Pandemic puts public financing to test

The Covid-19 pandemic will test public financial management (PFM) systems in countries all over the world in many ways, posing key challenges like reassessing fiscal policy needs and identifying additional financial resources.

While rich nations are putting billions aside to support industries and people without jobs, low-income countries are struggling to balance the book amid demands for tax cuts and needs for higher spending.

The Fiscal Affairs Department of the International Monetary Fund (IMF) has prepared a note to help governments strengthen their PFM systems to effectively respond to Covid-19 emergency needs and tide over an unfolding economic crisis.

It calls for improving emergency health services, ensuring essential public services and implementing new fiscal measures to assist businesses and people experiencing economic hardship.

Financial analysts in Bangladesh also call for a prudent management of public finance at a time when Covid-19 pandemic has put a dent in the revenue earnings and opened a floodgate of demands for additional funding in social protection, health and education, apart from supports for businesses – small and big.

Economist Dr Ahsan H Mansur does not see any scope at this moment to increase revenue earning or raise the tax rate, which is already high in Bangladesh compared to many countries. He thinks the revenue earning target set for this fiscal year is far away from being achieved and suggested that the target for the fiscal 2021-22 should be modest and realistic one.

"Whatever scanty earnings may be, the government has no option but to go for a bigger spending in areas like social protection, even if budget deficit spirals beyond 8% of GDP," said Dr Ahsan Mansur, executive director of the Policy Research Institute (PRI), a local research organisation.

Given the fragile health infrastructure laid bare in the Covid-19 pandemic, he stressed the need for enhancing efficiency in health care, engaging the private sector and widening insurance coverage to reduce the cost burden on patients.

"The government has to spend more in time where it is urgent. It needs to deliver food to poor people living in slums or on streets during lockdown," said the former senior official at the IMF.

He allayed the concern of inflationary pressure anytime soon since majority people would not have enough purchasing capacity.

Dr Ahsan Mansur referred to the poor implementation of projects under the health ministry, which even failed to make use of ICUs bought with World Bank money at a time when patients were crying for oxygen in hospital beds.

Revenue authorities should complete the long-pending reforms right now and they will start getting benefit after three years, the PRI executive director added.

Former chairman of National Board of Revenue (NBR) Dr Muhammad Abdul Mazid also feels the urgency for completing the reforms in tax and VAT administrations to raise the efficiency of the NBR so that it can support a liberal and bigger budget for FY22.

"At least they can complete automation process in income tax and VAT. They can install the automated VAT machines. This will help plug the loopholes and raise revenue earnings," he said.

"The next budget must be a bigger one, and definitely there will be a higher deficit. There is no point worrying about it now," Dr Mazid said.

The government will have to put money immediately in areas which would create jobs so that people earn money and spend. "Giving supports only to businesses will not help if people do not have money to buy," he pointed out.

He suggested prudent expenditure planning, giving high priority to education and health, not only spending on manpower and buildings, but also improving quality of services.

"The government should spend money for buying computers for students so that they join classes online," he said, pointing out that spending budgetary allocations for salaries and infrastructure, keeping pupils away from learning, would not do any good to education.

He deplored the inefficiency of the health sector in utilising whatever resources allocated to it in the current fiscal year.

"The health ministry should be made to clarify what it did in the last one year of Covid-19 and where it spent the bloc allocation kept aside in the budget," the former secretary of the Internal Resources Division said, citing the corruption and irregularities in health purchases that hit the headlines in the year of pandemic.

Former finance secretary Dr Mohammad Tareque believes that Bangladesh has the scope to borrow more from external sources since its foreign debt-GDP ratio is still low, 12-13% of GDP. "It can double, even triple. This option remains open for Bangladesh," he said, explaining the ways for the government to finance a big budget in time of pandemic when revenue earnings would be lower.

Referring to the previous stimulus packages which were largely accessed by big businesses, he felt that small businesses need to get priority this time so that the economy keeps moving.

"Big ones can help themselves. Small and medium enterprises are mostly left out, they need support," Dr Tareque said, suggesting that a database should be created from upazila level for ventures with capital as low as Tk5 lakh up to maximum Tk20 crore.

The IMF's Fiscal Affairs Department's note reads: "PFM systems are critical to support the efficacy of the government's emergency response, especially in health sector, which is under tremendous pressure since the Covid-19 outbreak."

Care must be taken to ensure that high priority expenditure, including that to support the vulnerable and to meet essential items, such as debt service, is not adversely impacted. Spending cuts would ideally avoid impacting on sectors already under stress due to Covid-19 impact (e.g., tourism and small business sectors), reads the note.

It also recommends that additional financial support from international financial institutions like the IMF and the World Bank should be explored and readied where needed.

Srinivas Gurazada, head of the Public Expenditure and Financial Accountability (PEFA) Secretariat, said in a blogpost that Covid-19 has put enormous strain on service delivery processes, prompting governments to focus on results or "what money buys" from budget allocations.

Since Covid-19 is bringing into question the ability of countries to meet their obligations under SDG 2030, the PFM needs to play a key role in achieving the SDGs in the post-Covid-19 world. The PEFA will prepare a global report to help members improve PFM in the post-Covid-19 world, he said.