An alternative national budget for next fiscal year

The national budget for fiscal 2020-21 is being formulated at a time when the global coronavirus pandemic is leaving a long-lasting stain on the economy.

A shift from conventional budgetary system to a three-year resuscitation strategy for Bangladesh is the need of the hour to inhibit the contraction of the economy.

The medium-term macroeconomic framework, through coordinated fiscal and monetary policies, will have to centre on employment to control erosion and increase income.

The economy had been in distress before the strike of the pandemic with jobless growth, slowed-down poverty reduction, declining export-import and unfulfilled targets of revenue collection.

There has been a liquidity crisis in the banking system as the government grabbed the yearly target of borrowing in six months.

COVID-19 blatantly points out the state failure in the provision of universal basic needs such as food, health, social security, education, etc.

From those living hand-to-mouth to those in the lower-middle class, the citizens are facing an existential threat as they starve and remain out of jobs in the absence of a fully-fledged social security system.

A large population is also out of the minimum wage jurisdictions and is deprived of basic amenities as they are employed in informal sectors.

The existing social safety net programmes are inadequate and marred with leaks. The health and education sectors are fraught with negligence and decreasing budgetary allocations.

The pandemic has also laid out in the open the frailties of the real sectors -- agriculture, manufacturing and services.

STATE OF THE ECONOMY

The gross domestic product (GDP) is the combination of investment, consumption, government expenditure and net of export and import.

The growth in GDP will further plummet due to further weakening of these four indicators, stemming from the pandemic.

The share of private investment to GDP has been hovering around 23 per cent in the last few years. The downturn will be swollen by income reduction, lowering savings and hence dwindling investment sourced from savings.

The earning from remittance has declined due to the pandemic and almost three lakh workers returned from abroad.

Loss of jobs and reduction of remittance earnings will dampen consumer spending, in turn constricting the GDP since private consumption is 70 per cent of the GDP. The reduction in the inflow of remittance will also hurt the rural economy.

The earning from export too has shrunk. The real sectors -- agriculture, manufacturing and services -- are hit hard by the lockdown.

BUDGET PROPOSAL AND SECTOR-WISE ALLOCATION

A budgetary outlay of Tk 5.23 lakh crore was proposed for the current fiscal year based on an estimated GDP of Tk 28.9 lakh billion, with a GDP growth rate of 8.2 per cent.

The coronavirus has struck its blow after 7-8 months in the current fiscal year. The lion's share of the expenditure, mainly of the annual development programme (ADP) and festival-centred consumption, is normally incurred in the last quarter. These were hit hard. 

There are various forecasts on the GDP of the current year and the next year. The most optimistic estimate is assumed here for the current fiscal year -- a rate of economic growth by 5 per cent.

With such a rate of growth, the revised GDP for the present year will stand at Tk 27.4 lakh crore.

Similarly, with an optimistic real rate of GDP growth of 5 per cent for the forthcoming year, the nominal GDP for next year is estimated at Tk 29.6 lakh crore.

I would like to present the draft estimate of an alternative national budget worth Tk 7.68 lakh crore for the coming fiscal year.

As the economy slims down, investment, consumer spending and export will drop, and hence high government expenditure is required to stave off the plunge.

The prime focus is on the sectors relating to universal basic needs and on the retention and creation of employment, particularly because of erosion of income and unemployment, aggravated by pre-crisis high unemployment and underemployment due to jobless growth and shortages in skills.

Accordingly, the sectors relating to universal basic needs such as health, full-fledged universal social security education and food security are given priorities.

Simultaneously, the thrust is on the enhancement of domestic capabilities through diversification, productivity augmentation, technological catching up and increased competitiveness in agriculture, manufacturing and service sectors.

The proposed strategy does not solely rely on export orientation rather emphasises expanding domestic consumption. Accordingly, the allocation framework is devised.

UNIVERSAL BASIC NEEDS

COVID-19 demonstrates the failure in state provision of universal basic needs such as food, health, social security, education, shelter, etc.

