Business as Usual? Bangladesh’s Second Coronavirus Budget

Ever since the coronavirus pandemic hit Bangladesh in March 2020, the poverty rate doubled, household income declined, and the health and education sectors suffered. The country is in the midst of the third wave of Covid-19, which makes the national budget for fiscal year (FY2022) the most challenging to date. This article will look at whether the budget is a continuation of last year’s financial plan in relation to addressing the fallout of Covid-19.  

In June 2021, Finance Minister, AHM Mustafa Kamal presented Bangladesh’s 50th annual budget of Tk 603,680 trillion for FY2021-2022, which is 17.5 percent of the Gross Domestic Product (GDP), the same as last year’s revised budget. With the theme of ‘Bangladesh Towards a Resilient Future Protecting Lives and Livelihoods’, Kamal highlighted last year’s accomplishments without giving away too much detail of what the government intends to do for the coming year. He went onto say, “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”. The priorities set out by the Finance Minister reflect the current realities on the ground, but the problem remains the same, how to implement the allocations despite opening up the purse strings. At the height of the pandemic in 2020, poverty increased due to the 66 days of lockdown to control the spread of the virus. Budget allocation priority must aggressively confront pandemic-induced inequalities to ensure it benefits those hardest hit by the pandemic. The new poor are not part of any of the social safety net schemes and the list of the old poor is incomplete and faulty. Furthermore, Kamal did not provide any updated data on the poverty rate and instead maintained the 2019 estimated poverty rate of 20.5 percent. The governments ‘big’ plans to tackle the crisis has to include supporting informal sector workers as well as ensure Social Safety Net Programmes (SSNPs) are benefiting the most vulnerable in society while at the same time pledging accountability and transparency in budgetary allocations.

In 1991, the poverty rate stood at 56.07 percent and in 2010, it was 31.5 percent. Almost overnight, the achievements of the earlier three decades were wiped out in the 16 months that followed the first detected cases of Covid-19 in March 2020. Since the Bangladesh Bureau of Statistics (BBS) conducts the Household Income and Expenditure Survey every five years and the Labour Force Survey once every three years, the BBS does not have the latest data on poverty. According to its most recent data, the country’s poverty rate stood at 20.5 percent in 2019, slightly down from 21.8 percent in the previous year. However, local think tanks such as the Centre for Policy Dialogue, the Power and Participation Research Centre and the Brac Institute of Governance and Development, have all concluded from their surveys that the number of ‘poor’ people have increased from just under 35 million to well over 65 million. The figure includes the ‘new poor’, which is the proportion of the population that have been fallen into poverty due to the economic fallout of the pandemic. According to the World Bank’s Bangladesh Development Update: Moving Forward: Connectivity and Logistics to Strengthen Competitiveness, published in April 2021, it estimates the poverty rate has increased to 30 percent. Even so, the Finance Ministers refusal to accept the various findings of the non-BSS surveys meant that during his budget speech, he stated, “the poverty situation in Bangladesh did not worsen to a scale of catastrophe during the pandemic”. Although he did not share any official data, he announced that the government has plans to reduce the poverty rate to 12.3 percent by FY2023-2024, but did not elaborate on how the proposed target would be achieved.

Budget allocation

Ever since the beginning of the pandemic, the performance of the health sector as well as the Ministry of Health and Family Welfare (MHFW) has been dismal. Incidents of corruption have plagued the sector including the purchase of unfit Personal Protective Equipment (PPE), the issuance of fake Covid-19 certificates, and private hospitals operating without government-approved licenses. Allegations of corruption have been made of the Health Minister Zahid Maleque’s maternal nephew Raihan Hamid whose company BD Thai Cosmo Limited supplied materials and equipment to Sheikh Sayera Khatun Medical College Hospital in Gopalganj. BD Thai reportedly charged Tk 3,843 for a 15-watt bathroom light (market price Tk 250-550), Tk 3,751 for an 18-watt LED surface light (market price Tk 700-800), and Tk 1,556 for LED wall spotlight (market price Tk 300-400). Syndicates in collusion with MHFW officials also carried out systematic corruption during the height of the pandemic. The authorities responded by transferring a small number officials while many were given a slap on the wrist, which effectively let them off the hook and allowed corruption to thrive. Although the health sector received an increased budget allocation, the authorities have only used a fraction of the allocated funds, even though the sector has been the most focused area during the pandemic. Low implementation of funds is a clear testament of the MHFWs inability to rise to the crises, especially as institutional reforms have not been carried out for the sector as a whole. The MHFW, like all other government departments need to be held accountable on how it spends public money, have transparent procedures for procurement and tenders, and swiftly deal with any complaints related to corruption.

