The rising poverty and fall in income generating activities make it all the more necessary to focus on consumption protection and employment creation while formulating the next budget in the throes of the Covid second wave.
The economic risks will linger even if we consider that the health risk is going to taper off soon. That is why an expansionary policy is needed to support direct fiscal measures that will benefit the underprivileged and the new poor the most.
They must get more cash support so that they have enough disposable income to increase consumption. Otherwise, problems, such as nutritional deficiency, will intensify.
The packages that the government declared last year to maintain consumption constitute only 0.03% of the GDP, and the recent allocations will push it up to 0.054% if the fund is spent fully before Eid.
I think what the government has spent so far from its own fund on stimulus or incentive packages is negligible. There is still scope of increasing the spending as there is still scope of increasing the budget deficit that increased from 5% to 5.5% to 6% over the last three years.
The fiscal deficit is not concerning, given Bangladesh's low inflation, low debt-GDP ratio and robust foreign exchange reserve.
The notion surrounding deficit is that it can be allowed to climb until resources are available. In Bangladesh, it is much more dependent on its ability to spend, rather than being driven by resource availability.
All expenditures other than non-ADP (Annual Development Programme) spending were less this year compared to the previous year whereas it should have been higher to smoothen the impacts of the pandemic.
Employment retention will require innovative measures. The entrepreneurs who are not laying off their employees and have continued to provide salaries, bonuses and other benefits should get tax rebates.
More than 50% of the stimulus loans given so far went to the RMG industry. Small and medium enterprises that meet the demands of the domestic market have failed to recover because of the failure to tap into the opportunity to get government support.
Many enterprises are yet to resume their operations because they could not pay salaries, rents and repay loans. The government has to support them, writing off their debts.
If the government wants to be on track to graduate to the status of a middle-income country, it has to give importance to diversification from export to agriculture to manufacturing, and in that the productivity growth has to be the driving force.
Dr Debapriya Bhattacharya is the distinguished fellow at Centre for Policy Dialogue