A full-fledged universal, not targeted, life-cycle based social security system with income support, national health services, child benefits, housing benefits, disability living allowance, invalid care allowance, state pension and jobseekers' allowance is a dire necessity.

This requires moving away from the current charity-based approaches and the proposed targeting-approach-based national social security strategy.

An allocation of Tk 1.63 lakh crore can be earmarked, which is 5.53 and 21.35 per cent of GDP and the budget respectively, a rise of 550 per cent from the current year.

A good many countries spend in double digits for social security.

An escalated Tk 1.26 lakh crore can be allotted for education, technology and research, which is 4.25 per cent of GDP and 16.4 per cent of the budget vis-à-vis 2.75 and 15.2 per cent respectively of the current fiscal year.

The healthcare is in shambles. The focus is to bring every citizen under the auspices of universal health care through the distribution of national health cards based on a national population database.

The extra expenditure required for the provision of a family doctor, nurse and infrastructure may be financed by tripling the current budget allocation on health.

The proposal sets aside Tk 1 lakh crore, which is 3.39 per cent of GDP and 13.08 per cent of the budget.

DIVERSIFICATION, COMPETITIVENESS IN REAL SECTORS

About 40 per cent of the population depends on agriculture.

Besides rice and potatoes, the country is hugely import-dependent as it needs annual import of 60 to 65 lakh tonnes of wheat, five to 10 lakh tonnes of maize, 80 per cent of its required oil, much of its sugar, pulse, spice requirements and all kinds of seeds.

This requires a huge investment in enhancing diversification. To ensure food security, there is a need for a public food distribution system by introducing the income-based rationing system. 

For such activities in the sector, Tk 44,463 crore can be proposed, escalating to 1.5 and 5.79 per cent of GDP and budget respectively from the current year's 0.97 and 5.4 per cent respectively.

There is a dearth of prudent planning in the manufacturing sector, exhibited by overreliance on export orientation with a concentration in a single sector.

The entire manufacturing process must undergo drastic makeovers with a balance between domestic consumption and export orientation.

While domestic consumption must be raised to enhance the domestic capability, concerted efforts have to be made to diversify the export destinations, particularly targeting the neighbouring markets of India and China.

Thus, specific strategies should be formulated by examining the nature of demand and institutional realities in these markets.

The thrust has to be on the enhancement of domestic capabilities through diversification, productivity augmentation, technological catching up and increased competitiveness in agriculture, manufacturing and service sectors.

Apportionment for industrial and economic services is proposed to Tk 21,639 crore, constituting 0.73 and 2.81 per cent of GDP and budget respectively, from those of 0.12 and 0.7 per cent.

Besides others, three mission-oriented equity matching facilities -- the green industrialisation fund, the diversification fund and the nationwide rural area regeneration industrial fund -- can be established to drive the much-needed changes.

SOURCES OF REVENUE AND DEFICIT FINANCING

The shrinkage of the economy will lead to declined income and value-added taxes and customs duties.

If the budget deficit is kept at 9.97 per cent, it can still be financed by foreign and domestic loans.

This is not the time to be concerned with the budget deficit and the debt-GDP ratio, which is at an acceptable 30 per cent in Bangladesh.

Chances of runaway inflation are slim due to depressed consumer spending and production.

Under such circumstances, the government has to embark upon a concerted strategy.

First, unnecessary expenditure such as capacity charge subsidies in the power sector and government largesse will have to be reduced without resorting to austerity measures.

Second, the government should look for easily accessible sources of revenue from the undocumented foreign workers in Bangladesh, activation of transfer pricing cell to reduce tax avoidance and re-examination of tax exemptions.

Third, efforts shall be made to increase foreign aid from bilateral and multilateral sources.

Fourth, obtaining multilateral and bilateral loans with low rate of interest, longer repayment and grace period shall be the priority to ease debt servicing, besides seeking relief, writing off and deferrals of debts.

Fifth, the government has to primarily source from the central bank, even if such requires printing of the currency as banks are already in a liquidity crisis and treasury bills and savings certificates are costly.

The writer is a professor of economics at the department of development studies at the University of Dhaka and chairperson of Unnayan Onneshan