More spending in priority areas is the key: CPD

The lack of institutional capacity and reforms, malpractices and widespread corruption were the reasons why the government failed to blunt the adverse impacts of Covid-19, said the Centre for Policy Dialogue. 

At a virtual event on the state of the economy, the think tank stressed on raising allocations for priority areas and removing constraints on spending in the next fiscal year. 

Increased revenue generation – 13.4% – in 10 months since July of this fiscal year, surplus liquidity in the banking system and lower debt-to-GDP ratio were favourable factors for spending more on protecting lives and livelihoods in the pandemic. Instead, the budget implementation dropped two percentage points in the July-April period, compared to the same period a year ago, observed the Centre.

The government spent only 42% of the allocation in the first 10 months, which was 43.9% in the previous year, said Towfiqul Islam Khan, senior research fellow of the CPD, while presenting the keynote paper.

Spending on development activities came down to 29% from 33.2% of the FY20.

Though fighting Covid-19 called for higher spending in health, education and social safety net, the overall budget deficit was lowered by 42%.

Towfiqul expressed concerns over the sluggish implementation of the Annual Development Programme. He said all the ministries and divisions had spent only 48.7% of the original ADP allocation in the first 10 months while the implementation of foreign funds was 47.5%.

The pace of implementation was the lowest in the Health Services Division that was among the top ten recipients of budgetary allocations, he said, while there was an increased pressure on public spending on health.

Revenue growth not enough to meet the target
The government last year set a target to achieve 43.7% revenue growth. To meet the target, revenue collection should increase by 123% in the two remaining months of the fiscal year after registering 13.4% growth until April.

Tax revenue went up by 10.5% following 9.3% contraction in the July-April period of FY 2019-20. The target was to increase tax revenue by 56.3% in the current fiscal. A whopping 182% growth is required in May-June to reach the goal, Towfiqul said.

The CPD recommended formulating an expansionary budget for the next fiscal year, focusing more on equity, redistributive justice, job protection and saving lives, and less on economic growth.

Towfiqul said the budget should set targets for employment generation and growth in income at the household level, rather than GDP growth or per capita income.

A large number of people lost their jobs and income, which reduced consumption and savings, and increased poverty and inequality, he said, adding that these issues must be addressed through more public spending. 

Towfiqul sought more allocations for health, education, social protection, agriculture, and small and medium businesses and recommended increasing tax collection by checking tax evasion.

An expansion of budget may seem irrational when a large portion of the budget of this fiscal year remains unused, said distinguished fellow of CPD Mustafizur Rahman. 

But the size of the budget is not big enough compared to other countries and it should be increased, he added. 

Budgetary spending hovers around 24% of GDP on an average in the South Asia region, whereas it is around 18% in Bangladesh. In this context, increasing budget and spending capacity become equally important, Mustafizur said. 

He said healthcare services should be expanded in remote parts of the country to reduce the burden on hospitals in Dhaka. 

The CPD said a large portion of the stimulus packages had gone to big entrepreneurs, and small businesses had been deprived for lacking connections with banks and other irregularities.  

Many of the cottage, micro, small and medium enterprises have remained outside the banking system, which is why they did not get access to stimulus funds. 

Mustafizur said loan disbursement to small entrepreneurs should be increased through microfinance institutions and Palli Karma-Sahayak Foundation.

The CPD suggested forming a task force comprising representatives from Bangladesh Bank, commercial banks, ministries, and business associations and civil society members to monitor distribution of stimulus funds. 

Cities and adjacent areas are becoming hubs of new poor Mustafizur said. They should be brought into the coverage of social safety nets. 

CPD Executive Director Fahmida Khatun said other countries in South Asia spend 4% of GDP on social safety nets. The National Social Safety Strategy formulated four years ago provides for social safety net coverage of three crore poor people but it has not yet been implemented. 

Research director Khondaker Golam Moazzem emphasized the need for making lists of beneficiaries of government support. "There is a severe dearth of government data and there are inconsistencies in the data available."

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