Does the budget walk the talk?

The finance minister has talked the right talk in the FY21 budget. Who can disagree with his proposition that structural change is needed "in this year's budget in terms of setting the priorities of the government"? 

In the Budget Speech (page 16), it is claimed that the "health sector is given the highest priority, and provisions have been made for this sector in the form of additional allocation, incentives, compensations, etc. Agriculture is our second highest priority sector. To boost food production, we will lay emphasis on farm mechanization, incentives for irrigation and seeds and rehabilitation of agriculture, and continue to provide subsidies on fertilizers. Expanding the coverage of social safety net programs to reduce hardships of the poor working people due to long general holidays and lockdowns is our third highest priority sector. And, the fourth priority sector will be job creation and rural development." 

What evidence should we look at to assess whether the announced budgetary allocations walk the talk? Allocations determine what can be done without guaranteeing that it will be done. The latter is about walking the walk i.e. implementation. That is a topic for another day.

It is not fair to assess the talk based on sectoral shares in the budget. The sectoral shares include the legacy expenditures which cannot be easily reversed. These are expenditures inherited from the past. The legacy expenditures are particularly sticky in case of the operating budget comprising of wages, supplies and so on. A lot of development expenditures through public investment projects also tend to be sticky either because the projects are at an advanced stage of implementation (Padma Bridge, for instance) or because they are too important to discontinue allocation in any given year (Dhaka Metro Rail Transport, for instance).

Thus, the fact that public administration, education and technology, transport and communication, and local government and rural development are the top four in terms of sectoral shares says nothing about walking the talk. These shares are heavily influenced by the legacy expenditures.

The changes in allocation relative to the revised budget can give a better picture. This is where the authority can exercise significant discretion because it is largely over and above the legacy expenditures.

The highest increase in allocation – Tk327.6 billion – has gone to public services. This includes the Tk100 billion block allocation for fighting the Covid-19 impact. It retains the number one position even if the Covid-19 allocation is excluded on the argument that it is likely to turn into health, social protection and may be even cottage and micro enterprise support if indeed spent where the impact is the gravest.

Education occupies the second place with Tk59.6 billion increase in allocation. Education here is defined to include primary, secondary and higher education. Science and technology are excluded because of the dominance of Rooppur Nuclear Power Plant. The increase is welcome, although it is not supposed to be among the top four priorities mentioned in the quote from the budget speech above.

Health occupies the third position with Tk55.6 billion increase in allocation. It is heartening to see it among the top three, but the talk was about making it the topmost. That clearly is not the case. Moreover, the amount of the increase barely exceeds the Tk50 billion support provided to garments in the first phase of the government's Covid-19 response. The infrastructural and human capital deficiencies in the health system unraveled by Covid-19 suggest the need for much larger allocation. Yes, there is the capacity to spend problem as far as the Health Services Division is concerned. However, if they cannot spend it, the needed work can be done by those who can. Sufficient budgetary allocation is needed to make that possible.

Transport and communication has the fourth position with Tk61 billion increase in allocation. These reflect increased allocations for roads, railways, waterways and civil aviation. Surely, given the Covid-19 pressure on expenditures, this sector did not deserve to be among the top four. It is not among the top four in the "talk" but the "walk" appears to have slipped.

Agriculture made to the fifth position with Tk29.6 billion increase in allocation. Bulk of the increase in allocation to agriculture is in fact towards ensuring food security as reflected in larger increase to the Ministry of Agriculture and the Ministry of Fisheries and Livestock. However, this was supposed to get the second priority.

Social security and welfare struggled to make to number nine position with Tk8.1 billion increase in allocation. This includes Social Welfare, Women and Children, Food and Disaster Management ministries. These were supposed to be among the third highest priority.

Finding the allocation for job creation and rural development is not easy. Arguably, all sectors can potentially contribute to job creation and even rural development (for instance transport and power). However, the sector where spending public money contributes most to employment is naturally the Local Government and Rural Development. Allocation to this sector has declined by Tk9 billion.

There appears to be a significant divergence between the talk (speech) and the walk (changes in budgetary allocation). One could argue that this is only a partial snapshot because it does not account for the sectoral incidence of changes in taxation policies. Indeed, there are some significant tax incentives on the supply sides of agriculture and health. But the point here is to assess the envisaged priorities on the basis of use of public money rather than changes in incentives for the private players.

It is doubtful whether health, agriculture, social protection, employment and rural development would rise to the top four even after the tax incidence are accounted for.

Does the budget satisfy the test of putting the money where the mouth is? The answer clearly is "no" based on the proposed changes in total budgetary allocation. It is easy to talk about changing the expenditure priorities. As is often the case, intent is never enough unless backed by doing something about it.