According to the Directorate General of Health Services (DGHS), during the first vaccination campaign that ran from 7 February to 26 April 2021, 5.8 million people received the first dose of the vaccine. However, the vaccination drive halted during April and June of that year due to a shortage of vaccines in the market. This unfortunate predicament could have been avoided if the government had listened to experts that suggested it should diversify its vaccine sources. Although the government initially planned to vaccinate 2.5 million of its citizens every month, it should be available to all eligible persons across the country and not just for privileged people. If the numbers were doubled to 5 million people every month, it would take nearly two years just to vaccinate 80 percent of the target population, therefore, increase the health risks, especially for the poor. To vaccinate such a large section of the population, the government created a Vaccine Support Fund in the budget by targeting to raise $2 billion in loans from donors. By not apportioning sufficient money for quick mass vaccination, vaccine scarcity and inequality has meant that poor people have to wait last in line to get vaccinated, whereas, the rich can afford to go abroad to be vaccinated or arrange vaccines to be brought into Bangladesh for personal use. As a health priority as well as for economic recovery, the government needs to implement a stronger and effective vaccination programme to keep Covid-19 under control.

The Government in its budget for FY2021-2022 has allocated 17.5 percent of the total GDP for public spending, investment, and employment creation. In comparison to its neighbors, the ratio of public expenditure to the GDP in India is 26 percent, 28 percent in Vietnam, and 30 percent in both Bhutan and Nepal. Depending on actual implementation, the ratio of public expenditure to GDP in Bangladesh decreases to 16 percent, while the average ratio among South Asian countries is 25 percent of GDP. Prior to the budget announcement, government employees were given a 20 percent bonus of their basic salary when many public annual events were called off due to the second wave of Covid-19. Much of the public expenditure in the proposed budget will also benefit public employees. The Finance Minister has gone to great lengths to protect the financial security of 1.4 million government employees whose combined monthly salaries and benefits total Tk 5,125 billion, as well as 650,000 retired employees who are paid Tk 1,917 billion per month in pensions, none of which have been subject to austerity. Furthermore, from the Tk 107,610 trillion allocated for social protection schemes, the government has set aside a quarter of that amount, Tk 26,690 billion, to provide pensions to retired government employees. This is an increase of 16 percent from FY2020-2021 and higher percentage wise compared to overall social protection schemes, which increased by 12 percent, but is lower than the average 17 percent growth allocation between FY2009-2010 and FY2021-2022. 

A 2019 World Bank report uncovered that 32 percent of public university graduates and 44 percent of private university graduates were unemployed in Bangladesh. According to Statista, the unemployment rate in Bangladesh increased from 3.38 percent in 2010 to 5.3 percent in 2020, the first year of the pandemic – from 4.22 percent in 2019. This situation was been made worse during the coronavirus pandemic where around one-fifth of the labour force became unemployed. The negative impact of the pandemic has been reflected in the decline of consumption and private investment. The regional labour market in South Asia has been particularly vulnerable since around 75 percent of the labour force are employed in the informal sector, but in Bangladesh, this figure is higher at just over 85% according to the Labour Force Survey 2016-17 of Bangladesh Bureau of Statistics. The small business sector, the country’s engine of growth and development, has been one of the worst affected sectors due to its high dependency on low-skilled labour, low health and safety standards and compliance, and limited access to financial services and markets. Economists as well as the sector itself stated the previous stimulus packages have not addressed the issues of the informal sector workers where the pandemic has forced reverse migration to rural areas following the loss of their jobs. The government faces a dual challenge. On one hand, it has to increase expenditure to provide employment opportunities for the 2 million people who enter the labour market every year as well as achieve economic growth. On the other hand, to directly deal with the fallout of the pandemic, it urgently needs to increase social spending, particularly in healthcare and social protection.

Budget Implementation

The expansion of the SSNPs were the third highest priority behind the development of human resources and rural development, and job creation. The government created two separate funds worth a combined Tk 12,300 billion under its enormous SSNPs, specifically targeting low-income and informal sector workers. Part of the funds, Tk 7,300 billion has been allocated for cash assistance to poor and vulnerable groups as well as addressing associated Covid-19 health risks. The remainder of the fund, Tk 5,000 billion has been set aside for assisting domestic workers, day labourers, farmers, and those affected by natural disasters like floods and cyclones. However, no details have emerged regarding how the beneficiaries of the government’s aid programmes will be identified. Experts have been insisting that the government prepare a national database of people that are eligible of government aid programmes. The BBS has been preparing a long overdue National Household Database, which was supposed to be completed by 2017. This could have been used to identify and help distribute cash support by the government. SSNPs have also undergone some discouraging changes. The overall SSNP budget increased from 17.75 percent in FY2021 to 17.83 percent in FY2022. The SSNP budget as a percentage of GDP saw only the slightest increase from 3.10 percent in FY2021 to 3.11 percent in FY2022. There have been reduction in allocation for a number of SSNPs such as programmes that protect livelihoods like the Work For Money and Skills and Employment Programme.

