Dr. Hossain Zillur Rahman, executive chairman of the Power and Participation Research Center (PPRC), discusses the draft national budget for the financial year 2022-23 with Eresh Omar Jamal of The star of the day.
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What, if anything, stands out in the proposed budget, both in terms of budget allocation and overall budget description?
What perhaps stands out is the disconnect between the budget narrative and the actual allocations. But this 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 around for almost a decade. However, the tax incentive for non-ready-to-wear (RMG) exports is a bold new step, but securing the results of this step will, as before, require many areas of process efficiencies. On the other hand, three mega-priorities seem to be irrelevant: the inflation crisis, the multidimensional poverty index and the demographic dividend.
Can you give us an example of this disconnect and explain to us what this political approach consists of?
We all know the current inflationary impacts, don’t we? A PPRC-BIGD survey also spoke about it. But if we look at the overall allocation for food-based social security programs, there’s actually a 6% drop between the revised budget for fiscal year 2021-22 and the proposed budget for fiscal year 2022. -23. But in terms of the budget narrative, there’s a lot of talk about supporting the poor and so on. It is therefore a very clear example that the resolution of the distress caused by inflation does not seem to be a priority of the government.
The backstop allocation has decreased to 2.55% of GDP in the proposed budget, from 2.80% in the 2021-22 fiscal year. If we look at the overall social safety net allocations, to get the actual allocation for the poor, you have to subtract two elements: one is pension for government employees, the other is agricultural subsidies, which are for everyone. After these subtractions, the backstop allocation is Tk 76,039 crore instead of Tk 113,576 crore.
A certain political position is clear – and it was also during the pandemic. Inflation and issues related to economic distress are not the priorities behind budget planning. The government is moving forward with the idea of supporting the major macroeconomic players. And the poor will just have to adapt to that, relying on the trickle-down theory.
Won’t that increase inequality?
Inequality is clearly not the main concern of the government. The approach I see is for growth of some kind – and the government seems determined to support it at all costs. Some of the tax reforms proposed this year seem a bit more innovative. But I haven’t seen any concrete action to tackle inequality over the years, even though the narrative has always been that the government cares. This is another example of the disconnect I mentioned earlier.
But it will also affect the type and extent of growth. If you look at the budget summary table, you will see that the projected overall investment rate will decrease slightly, but GDP growth turns out to be higher. But there is no explanation of how GDP will rise with lower investment – that too in a more complex global scenario. And it may also be part of what the government believes, that mega-infrastructure alone will be the catalyst for growth, and that other factors are not as important. Development “software” is not a priority.
The government seems to think that the Padma Bridge, the metro and other mega-projects, when completed, will boost our growth instantly. Personally, I think there’s a big gap in understanding when their benefits will really start to take off, and the important role other complementary initiatives play in realizing the full benefits of these megaprojects – but these complementary initiatives will take some time to take full shape. .
For the Padma Bridge, for example, we need an economic regeneration plan for the southern belt of Bangladesh as a complementary initiative to reap all the benefits. Planning how agriculture and industry can develop – say from Faridpur to Barishal, Khulna and other places – will take time.
You talked about the revenue generation aspect of these megaprojects. What about their refund side? Should the budget have included a more concrete tax reform plan to make it easier to repay these loans later?
Yes. In fact, I think that in this situation the budget should have been both an accounting exercise and an exercise in political management. The latter is missing from this budget – which needed better and tougher reform ideas. For example, although we need subsidies right now, the subsidy regime could have been made more targeted and effective through reforms. If you look at how inflation is described in the budget, it looks like it’s all imported. But there are currently three inflation factors in Bangladesh: imported inflation, demand-induced inflation, and inflation due to market manipulation. Policy makers needed to reform the market surveillance aspect of things. But they did none of that.
The Minister of Finance highlighted six major challenges for the coming year. Can this budget respond adequately?
As in recent years, there is a gap between the budgetary narrative and its economic aspect. The budget narrative is full of feel-good rhetoric. But the economy does not go with it.
The budget states in paragraph 74 that controlling demand will be essential to contain inflation. But in paragraph 66 it says that the main driver of growth will be demand. So even in the budget narrative you can see inconsistencies. The budget talks about inflation. But if you read between the lines, you can see that he doesn’t place much importance on tackling the impacts of this inflation.
The government has talked a lot about conversion. Essentially, Bangladesh has been in a declining demographic dividend window for about 10 years. But the kind of policy and allocation needed to take advantage of this demographic dividend, if you look at allocations for primary, secondary and technical education, is lacking. And it’s the same for the health sector.
We are at serious risk of slipping away from some key SDGs. One of them is nutrition. The government could have scored some quick wins here. Allocations for primary education, which have been absolutely stagnant, could have been doubled or tripled, giving an immediate boost – even to those nutritional needs.
Does the decrease in allocation to education as a percentage of GDP show reluctance on the part of the government to invest in people?
I do not understand if there is a lack of analytical understanding on the part of the government here. We needed an immediate project on learning loss recovery. It cannot be seen. When talking about recovering learning losses, the government explains how it has continued online classes during the pandemic. But what about recovering from the learning loss that occurred despite this?
Even in terms of the development that the government expects from its megaprojects, who will be involved in this? Don’t we need qualified people? Without investing in our human resources, investments in infrastructure will not pay the full dividends. Infrastructure alone cannot trigger a process of change, unless the transformation pathways that accompany it are also created.
Right now the government can perhaps rightly say that it can no longer afford to spend, so it could not allocate a greater allocation to education, health and social protection. But could it have transferred some of the allocations from other areas to these sectors, or provided more funds in some other way?
It cannot be approached solely from an accounting angle. Through institutional reforms, the government could reduce corruption and waste, which are enormous in Bangladesh. This would automatically save more funds and possibly lead to quality investments, which is also a big part of what we need. It’s not just about providing more funds; better use of funds would also make a big difference. The government has not given better management the importance it deserves.
The last two budgets were prepared during the pandemic. This one was prepared during another global crisis. Does this budget convey that message?
No, this time it’s a little different. There is rhetorical acknowledgment of the crisis, but the government seems more adamant about following the type of growth policy it has in mind, which does not concern itself with inequality, that inequality will be addressed through the trickle down effect – which has always failed historically. The approach chosen by the government is to invest in the biggest players in the market, in mega-projects and infrastructures, which will stimulate the growth process. It doubled its one-dimensional growth target. But in this context, the lack of human capital can prove to be a blind spot. And if this approach does not work, macro stability will be affected.
However, in the end, the economic outcome is determined only to a small extent by the budget. The spirit of innovation and resilience of the people of Bangladesh is the main driver of change.