fiscal despite different global financial watchdogs’ predictions that the deadly virus would pull down the growth in South Asia and the Pacific regions. They, however, estimated the budget deficit to be nearly 6.0 per cent, a little over the average of 5.0 per cent estimated during the previous years. National Budget for the year 2020-2021 to the amount of BDT 5.68 trillion, which is 13.24 percent higher than the revised budget of the current fiscal year 2019-20. The GDP growth estimate of 8.2% is too lofty. (In my estimate and by many other economists of the country it should be 4.5-5% for the next FY). However, later on the GDP growth target was fixed by the Parliament at 5.2%, still the highest in South Asia. The overall budget deficit will be BDT 190,000 crore in the next fiscal year, which is 6 percent of the GDP. The government is likely to set a BDT 1.09 trillion borrowing target from the domestic sources to meet the deficit, of which BDT 849.8 billion will be taken from the banking sector alone. The non-banking sources and modes, like savings certificates are seen to be the means to cater for the rest portion of the deficit.
MAJOR SECTORAL SCENARIO:
Health Sector: As the country grapples with COVID-19 (Coronavirus pandemic), Finance Minister on June 11, 2020 proposed an allocation of BDT 29,247 crore for health services and health education sector, up by 23.44 percent from last year’s revised allocation while unveiling the 2020-21 fiscal year budget in the Parliament. The proposed allocation of BDT. 29,247 crore for the Health Services Division and the Health Education and Family Welfare Division in FY 2020-21, which was BDT. 25,732 crore in FY2019-20.
The allocation for health in FY 2020-2021 is BDT. 29,247 crore, which is 0.92% percent of GDP, lowest compared to its peers in South Asia, although WHO recommends it to at least 5% of GDP and 5.14 percent of total budget allocations. Allocation for the ministry is increased by 13.65 percent from outgoing fiscal year’s allocation of BDT 25,733 crore. Poor utilization and implementation of allocated funds in the previous budget was an obstacle. Of the Government allocation of BDT 29,247 crore management/operational cost will be BDT 16747 crore and only the rest will be spent for health sector development. In terms of budget share, MoHFW remains almost static (4.3-5.1%) since financial year 2011-12. The year-on-year increase in health budget though positive but quite inadequate all the time particularly this uncertain pandemic situation. Bangladesh’s health budget has always been much lower than the 15 percent budgetary allocation recommended by the World Health Organization. Health sector’s share has slightly improved but lagging behind education and infrastructure sectors, when it comes to sectoral shares of the overall national budget (FY 2020-2021). In ADP BDT 12496 crore has been allocated for health sector an increase of BDT 1386 crore than the previous FY, while health sector is at the 5th position among the top allocations.
Composition of MOHFW Budget: The total budget for Health Services Division (HSD) is BDT 22,884 crore and BDT 6,363 crore for Medical Education and Family Welfare Division (MEFWD). Although nominal growth has increased in size by divisions, ministry and national from the 2019-2020 budget, health budget as proportions of the total budget remains almost the same. It was mentioned that 13 ministries and divisions are currently implementing programs related to health and family welfare. The health sector is given the priority, and provisions have been made for this sector in the form of additional allocation, incentives, compensations, etc. Most important of them include establishment of 7 new medical colleges, development of the e-health infrastructure to implement ‘Digital Bangladesh’, expansion of Shasthyo Surokhsha Karmasuchi (SSK) in eight upazilas, and establishment of secondary and tertiary health complexes at district, divisional and national levels.
Emergency fund for COVID-19: The government has proposed an amount of BDT 10,000 crore in the FY 2020-2021 budget to meet emergency requirements caused by COVID-19 saying it will do whatever is needed to address the pandemic. To combat the COVID-19 outbreak, a special notification was issued as an interim mechanism before budget to exempt all import duties and taxes on corona virus-testing kits, masks and personal protective equipment (PPE) and on the raw materials required to locally produce hand sanitizers, masks and PPE. To further strengthen the health sector, the Finance Minister proposed reducing import duty on essential.