Sectoral Reforms

Although the healthcare sector was in deep waters even before the arrival of the pandemic, Covid-19, not only intensified the problems, but also revealed the fragility and inadequacy of Bangladesh’s healthcare system. According to a 2019 joint report by the WHO and the World Bank, every year, around 7 percent of households in Bangladesh are pushed into poverty because of out of pocket spending on health. Among South Asian countries, Bangladesh has the second highest out of pocket spending, over 73 percent and only second to Afghanistan’s 78 percent. Whereas all the South Asian countries spend $401 per capita as health expenditure, Bangladesh spends the lowest, only $110. Questions have been raised over how the MHFW have been spending public money, especially as allegations of mismanagement, irregularities and corruption have surfaced. For instance, the MHFW has disclosed that it had set up 97 RT-PCR laboratories for Tk 300 million. The unit price for each of the 97 RT-PCR machines was more than Tk 5 million, but the ministry failed to mention the brand name or country of origin. During the pandemic, private organisations procured and installed FDA approved American made Bio-Rad RT-PCR machines known for being the best quality machines in the market at half of the cost Tk 2.2 million. Therefore, the pressing question is, which brand of RT-PCR machines were procured, from where, and why did they cost Tk 5 million per machine? The healthcare sector needs major overhauling and institutional reform to combat the long-lasting challenges under a framework of transparency and accountability where public officials are held accountable.

Classroom-based learning came to a complete standstill on 17 March 2020 due to Covid-19. After 543 days of educational institution closure, students finally returned to classrooms on a limited scale. In the budget, the Finance Minister allocated Tk 66,400 billion for education, which is 11.69 percent of the total outlay and 2.09 percent of GDP. In terms of size and percentage of GDP, the allocation for the education sector remained the same as the previous years. Even before Covid-19, UNESCO advised the Bangladesh government to increase its allocation to 6 percent of GDP from its current rate. Civil society education forum Campaign for Popular Education have also been pushing for a similar incremental increase, which the government has ignored even though Covid-19 exposed the digital divide between rural and urban students in light of delivering television and online teaching. A report published in March 2021 by Groupe Special Mobile Association titled, Achieving mobile-enabled digital inclusion in Bangladesh stated that only 41 percent of mobile phone users in Bangladesh had a smartphone. This point was also highlighted in the government’s Covid-19 Response Plan for Education sector, prepared in May 2020. It stated that to reach children in poor households in rural areas required special consideration and an alternative to television and online delivery mechanisms. Furthermore, when schools reopen, children from remote as well as disadvantaged backgrounds will find themselves further behind their peers as their families will not be able to afford costly devices and data. The government’s lack of allocation for education clearly demonstrates how little has been understood about the damage caused by Covid-19 in the sector.

The controversial move to wholesale legalise black money without questions asked by the authorities regarding its source was a provision offered by the government during FY2021. The amnesty included any kind of untaxed income, which once it had been legalised, neither the tax authority or the Anti-Corruption Commission could question the source of the assets. Although it was announced on 30 June 2021, the opportunity for this would be discontinued in FY2021-22, during the scope of legalising black money, a record Tk 14,459 billion was whitened. Nevertheless, the door remains open for buying land, both residential and commercial properties through undisclosed income as long as tax is paid on it. Even with the caveat that various government agencies can ask questions in relation to the sources of the funds, critics have nonetheless declared that continuing the practice of legalising black money itself is ethically flawed. If a rate of 10 percent income tax is levied on black money in order to whiten it, this would send out the wrong and inconsistent message to law-abiding tax payers that pay around 20-25 percent income tax. In turn, this practice would serve to punish law-abiding citizens simply for complying with local laws; hence, discouraging people from paying their taxes that end up feeding the corrupt system and aggravates social and economic inequalities and injustice.

Conclusion

Used to a myriad of challenges stemming from natural disasters and political unrest, Bangladesh now faces an unprecedented situation in terms of health, economic and social risks. The pandemic has put the country in a position it has never been in before. Unfortunately, the second Covid-19 budget does not make it clear what lessons were learnt from the previous year’s budget. The government has been overwhelmed by the creation of a new group of poor people, which it has not able to provide adequate support for. Despite the increase in allocation, the real poor and vulnerable do not largely benefit from the SSNPs. For instance, around 65 percent of the government’s SSNPs went to the non-poor primarily owing political consideration in selecting beneficiaries, nepotism, and outright corruption. Although the budgetary allocation to the health sector was poor, the record of accomplishment of the MFHW was woeful in properly utilizing funds allocated to the health sector. Inept and corrupt officials were allowed by the authorities to continue their corruption without being held accountable. Without rooting out corruption in the MFHW, efficient and effective implementation capacities are not possible. Investment in the education sector has been hovering around 2 percent of GDP for more than a decade now. This did not take into consideration the disruption in the learning process of a large number of students due to lockdowns and the large digital divide between urban and rural students. The next big challenge for the government of Bangladesh is to make a balance trade-off between economic growth and expenditure on health and social protection systems.

 

 

 

 

 

 

 

 

 

 

 

 

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