BUDGET FY2019-20: Unravelling the realities

The Daily Star  June 15, 2019

BUDGET FY2019-20

Unravelling the realities

Budget for fiscal year (FY) 2020 has not surprised us much. It maintains the status quo. One may, of course, argue that there is limited scope to demonstrate innovation through a budget since it is designed only for a year. But revenue collection and spending—two important activities of the budget—can have significant implications for the people of the country. It impacts our lives directly and indirectly. That is why a well thought out budget can help achieve medium- and long-term socio-economic goals of a government. So what precisely is the message of the budget for FY2020? Is there any new narrative for the future? What is there underneath the numbers that have been presented?

The economic context under which the budget for FY2020 has been announced is important to note. Gross domestic product (GDP) growth touched 8.13 percent, surpassing the target of 7.6 percent to be achieved by FY2019 according to the seventh five-year plan (7FYP) of the country. Per capita income has increased to USD 1,905 from USD 928 in FY2011. At 5.5 percent, the inflation rate is at a tolerable level. However, the external sector is facing challenges due to lower export and remittance income. This has resulted in negative current account balance. On social indicators, despite, lot of noises about spectacular achievements, some indictors such as maternal mortality, literacy rate and net enrolment at secondary level are far behind than targets to be achieved by FY2020. More importantly, high growth has so far failed to create employment in the economy and reduce inequality in the society. Thus, growth numbers were not meaningful for broader sections of the population.

The size of the budget is highest so far at Tk 5,23,190 crore. But that is still 18.1 percent of GDP and not large enough for an emerging economy. In FY2019, originally the size was 18.3 percent of GDP which became 17.4 percent in the revised budget of FY2019. What is always less pronounced is the performance against these numbers. Fiscal framework is becoming weaker day by day as both revenue collection and development expenditure targets remain unfulfilled. At the end of each financial year the budget deficit remains well within the target of 5 percent. This is because the capacity to spend is limited as is the capacity to generate revenue.

But the more noticeable part in this deficit is how to finance this deficit. This year there is an attempt to maintain a balance between foreign and domestic sources of deficit financing. Within domestic sources, bank borrowing will be the major source. However, in recent years saving certificate has become the dominant source of borrowing which is a costly source for the government. In FY2020, sale of national savings certificates is planned to be reduced by as much as 40 percent compared to last year. But the banking sector is observing a liquidity crunch. So how the government is going to borrow from banks without a crowding out effect on the private sector is something to watch out.

The budget does not take a strong position on improving the performance of a number of problematic sectors through concrete reform measures. The top of the list is the banking sector. Burdened with huge non-performing loans (NPL) and faced with liquidity crisis the banking sector needs a total overhaul to overcome the existing challenges. The amount of NPLs in the banking sector exceeded Tk 1 trillion for the first time in March 2019. The share of NPLs also rose to 11.87 percent of the total outstanding loans in the first quarter of FY2019 from 10.30 percent in the previous quarter. Without a full stop in the wilful default culture, curbing of political influence and corruption, and enhancement of efficiency, the banking sector will not get a new life. Sadly, the budget does not have much to offer towards solving such a serious problem. It talks of exit route for loan defaulters through insolvency and bankruptcy laws, but does not provide any details.

In line with higher budget, revenue targets are also set high. In FY2020, revenue target has been set at 13.1 percent of GDP compared to 12.5 percent in the revised budget of FY2019. High targets set during the last couple of years have been beyond the capacity of the National Board of Revenue (NBR). Without institutional strengthening of the NBR through meeting up human resource requirements and full automation, higher revenue collection is not possible. Budget speech does not shed any light on how revenue-GDP will be increased from the current low level.

The budget talks about creating three crores jobs by 2030. With a private investment hovering around only 23 percent of GDP for the last few years, how this additional employment will be created is somewhat fuzzy. A proposal to allocate Tk 100 crore for the training and employment of specific group of people is mentioned in the budget. But there is no clarity on the type of training and employment and the beneficiary groups. Besides, compared to the need of the large unemployed youth this allocation is negligible. There is also a commitment to allocate Tk 100 crore to provide start-up capital to the youth. One would expect that the distribution of this capital will be transparent.

Social sector has largely been ignored by successive governments. Total allocation for the education sector in FY2020 is 18.2 percent higher than the revised budget of FY 2019. However, if compared as a share of total budget, allocation for education has declined over time—from 12 percent in FY2009 to 11.7 percent in FY2020. Also, education budget is only 2.1 percent of GDP in FY2020. This is lower that the target of 7FYP. Similarly, allocation for health as a share of total budget has fallen from 5.1 percent in FY2019 to 4.9 percent in FY2020. Indeed, the share of health budget as percent of GDP remain at 0.9 percent since FY2017. This is lower than the target of 7FYP which was set at 1.12 percent of GDP.

In case of social safety net programmes, net allocation excluding pension is only 1.8 percent of GDP. This is much lower than the target of 2.3 percent of GDP as suggested in the 7FYP. As was pronounced in FY2019, the budget for FY2020 also refers to a Universal Pension Scheme. However, no allocation has been made for undertaking this scheme.

Given that the ruling party has implemented several budgets in a row, more innovation was expected in the budget. Instead, one sees several deviations from the political plank of the government that was reflected through commitments in its election manifesto during the national elections of 2018.


Fahmida Khatun is the Executive Director of Centre for Policy Dialogue (CPD).


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