Social Safety Net: With a proposal to expand the coverage of some programs to alleviate the plight of the poor amid the situation arising out of the Corona virus pandemic, the government has allocated BDT 95,574 crore in the social security sector, which is 16.83 percent of total budget and 3.01 percent of GDP in FY2020-21. The proposed budget is increased by BDT 13709 crore only. In the revised budget of FY2019-20, the allocation was BDT 81,865 crore, as was said while placing the proposed National Budget for 2020-21 FY in Parliament on 11.6.2020. In 3 months time about 35% people are in poverty line. Social Safety net covers vulnerable group feeding, vulnerable group development, stipend for primary school students, home for homeless, stipend for high school students, food friendly program, open market sales, work for money and gratuitous relief. The allocation for new schemes rose to BDT 492.34 crore in FY2020-21 from BDT 288.39 crore. The allocation for gratuitous relief rose nearly 6 times to BDT 3062 crore in the FY2020-21 and the number of beneficiaries would be 2.6 crore up from 2.55 crore. SSNPs has been increased to 3% of GDP in FY 2021 from 2.58% in FY2020, but a pension for government employees account for the larger portion of SSNP allocation.
Since the government enforced general holidays, lockdowns, closure of factories and businesses to prevent the spread of corona virus infections, incomes for the common people have reduced, which now threatens the country’s achievements in poverty alleviation and social security. In order to overcome the situation, the government has taken an initiative to make direct cash transfers to 5 million people @ BDT 2500 each in the current fiscal year to minimize the sufferings of the poor working people. The budget speech proposed to increase the coverage of some allowance programs including old age allowance, the allowance for widows and women deserted by their husbands, and the allowance for insolvent persons with disabilities. All poor senior citizens in 100 upazilas most prone to poverty due to the corona virus outbreak will be brought under the old age allowance as per the existing policy. This will add 5 lakh new beneficiaries, and an additional allocation of BDT. 300 crore will be provided to this program.
The number of the allowance for insolvent persons with disabilities will be increased to 1800000 following the latest disability identification survey. This will add 2 lakh 55 thousand new beneficiaries, and an additional allocation of BDT. 229.50 crore will be required for this purpose. In addition, the Maternity Allowance for Poor Mothers, the Working Lactating Mothers’ Assistance Program, the VGD activities, the Freedom Fighters Honorarium, the Employment Opportunity for the Extreme Poor, the Special Allowance for Improving the Living Standards of Gypsies and Disadvantaged Communities, the Education Stipend and Training for Gypsies and Disadvantaged Communities, the Assistance for Cancer, Kidney and Liver Cirrhosis Patients, the Living Standard Improvement Program for Tea Garden Workers and other programs will continue. It is expected that, with this incentive, the rural economy will be revitalized. Budget proposal was to allocate BDT. 100 crore in FY 2020-21 for the ‘Rural Social Services Program’ to keep the rural economy moving in the aftermath of the COVID-19 pandemic, and create self-employment opportunities for the poor and helpless people in rural areas. The budget will seek to explore ways to expand social safety net coverage under different ongoing programs to accommodate extra number of beneficiaries quoting the expected amount of allocation for the purpose to be as high as BDT 321.66 billion. The number of beneficiaries on working lactating mothers, poor mothers, tea workers, plus members of the third gender and Bede (nomad-boat people) communities might increase to 1.3 million in the next financial year.
In the light of the National Social Security Strategy Paper, 2015, various social security programs will be implemented to alleviate the plight of the poor and helpless people from the impact of the corona virus outbreak. By now, about one-fourth of the families in the country have been brought under the social security program-said the Finance Minister. But, the situation requires the proposed budget to be more welfare oriented so that more money could be spent for the poorer people whose life and livelihood was affected by the pandemic.
