Pledges lofty, hard to deliver on

Finance Minister AHM Mustafa Kamal has stuck to his strategy of making higher allocation for the health sector to combat the pandemic, protect the poor and businesses, and speed up economic recovery.

"The main impetus for our economic activities is our people. This year's budget will attach the highest importance to the lives and livelihoods of people," he said while placing his third budget in parliament yesterday.

The Tk 603,681-crore budget for fiscal 2021-22 is 17.5 percent of the GDP, which is the same as the current fiscal year's revised budget.

This unmasks the harsh reality that the government could not execute the revenue and development plans because of lower implementation capacity, though opening the purse strings further was so important to support the battered economy, the poor and the vulnerable, and the businesses.

As expected, the health sector has been given the highest priority for dealing with the Covid-19 fallout.

The continuation of the stimulus packages, whose slow implementation raised questions, came second, pushing the agriculture sector to third.

The expansion of the social safety net programmes has been the third-highest priority sector this fiscal year. It was now placed behind the development of human resources and rural development, and job creation.

The finance minister's priorities reflected the reality. But the problem is they remained the same as in the current budget. Amid lower execution, the allocation for the next fiscal year has gone up.

The budget will also focus on stimulating the domestic demand through a raft of tax concessions to corporations and industries and also providing funds to the fast-track and priority projects.

Corporate taxes have been slashed, VAT exemptions have been expanded, minimum and advance taxes lowered, and duties on raw material imports have been cut, making it a business-friendly budget.

In a welcome move, Kamal did not renew the special provision in the income tax law that allowed a black money-holder to legalise his or her undisclosed assets, paying a penalty of 10 percent in the current fiscal year.

The finance minister cut corporate tax rates by 2.5 percentage points to 30 percent for the listed companies and 32.5 percent for the non-listed ones.

Despite the slash in corporate tax, the key index of the Dhaka Stock Exchange rose only 0.57 percent yesterday.

Kamal seemed to have taken the middle path when confronting the raging virus.

He presented the budget with the theme "Bangladesh Towards a Resilient Future Protecting Lives and Livelihoods" and talked about what was done last year. But what the government is going to do in the next fiscal year is apparently missing.

This is largely because a hard lockdown in April last year had crushed the economy and doubled the poverty rate, but the government support was not at hand for those who needed it the most.

On the other hand, a more relaxed approach took the daily death toll from the virus to more than 100 for the first time in mid-April and tested the capacity of the weak healthcare system, forcing the government to reinstate a stricter lockdown.

So, neither a nationwide strict lockdown nor a complete easing of restrictions could be expected. 

The allocation for the health sector has gone up by Tk 3,000 crore. But the overall allocation for the sector is still less than 1 percent of the GDP, in keeping with the trends in recent years. 

There were calls for higher budgetary allocation for the sector given the ongoing health crisis. But the lacklustre implementation of the development budget for the sector prevented the government from allocating more funds.

The Tk 10,000-crore emergency fund for the health sector and the vaccination programme will continue in the next fiscal year as only Tk 3,500 crore could be spent from the block allocation in the outgoing fiscal year.

Though the budget deficit target was set at 6.2 percent, which will make more funds available for the government to spend, the fiscal plan could not be described as expansionary if the demand for the continuation of state support to all sectors of the economy is taken into account.

Kamal will look to plug the budget deficit by borrowing from the internal and external sectors.

Mobilising funds from domestic sources such as banks and sales of savings instruments is easy, but it comes at a higher cost.

Though funds from development partners are the cheapest, using them will require more dexterity in spending and project implementation.

The treasurer kept unchanged the revenue generation target for the National Board of Revenue, which raises 85 percent of the money for the government.

Though the outlay for the social safety nets has increased, successful delivery is a key challenge. About half of the support still go to the non-poor.

The new poor are not part of any of the social safety net schemes. The list of the old poor is already a faulty one.

Kamal has formed a Tk 7,300-crore fund primarily to protect the targeted population from coronavirus outbreaks, provide cash assistance and address health risks.

Another Tk 5,000-crore fund has been created for the day labourers, farmers, domestic workers and those affected by natural calamities such as floods, storms and cyclones.

Revenue generation target has been set at Tk 389,000 crore, up from Tk 301,000 crore in the revised budget and Tk 378,000 crore in the original budget. But the actual collection in the outgoing fiscal year could be around Tk 260,000 crore.

With a number of tax and duty cuts and lower tax collection, how the government would finance the expenditure is a matter of concern.

Unless there are serious reforms in the tax administration to raise the tax to GDP ratio, the government is set to encounter serious problems.

Kamal acknowledged that the government could not successfully complete the reforms in revenue management due to the pandemic throughout the outgoing fiscal year and said he would continue the initiatives in the next one.

How many reform initiatives would be completed remains to be seen as the country has not fared well in making the tax generation system efficient, preventing leakages and evasion, and expanding the tax net even before the pandemic.

Like in the current fiscal year, Kamal plans to continue deploying the necessary manpower, providing equipment and logistics, enhancing skills and building the institutional capacity of the NBR.

He plans to return the economy to a higher growth trajectory and set a 7.2 percent economic expansion, up from a projected 6.1 percent in the outgoing fiscal year.

The government has devised a plan to vaccinate 80 percent of the people in phases, meaning it would need 24 crore doses to inoculate 12 crore people.

So far, 41.73 lakh people have received both doses, which is 3.4 percent of the target.

Now the government plans to inoculate 25 lakh peopleeach month initially. Even if it doubles the number to 50 lakh a month, it will take at least two years to vaccinate 80 percent of the population.

"We will be able to overcome the ongoing crisis of the second wave through mass vaccination," he said.

In order to boost food production, he put emphasis on farm mechanisation, incentives for irrigation and seeds, agricultural rehabilitation, and retaining subsidies on fertilisers.

The deficit would be met through higher use of foreign aid on the back of growing support from development partners.

He plans to use $13 billion in aid money, including $10 billion in project loans and $3 billion in budget support. The government aimed to use $8 billion in foreign aid in fiscal 2020-21, and managed to spend $4.8 billion as of April.

It projected that the overall investment as a percentage of GDP would go up to 33.5 percent in fiscal 2020-21.

The public investment-to-GDP ratio rose to 8.2 percent from 8.1 percent. But the private sector's share fell by 1.1 percentage points to 24.2 percent.

The private investment to GDP ratio also seemed an exaggeration and disconnected from reality. One of the indicators is the private sector credit growth, which remained very low.

Kamal also talked about paying special heed to implementation.

"Besides, we will give priority to those expenditure programmes that facilitate economic recovery by combating the long-term impacts of the pandemic, and ensure basic needs of the people by protecting lives and livelihoods."

On the downside, Kamal could not provide updated data on the poverty rate. Instead, he maintained the 2019 estimated poverty rate of 20.5 percent.

At the height of the pandemic last year, poverty doubled because of the 66 days of lockdown to rein in the spread of the virus.

The finance minister also disappointed the mobile financial service (MFS) sector.

He, however, acknowledged the role of MFS in bringing banking services to the underprivileged in remote areas and the use of mobile banking in transferring cash support to the poor.

He proposed raising the corporate tax rate for the non-listed MFS service providers from 32.5 percent to 40 percent.

This will deal a blow to the growing sector at a time when they are investing heavily to expand the service, bring the latest technologies, upgrade distribution channel, and raise awareness.

People working in the sector have described it as an anti-digitalisation move.

The minister expressed his gratitude to development partners for standing by the country during the pandemic.