The budget for the upcoming fiscal 2021-22 should attach utmost importance to the security of public consumption and jobs – besides addressing health risks, say leading economists of the country.
They say in order to maintain purchasing power, the fiscal deficit should be increased slightly to provide direct financial assistance to the existing poor, the new poor and those at risk of poverty in urban areas.
At a pre-budget discussion entitled "poverty, vulnerability and the current state of economy" arranged by The Business Standard, they also stressed the need for increasing the scope and amount of incentives for the protection of small and medium enterprises, especially those involved in catering to domestic consumption demand, outside the apparel sector and allocating fund for cash assistance to workers.
The economists said if consumer spending is not protected, people will be more prone to debt, immovable property sales, malnutrition and extreme poverty.
And if public consumption increases, the process of economic recovery will be easier because of an increase in demands for the products of small and medium industrial enterprises that are dependent on the domestic market, they added.
The government has the financial capacity to increase allocations for cash assistance to the poor and job security, and there is no risk to any macroeconomic index, they pointed out at the online discussion moderated by Zahid Hussain, former lead economist at the World Bank's Dhaka office.
Dr Hossain Zillur Rahman, executive chairman of the Power and Participation Research Centre (PPRC); Dr Ahsan H Mansur, executive director of the Policy Research Institute (PRI); and Dr Debapriya Bhattacharya, distinguished fellow of the Centre for Policy Dialogue (CPD) attended the event as discussants. Inam Ahmed, editor of The Business Standard, delivered the welcome speech.
The central bank's reserves are healthy, there is excess liquidity in the banking sector and the amount of government debt is low compared to the GDP, they pointed out adding that in this situation, the government will not have any financial problem in formulating a big budget.
The economists, however, called for enhancing the government's capacity to implement the national budget and various programmes and projects taken up under it.
They said even though large allocations are made every year, the implementation rate is very low. As a result, the long-term goal of sustainable poverty reduction is not being achieved, even if the government's revenue and expenditure estimates are accurate.
They further added that in spite of the fact demands are there for additional funds in the current financial year due to the coronavirus pandemic, the deficit has come down as the government's expenditure has reduced.
They recommended speeding up the necessary reform initiatives to increase the implementation capacity in the next budget.
Inam Ahmed, editor of TBS, said: "Because of Covid-19, our poverty rate has increased a lot. Vulnerability has also increased. Many people do not have a job. The financial situation of many has deteriorated due to increased health and medical expenses. Many people have been exposed to risks anew.
"Although our exports are somewhat fine, imports have declined. The economy is faced with various uncertainties. How this economy will address the challenges of poverty and vulnerability warrants discussion."
Dr Hossain Zillur Rahman said there have been many surveys on the impact of the coronavirus and the results of all the surveys show that the poverty rate has increased.
"The condition of those who were previously poor has deteriorated, and 2% of the people are in a severe food crisis.
"Added to them are about 2.5 crore new poor who were previously above the poverty line but had an income below the median income range. The first blow of the pandemic pushed them into poverty and a large part of them have not yet found a way to recover."
In the meantime, the increase in expenditure has become a source of pain for them, he said, adding that the house rentals in urban areas, utility bills, and costs of travel, health and education have almost doubled, causing a dent to people's savings and increasing the amount of debt.
"However, all these families are surviving with the help of their relatives and friends."
Ahsan H Mansur said the overall condition of Bangladesh's macro economy is still stable.
Explaining the reason behind this, he said, "The government has not spent a lot of money under the fiscal policy. There is a big surplus in the balance of payments. All in all, there is no crisis in the economy."
However, reviewing some of the financial and trade indicators, he said the economy has not yet got that much momentum.
"Our credit expansion is 8%, which is slightly higher than inflation but equal to the government stimulus for affected people and industries."
"Then, was no more credit given outside the stimulus?" he said.
Ahsan Mansur also questioned how there would be big growth in this situation.
He further added that the growth of term loans is still double-digit negative. The same is the case of machinery imports.
He expressed fear that big growth will not be possible with the investment trend.
However, the overall situation could have been worse, he said, adding, "We might have attained some growth. This is also a good sign, as it was not unusual not to achieve any growth at all in this situation."
He pointed out that many industries have bounced back amid the pandemic. "Although the export sector has not been able to reach the pre-pandemic level, there are indications that it will turn around. They are ready to expand if demand increases."
Dr Debapriya Bhattacharya said the risks to the economy would last longer than the health risks. He, however, said it would be very difficult to sequence these two risks and urged for integrated management.
He further said the next budget will have to protect consumption. Failure to do so will increase human indebtedness, poverty, property sales, malnutrition, and extreme poverty, he observed.
The area that should come second in the government's priority list security to employment, he said.
"To support these two areas, the government must take expansionary policy."
He further added that the budget deficit has been within the limit for the last few years, but it is due to non-implementation. "Even if the government wants to spend more money, there will be no problem in the future. The government has the capacity to implement large budgets due to lower inflation, higher reserves and limited foreign debt."
He said poor people have the highest marginal propensity to consume (MPC). For this reason, the financial support of the government should reach the poor people directly.