Education Sector: The government has increased the budgetary allocation for the education sector as the two ministries concerned will get BDT 66,400 crore in the upcoming fiscal year, which is higher by some BDT 5,282 crore than the allocation in the actual budget for 2019-20 fiscal year. The holidays declared to all academic institutions of the country since mid-March as part of efforts to contain the spread of the COVID-19 novel corona virus has essentially caused a discontinuation of the regular academic curriculum of around 40 million students across the country. Although the government has introduced the distant learning program on a very limited scale during the holidays, the loss to the overall education sector has been enormous. The Finance Minister said efforts will also continue in the next fiscal year to give importance to the science and technology based education keeping the fourth industrial revolution in mind.
According to the proposed budget, an amount of BDT 24,940 crore has been allocated against the Ministry of Primary and Mass Education for the next fiscal year which was BDT. 24,040 crore in the budget for current FY 2019-20. BDT 33,118 crore for the Secondary Education Division and BDT 8,345 crore for the Technical and Madrasha Education Division which was BDT. 7,450 crore in current FY 2019-20. About Technical, Vocational and Madrasa Education (religious education), the government has begun implementing quality technical and vocational education to achieve the Sustainable Development Goals (SDGs).
The Cabinet has approved the National School Meal Policy 2019, and under this policy, the government is going to roll out mid-day meals to all primary schools across the country. Works are underway to establish interactive classrooms in 503 schools, and soon will be providing internet connectivity to all primary schools, including two laptops and two multimedia projectors to each school. In the next fiscal year, the government will also continue some exceptional initiatives, such as special school feeding in poverty stricken areas, preparing profile of each pupil, setting up of ICT labs in schools and expanding cub scouting.
Work for establishing one Technical School and College (TSC) in each of the selected 100 upazilas is underway, and steps have been taken to establish one such institute in each of the remaining 329 upazilas. In addition, works are underway to establish one women’s polytechnic institute in each of the 4 divisions (Sylhet, Barishal, Mymensingh and Rangpur), polytechnic institutes in 23 districts, one engineering college each in 4 divisions (Chattagram, Khulna, Rajshahi and Rangur) and 4 land survey institutes. These efforts will expand the facility of technical education nationwide.
Agriculture Sector: Aiming to ensure food security and prevent any possible food crisis in the post-corona world, the government has given priority to agriculture by proposing an allocation of BDT 22,489 crore, up by 1,005 crores from last year in the next fiscal year, which was BDT. 21,484 in FY 2019-20. Agriculture is the government’s top priority sector and to boost food production, there will be emphasis on farm mechanization, incentives for irrigation and seeds and rehabilitation of agriculture, and continue to provide subsidies on fertilizers. Bangladesh has been successful in sustaining self-sufficiency in rice production and maintaining a high growth rate in agriculture. The global corona virus pandemic and recent Amphan have affected the agriculture sector in Bangladesh, too. The COVID-19 has disrupted imports, exports and supply chains across the globe. Hence the government will have to put the highest emphasis on addressing the adverse effects on our domestic sectors while the government is encouraging farmers by providing necessary support in marketing of vegetables, fruits etc..
To effectively combat the effects of the novel corona virus, this year government will continue its interventions, such as agricultural subsidies, incentives and support cards for fertilizers-seeds and other agricultural inputs, support for agricultural rehabilitation, special agriculture credit at low interest rates and easy terms, etc. at the required levels. Besides, subsidies to farmers on procurement of agricultural equipment used in harvesting crops will continue. The budget 2020-21 proposed an allocation of BDT 9,500 crore as subsidy for agriculture sector in the upcoming fiscal year. Besides, setting aside BDT 200 crore as incentives for farm mechanization. Taken up BDT 3,198 crore project to promote farm mechanization. An allocation of BDT 5,000 for the Agriculture Refinancing Scheme will also be made through Bangladesh Bank (Central Bank) in the next fiscal year. In addition the government has raised the target for government procurement and distribution of rice and paddy by 2l00000 metric tons in FY 2020-21 to make sure that farmers get fair prices for their produces while the retail market price of rice remains stable. Meanwhile, another refinancing scheme of BDT 3,000 crore has been announced for small farmers and traders in the agriculture sector. As in previous years the sales price for chemical fertilizers will be kept unchanged in the next fiscal year irrespective of their import costs, and they will continue to provide incentives to the agriculture sector.
