The proposed budget, amounting to Tk 568,000 crore for the fiscal year 2020-2021, is the largest-ever in the history of Bangladesh. This is a dilemma to have this big budget during these Covid-19 days. In one side, we need more government expenditure to fight with the corona crisis. On the other side, because of the pandemic, economic activities become shrunk that results less government revenue. This means more budget deficit. In the proposed budget, the deficit (including grants) is about 32.74 percent(it is 5.8 percent of the Gross Domestic Product, GDP) or Tk 185,987 crore. If we exclude grants, the deficit becomes about 33.45 percent(it is 6 percent of the GDP) or Tk 190,000 crore. If the government is stick with continuing the normal economic activities (if lockdown zoning is not undertaken properly), more people will be infected by the Coronavirus. It also implies that government is taking preparation to face herd immunity for its citizens. In that case, about 60 to 70 percent population will be infected by Covid-19 and they will need more medical attention meaning extra government spending will be required in health sector. More than 50 percent among the infected people will be in working class and they will not have any income for a certain period. Government should also extend safety net programs for the temporary unemployedpersonnel. On the other hand, if government again takes decision for stricter lockdown, economic activities will be limited again and government revenue will be shattered. Moreover, there will be huge social costs of second time lockdown (in terms of crimes and law and order situation). Overall, this will be a big challenge for the government to implement the budget of the fiscal year 2020-2021.
Some economic analysts claim that the budget falls short to be Covid-19 responsive. Before saying that, they should explain how the expenditure should be reallocated into different sectors so that it can be more pandemic responsive. It is not easy to reduce allocation from any sector. Nobody said that budget allocation was more than necessary in any sector. So, we can increase more spending to fight against Covid-19 crisis by two ways, one to increase more spending, in that case the deficit will increase(it is already 5.8 percent of the GDP in the proposed budget). Other way, we can raise the health and other safety net expenses to cope with the current crisis by reallocating the budget from other sectors. I do not know which one the economists will prefer in this situation. But I believe that they should advocate clearly from where the additional money will come and how the money will be redistributed. It is not enough to say government should increase allocation into this or that sector. This is a fashion nowadays to criticize the government without giving constructive and helpful policy advice.
I think the size of the budget is in a timely manner. The biggest challenge for the government is to collect tax (Tk 3,45,000) and non-tax (Tk 33,000) revenue.It becomes more difficult because of Covid-19 situation. However, it is not impossible to collect the revenue if government can digitalize tax collection procedure, and can promote online business activitiesby giving tax incentives to entrepreneurs those who are interested to do internet-based business (at least some share of their business should beonline).Government has already started taking different initiatives to make revenue collection process online. But, it requires more attention for digitalization in economic activities within the country and with foreign countries. Government can facilitate online business expansionby providing infrastructural access (like internet access and training on how to do online business) to all kind of business entities(like luxuries and daily necessities including groceries). This will create new jobs for receiving, processing and delivering online orders. Of course, some people will lose their jobs too because of lacks of online knowledge and decreasing demand for manpower in stores. However, most of the unemployed people due to corona crisis will get back their jobs gradually once the crisis will be over. If people become used to purchase goods online, after the corona time the demand for online purchases will be sustained (at least partially) along with the store purchases. That will help increase the aggregate demandof the economy faster and will raise government revenue. It is wise to mention that it may take a couple of years to regain the normal economic rhythm after the crisis.
Deficit financing will not be easy at all. Because of global economic downturn, the access to foreign borrowing (Tk 76,004) will be difficult. However, efficient bargaining and diplomatic efforts can make it easier. Domestic Borrowing (Tk 1,09,983) from both the banking sector (Tk 84,980) and non-banking sector (Tk 25,003) will be almost impossible because of economic slowdown during the Covid-19 days. I think printing money will be the last resort to finance the deficit. Getting more grants (not that much easy at this current situation and of course highly skilled diplomatic initiatives are required) also can help in this regard. Moreover, effective digitalization of the economic system can minimize deficit to some extent.
Another big challenge is to spend the allocated money efficiently in different sectors. Last few months, we already observed that our health system was too weak to fight with the Covid-19. It is not because of funding crisis. It is because of fragile health system and inefficiency of the health department. It is long way to go to overcome the uncertain crisis. I think money will not be a big problem to fight with the current pandemic if government can make sure the budget implementation process will be transparent and accountable. Digitalization in economic activities specially in health sector can improve the monitoring and efficiency at a great extent. It will take time to have full digitalized economic system, however, it should be expedited. Government should focus, monitor and evaluate the implementation process of the budget on a quarterly basis. I believe that frequent evaluations will accelerate the implementation rate and quality throughout the fiscal year. Capacity building (by providing training and other facilities) is must specially in health sector to implement the budget successfully for the fiscal year 2020-2021.
(Dr. Nazmul Islam, Economist, Visiting Assistant Professor of Economics at Colgate University, U.S.A., and Assistant Professor of Economics, Department of Humanities, BUET. Email: [email protected])
