‘There’s a disconnect between the proposed budget and reality’

Dr Hossain Zillur Rahman, executive chairman of the Power and Participation Research Centre (PPRC), discusses the proposed national budget for the 2022-23 fiscal year with Eresh Omar Jamal of The Daily Star.

What, if anything, stands out to you in the proposed budget, both in terms of budgetary allocation and  the overall budget narrative?

What perhaps stands out is the disconnect between the budget narrative and actual allocations. But that disconnect was there before, so it's just a continuation. In a way, I see this budget as a gradual consolidation of a certain economic policy approach of this government, which has been there for almost a decade. However, tax incentivisation of exports for products other than ready-made garments (RMG) is a bold new step, but to ensure results from this step will require, as before, many areas of process efficiency. On the flip side, three mega priorities appear to be out of focus: inflation distress, multidimensional poverty index, and the demographic dividend.

Can you give us an example of that disconnect, and elaborate on what this policy approach is?

We all know about the current inflationary impacts, right? A PPRC-BIGD survey has also talked about it. But if we look at the overall allocation for food-based social security programmes, there is actually a six percent decline between the revised budget for FY2021-22 and the proposed budget for FY2022-23. But in terms of budget narrative, there is a lot of discussion about providing support for the poor, etc. So this is one very clear example that addressing the distress caused by inflation does not appear to be a government priority.

The safety net allocation has declined to 2.55 percent of GDP in the proposed budget, down from 2.80 percent in FY2021-22. If we look at the overall social safety net allocations, to get the real allocation for the poor, you have to subtract two items: one is pension for government employees, the other is agricultural subsidies, which is for everyone. After these subtractions, the safety net allocation is Tk 76,039 crore instead of Tk 113,576 crore.

A certain policy stance is clear – and it has been clear during the pandemic, too. Inflation and issues related to the economic distress are not the priorities behind the budget planning. The government is going ahead with the idea of backing the larger macro actors. And the poor will just have to adjust to that, relying on the trickle-down theory.

Won't that increase inequality?

Inequality is clearly not the government's primary concern. The approach I see is for a growth of a certain type – and the government seems determined to back it at any cost. Some of the tax reforms proposed this year seem slightly more innovative. But I haven't seen any concrete measures to address inequality over the years, even though the narrative has always been that the government is concerned about it. That is another example of the disconnect I mentioned earlier.

But this will also affect the type and scale of growth. If you look at the budget's summary table, you will see that the projected overall investment rate will slightly go down, but GDP growth is shown to be higher. But there is no explanation for how GDP will increase with lower investment – that, too, in a more complex global scenario. And this may also be a part of what the government believes, that mega infrastructure by themselves will be the catalyst for growth, and other factors are not as important. The "software" of development is not in priority focus.

The government seems to think that the Padma Bridge, metro rail and other megaprojects, once completed, will drive up our growth instantaneously. Personally, I feel there is a big gap in understanding when their benefits will really start to take off, and the important role of other companion initiatives to realise the full benefits of these megaprojects – but these companion initiatives will take some time to fully take shape.

For the Padma Bridge, for example, we need an economic regeneration plan for the southern Bangladesh belt as a companion initiative to reap its full benefit. To plan how agriculture and industry can grow – let's say from Faridpur down the line to Barishal, Khulna and other places – will take time.

You mentioned the revenue generation side of these megaprojects. What about their repayment side? Should the budget have included a more concrete tax reform plan to make repayment of these loans easier down the line?

Yes. In fact, I think in this situation, the budget should have been both an accounting exercise as well as a political manager's exercise. This budget lacks the latter – which required better, tougher reform ideas. For example, even though we need subsidies right now, the subsidy regime could have been made more targeted and efficient through reforms. If you look at how inflation is described in the budget, it seems like it is wholly imported. But there are currently three drivers of inflation in Bangladesh: imported inflation, demand-driven inflation, and inflation due to market manipulation. The political managers needed to reform the market monitoring aspect of things. But they haven't done any of that.

The finance minister highlighted six major challenges for the upcoming fiscal year. Can this budget adequately address them?

Similar to the last several years, there is a disconnect between the budget narrative and the economic side of it. The budget narrative is full of feel-good rhetoric. But the economics doesn't match with it.

The budget says in Para 74 that controlling demand will be critical in containing inflation. But in Para 66, it says that the principal driver of growth will be demand. So even within the budget narrative, you can see inconsistencies. The budget talks about inflation. But if you read between the lines, you can see that it doesn't give that much importance to addressing the impacts of that inflation.

The government has talked a lot about reskilling. Essentially, Bangladesh is in a dwindling window of demographic dividend for roughly 10 years. But the type of policy and allocation that are needed to take advantage of this demographic dividend, if you look at the allocations for primary, secondary and technical education, is missing. And it's the same for the health sector.

We are in serious danger of getting off track in certain key SDGs. One of them is nutrition. The government could have scored some quick wins here. Primary education stipend, which has been absolutely stagnant, could have been doubled or tripled, giving an immediate boost – even to these nutritional needs.

Does decreasing the allocation to education as a percentage of GDP show a reluctance on the government's part to invest in the people?

I can't understand if there is a lack of analytical understanding by the government here. We needed an immediate project on learning loss recovery. That is not visible. When talking about learning loss recovery, the government talks about how it had continued online classes during the pandemic. But what about recovering the learning loss that happened in spite of that?

Even in regards to the development the government is expecting from its megaprojects, who will be involved in that? Don't we need skilled people? Without investing in our human resources, investments in infrastructure will not pay full dividends. Infrastructure on its own cannot trigger a process of change, unless the companion transformative pathways are also created.

Right now, the government can perhaps justifiably say that it cannot afford any more expenditure, so it couldn't provide greater allocation for education, health and social safety net programmes. But could it have transferred some of the allocations from other areas to these sectors, or provided more funds in any other way?

We can't look at it only from an accounting angle. Through institutional reforms, the government could reduce corruption and wastage, which are huge in Bangladesh. That would automatically save up more funds, and perhaps lead to quality investment, which is also a big part of what we need. It isn't just about providing more funds; better utilisation of funds would also make a big difference. The government has not given better management its due importance.

The last two budgets were prepared during the pandemic. This one has been prepared during another global crisis. Does this budget carry that message?

No, this time it's a bit different. There is a rhetorical recognition of the crisis, but the government seems more adamant to follow the type of growth policy it has had in mind, which is not being concerned about inequality, that inequality will be addressed through the trickle-down effect – which has always failed historically. The government's chosen approach is to invest in the bigger market actors, in megaprojects and infrastructure, which will drive the growth process. It has doubled down on its one-dimensional growth focus. But within that framework, the lack of human capital may prove to be a blind spot. And if this approach doesn't work out, macro-stability will get affected.

However, ultimately the economic outcome is only determined to a small extent by the budget. The innovative and resilient spirit of the Bangladeshi people are the bigger drivers of change.