ADP & Government borrowing: The government is likely to borrow BDT 888.24 billion from foreign sources in the new fiscal, but BDT 128.2 billion of the amount would be spent for loan repayment. The government in next year is likely to spend BDT 63.8 billion on interest payments. Of this, BDT 5.82 billion will be spent to pay interest on domestic loans while BDT 55.48 billion on foreign loans. The amount of government’s capital expenditure in the coming fiscal is likely to be BDT 36.99 billion, while BDT 5.67 billion could be on food and BDT 42.1 billion on loans and advances. The government for the first time in decades planned to reduce the Annual Development Program (ADP) to BDT 2.02 trillion from BDT 2.05 trillion in the outgoing fiscal. Besides, an amount of BDT 47.22 billion would be spent for special projects outside ADP, BDT 26.54 billion for food-for-work program and BDT 25.22 billion for various other schemes.
Three-phase Strategy: The three-phase strategy to address the pandemic affect in terms of duration of stimulus package plans to be categorized as “short, medium and long” ones. An anticipated 35% rise in poverty and inequality caused by the COVID-19 pandemic require massive increases in health sector support for the most vulnerable populations across the country. Radical and swift public financial management policy change is required to address deficit in funding and prioritization. Researchers have identified three factors on which the success of the government announced stimulus packages and social protection programs hinge on. These are-effectively identifying the vulnerable people and determining the nature and duration of support, ensuring that the genuinely affected industries and poor and vulnerable people receive support and introducing a Monitoring and Evaluation (M&E) mechanism to ensure efficiency, transparency and accountability in the distribution mechanism.
Poverty Synopsis: In addition to 34 million existing poor, in case of uplifting the poverty line income by 1.25 times, there are another 36 million people who are ‘non-poor’ but can be categorized as the vulnerable population. Using the latest Household Income and Expenditure Survey (HIES) data of Bangladesh Bureau of Statistics (BBS), the researchers have run simulations which reveal that with a negative income shock of 25 percent, the overall poverty rate will be 40.9 percent, which means another 20.4 percent population will fall into poverty.
The key findings of the research also included poverty impact of any income shock can differ depending on the people engaged in various economic activities.
Simulation results suggest that most of the newly poor in Bangladesh will be concentrated in economic activities like crop, animal rearing and fish production (43%), different manufacturing activities including RMG (16%), retail trade (11%), and construction activities (7%).
Given that the majority of these people are employed in informal activities (85%), any employment shock is feared to have severe implications on the overall level of poverty of the country. Given the geographical dynamics of poverty in Bangladesh, a negative income shock on poverty rates will vary across the regions.
Forty districts will experience the rise in the percentage of poverty more than the national average. For example, in Rangamati, there will be an additional 30.9 percent people falling into poverty. In the same fashion, other major affected districts with higher percentages (than the national average of 20.4 percent) of additional people falling into poverty will be Mymensingh (30.2%), Sunamganj (28.7%), Cox’s Bazar (27.5%), Nilphamari (27.2%), Narail (27.1%), Chottogram (26.9%), Netrokona (25.9%), Chuadanga (25.8%), Sherpur (25.6%), Barguna (25.5%) and Shariatpur (25.3%).