He further added that consumption protection and employment retention measures should be taken on the basis of very energetic, expansionary, direct fiscal support measures.
The economist went on to say that what the prime minister first gave for consumption protection last year was 0.03% of GDP and what has been announced this time is 0.054% of GDP.
He claimed that actually no such incentive is being given in Bangladesh.
"At this moment, it is most important to increase the disposable income of the people of the country on an urgent basis, increase the consumption level, and curb their poverty propensity. And the government has the financial capacity."
He suggested allocating at least 0.5% of the GDP for this purpose.
He pointed out that a large part of the government's incentives to protect jobs in the industrial sector have gone to the RMG sector.
He asked for announcing incentives for small and medium enterprises, especially for those who depend on domestic demand.
Dr Zahid Hussain said the economy has been facing several types of stress for the last 13 months. "We navigated the rough seas."
He also mentioned educational activities remained closed in the rural areas.
In spite of some online learning activities in urban areas, most of the students are deprived due to lower access to technology, he continued, adding learning poverty should be addressed properly.
He also said that the priority of the upcoming budget should be security. "First of all, the government should aim at providing health security, not financial security."
He commented that the poverty rate increased in the country due to the impact of Covid-19 and the trend is higher in urban areas. Health concerns also increased similarly.
"To address these problems, the government should reform priority in the national budget, which was absent in the formulation of the current budget.
Job recovery uneven
Hossain Zillur Rahman pointed to uneven restoration in employment saying some people, more or less, have returned to their works while some other professions are yet to recover.
He further said earnings recovery is slower, average income in March is 7% less than the pre-Covid period, and the fall is 14% among the urban poor. Income in rural areas increased 2% although reverse migration from towns added 10% workers in low-wage small and medium enterprises in villages during the pandemic, he added, stressing that SMEs need support for job protection.
In the micro level, about 8% are still unemployed in the last one year, who were at work before the pandemic.
"But between March and June, 41% of those who lost their jobs switched to other professions. In changing professions, people are being forced to take unskilled or lower skill jobs," he added.
He said though Bangladesh prioritizes upskilling to become a middle-income country, the fall in skills would have long-term effects.
Dr Debapriya Bhattacharya said many people are doing at least something in low skill jobs, but they cannot go back to their previous incomes.
Recovery path uncertain
Ahsan H Mansur said despite the good performances of some economic indicators, the overall economic situation still faces uncertainty.
"I thought at first that we would be able to recover in January-February. I am talking about the very beginning of the virus fallout," he said.
"Later, it seemed the recovery will be achieved in June-July as the economic rebound was fine. My expectations were later dashed as the second wave of the virus resurged in many parts of America and Europe. Then it seems that it will take September-October to recover," he added.
"Now as we face the second wave of the pandemic, the recovery deadline pushes back to January-February next year if Bangladesh does not witness the third wave."
Ahsan H Mansur sees the virus spread as a major risk for the future. He advised to ensure mass inoculation by manufacturing the Covid-19 vaccines locally.
SMEs need additional stimulus as they were largely deprived of the government's support due to banking complications.
Implementation remains major challenge
Economists have identified the lack of sincerity and efficiency in implementing a big budget.
Hossain Zillur Rahman said even though big budgets are announced every year, they are not properly implemented. For this reason, Bangladesh needs to come out of the discussion about the budget size.
He said the country already lacked budget implementation which has been intensified during the pandemic.
"Not a single penny has been spent out of the Tk100 crore allocation for research in the health sector," commented Hossain Zillur.
He said the issue of spending efficiency should be considered a major challenge in the upcoming budget. The issue of implementation still remains a strategic challenge.
Dr Debapriya Bhattacharya said despite the demand for more money, the budget deficit is not increasing due to the spending inability. In the past, budget deficits would have increased due to resource constraints. And now the budget deficit depends on the implementation of the budget.
"Absorption capacity is a much more important factor in determining fiscal deficit or financial liquidity infusion. Since we have not done any reforms in those areas, the government has become the victim of that problem," he noted.
He said the budget spending in the current fiscal year is less than the previous year. Non-ADP sectors account for the minor increase in expenditure. The biggest problem at this time is inability to spend.
Political-economic decisions needed
Dr Debapriya Bhattacharya thinks the bold political and economic decisions of the government can play a major role in increasing the budget implementation and ensuring the welfare of the poor.
He said there have been a lot of discussions about black money. There have been debates whether allowing black money is economically rational, socially fruitful or politically abhorrent. But the decision lies in the political economy.
He added people often neither are considered as human beings, nor as citizens. The state overlooks the citizens' rights. Powerful rulers treat everyone as their subordinates.
He further said when the democratic structure becomes weak; the influential quarters go out of accountability. Bangladesh is a classic example of how they [the influential and powerful people] embezzled people's money.
He said the banks, which were weakened through looting, were given Tk15,000-30,000 crore as new lifelines from the people's taxes. And no question arises when the government allows black money whitening. But there is too much fuss if allocation to people increased to Tk15 from Tk10.
He called on the government to stand by the poor with bold political decisions.