Skepticisms about growth target: 8.2% growth rate assumption means, economic activities will quickly pick up the normal pace and the economy will experience a “V-shaped recovery” expecting shock to two main drivers of the economy-export and remittance. The two biggest destinations of our exports-the European Union and North America-are predicted to experience negative growth. Thus, whether in the future, export to these countries will increase and to what extent is a question now. In the budget document private investment which is a major source of growth, is revised downward to 12.7% for FY 2020, but projected to be 25.3% in FY 2021. A magical jump of 12.6% in COVID-19 era. In order to achieve this, investment growth about BDT. 4.46 trillion will be required in FY2021. This is indeed 125.2% increase from BDT 3.56 trillion in FY 2020 estimated by the finance ministry. For this private investment is supposed to be achieved by a credit growth of about 16.7% in FY2021.
Stimulus packages: Stimulus packages announced at the beginning of the crisis. The economic recovery packages declared so far has totaled BDT. 103117 crore (1.03 trillion). However, the stimulus packages will be operated through the banking sector which is already in crisis. There are crises of mismanagement, institutional weakness, and default loan in the banking sector. Government can borrow from international organizations and negotiate with flexible conditions and low-interest rates, many countries are already doing.
WB in its South Asia Focus predicted that Bangladesh will have 2-3% GDP growth, while IMF said 2% only. In my opinion it may be around 4.50-5.00%, as by April 2020 Bangladesh has completed 10 months of its current FY and slowdown has started from March 2020. The Economist, a London-based weekly, has published on 2nd May 2020 a list of 66 emerging stable economies ranking them according to four measures of financial strengths, namely public debt as a percentage of GDP, total foreign debt, costs of borrowing and foreign exchange reserves, and Bangladesh was ranked 9th from the top. Their estimate reflects Bangladesh’s stronger position compared to most other emerging countries. Several Economists of the country differed with the Economist’s research findings.
- Health sector priority: Health sector should have been the topmost priority sector, followed by Agriculture, Social Safety and Education. My ranking is: Life (health), Live (food), Security, Learn (Education) (LLSL).
- Japan’s Pull out from China: Japan has already declared $2 billion incentives to pull out Japanese companies from China. To stop single country source Japan will pull out their investments from China, the same suit may be followed by other countries. This is the high time for Bangladesh to lobby strongly with Japan and other EU countries to offer a safe FDI home and to expand and diversify exports to those counties.
- Trained & Skilled Workforce: Training/Retraining/re-skilling of workforce as after COD-19 wave manpower importing countries will need more manpower and the trained one can earn better then unskilled/semi-skilled one. Re-skilling of workforce to fit the global new normal situation. To have extensive skills training all the Universities (public private), colleges, High Schools, Madrasa to be compelled to open skills training section/departments, if required closing down some unemployment creating faculties and subjects. The courses may be at certification level, diploma level, sandwich course, remedial courses etc. The Skills training program should be started immediately.
- Inflation Control: Printing of money cautiously as a last resort, if possible to avoid at the same time increase of goods and services production to keep price under control. Already inflationary influence is there in the economy.
- Bringing back Laundered Money: Bring back the money laundered overseas by unscrupulous Bangladeshis. Money laundering business and individuals including loan defaulters should not be given any benefits from the government incentive packages.
- Extensive use of ADR: Extensively using ADR for unsettled revenue cases remaining pending for decades. Surplus and idle funds at MDAs to be transferred to govt. exchequer for use in COVID 19 situation.
- Relocation of Garments Factories: Relocation of garments factories from Dhaka city should immediately be started by relocating in the districts/upazila/union. This will help improve environment and security of the capital city as well as avoid high risk of infectious diseases like COVID-19. Garments workers can live a better living at the district/upazila/union level and those places will be developed too.
- Faster Reform of Public Financial Management: It is important for the government to take appropriate action, such as faster implementing of public finance management reforms. Government’s recent distribution initiative to make direct cash transfers to 5 million poor people @ BDT 2500 each in the current fiscal year through PFM component iBAS++ to minimize the sufferings of the poor working people has received appreciation.
Writer: Ph.D; DBA (USA); FCS; CPA; MCSI (UK); CEPM; FCA; FCCE; CEPA (USA); FCIIP (KL)