Bngladesh Nationalist Party-BNP’s Budget Thoughts

“Bismillahir Rahmanir Raheem”

Bangladesh Nationalist Party-BNP’s Budget Thoughts

Fiscal Year 2020-2021

Venue: Chairperson’s Office, Gulshan-2.       Date: 09 June, 2020

Dear Media Friends,

Assalamu Alaikum,

The world is devastated by Covid-19 pandemic and how long it will continue is uncertain. Both public life and economy are in acute crisis in the tension of life and livelihood. Against this backdrop, experts view that this year budget will not be a conventional one and they are giving emphasis on a special budget, focused on ensuring public healthcare and alleviating their sufferings as well as restoring economy fighting the impacts of Corona. Many think that the new budget will be of no use unless the horror of Corona is reduced. The target should be to create an interim budget for next six months as the objectives of the full budget will be hardly achieved due to Corona. Again, many top economists feel that the budget needs to be formulated in the light of a three-year medium term recovery plan, moving away from the conventional budget system, due to abnormal contraction of the economy.

But in the midst of Corona crisis, the Finance Minister is going to announce a conventional budget for 2020-21 fiscal year set for May 10/11, 2020. According to newspaper sources, the size of the budget may be worth Tk. 5, 56,098 crore. The budget of current financial year is Tk. 5, 23,190 crore. In the current fiscal year, the growth rate of main budget was targeted to be 8.2%. But the revised rate is reportedly finally set at 5% being at sharp contrast with IMF, World Bank and Economic Intelligence Unit’s speculation that the GDP in the current fiscal will be 3.8%, 2-3% and 1.8% respectively.

The upcoming budget proposes a deficit of 6% of GDP. The amount of deficit may be Tk. 1 lakh 72,000 crore to Tk.75,000 crore. Proposed revenue collection of the next budget is estimated at Tk. 3 lakh 89 thousand crore which was Tk. 3 lakh 82 thousand crore in the current year. It is almost impossible for the NBR to raise such a huge amount of revenue (about 50% growth). So this year’s budget is going to be a utopian one – a mere paper work.

GDP growth in the next fiscal year said to be projected at 8.2% with average inflation rate of 5.4% is evidently indicative of an inconsistent target. Purchase orders in the RMG sector could be halved. Amid big uncertainty in revenue collection and significant fall in expatriate remittance, the demand for internal consumption will naturally go down. So the dream of such a GDP rate is quite hollow. Wrong goal will only beget wrong in all the sectors as there are major flaws in the macro-economic structure.

New ADP in the upcoming budget has reportedly been projected at Tk. 2 lakh 5 thousand crore. Of this Tk. 1.5 lakh crore will be from the internal resources and the rest will be foreign debts. The ADP of current financial year was Tk, 2 lakh 2 thousand 721 crore, most of which was left unrealized. In the coming budget Tk. 2,40,000 crore has been allocated in the non-development sector for employees’ salary, allowance, retirement allowance, subsidy, incentive and interest payment which was  Tk. 2, 31,000 crore in the current financial year, being only Tk. 9000 crore more than that of the last year.

The Government will save Tk. 5000 crore against fuel subsidy and Tk. 2,000 crore as export subsidy due to fall in export. Moreover surplus funds of Tk. 15,000 crore from autonomous bodies and semi-government agencies will be added in addition to the Government’s conventional income.

Current economic scenario of Bangladesh

Due to Corona crisis, production is almost nil in all the sectors other than essentials. Market demand is low. The situation is similar in the export-oriented industries as well. The Garment owners claim that, half of the work orders have been canceled. There can be little hope of further surge in demand even after Corona crisis is over. There will be crisis in cash flow which will severely hamper private investment and employment. According to a survey conducted by Light Castle Partners and Sheba XYZ, 52% of medium scale enterprises have been completely shut down since March 26. As the employment and income situation of the people is not expected to improve, they will cut their expenditure to size except for urgent needs and will try utmost to hold on whatever savings they have in their hands. Production capacity will fall in industrial sector. Many small and medium enterprises are more likely to close down. The same situation will prevail in the export sectors. Remittance flow will be hit severely. The rate of private investment in proportion to GDP has been hovering between 22-23% for many years. This is exactly when the country has been hit by Corona that left millions jobless in the formal and informal sectors due to the public holidays declared by the Government. Many factories had been laid off resulting in termination of thousands of workers. Many of them did not get their wages ad other benefits. The purchasing capacity of millions has come down to zero having a negative impact on economic activities and macro-economics.

Jobless growth has been a major topic of discussion. More than 1.4 million expatriate workers have returned home or are on their way back home unemployed. Poverty level has risen to 35% from 24.33% in 2016. Consequently, inequality in income and consumption has also increased. Meaningful government actions are a crying need to ensure job security. Incentives, grants, waiving of corporate tax etc. can be awarded on condition that the employees won’t be sacked/terminated. In Singapore, Government pays 70% of the workers’ salaries through their bank accounts. The US and India are also taking positive workers-friendly steps to avoid termination of workers. For the greater interest of workers, similar actions should also be adopted in our country and the money may be paid to the workers in their bank accounts. Moreover, various job creation programs need to be undertaken by the government.

Meanwhile cyclone Amphan has also had a negative impact on the economy. Coastal dams have collapsed due to lack of maintenance. In many areas people are still waterlogged. There has been ample damage to crops and resources. On the other hand, in the coming budget, the Government has reduced allocation of fund to the Ministry of Water Resources compared to that of last year.

It is imperative to reach hard cash to around 30 million daily wage earners, ultra-poor, low income people and lower middle class so that these helpless unemployed people, who lost their purchasing power may survive and thus spend the cash to revive the economic market. Cash has to be transferred to them. There is a need to create demand for goods in the market to which economic activities are inter-linked. Financial incentives from special government funds and not bank loans, should be provided on easy terms in the Agriculture, formal, informal and commercial sectors by detecting the genuinely affected organizations and entrepreneurs irrespective of their party affiliation. Hopefully, these steps will help the affected institutions turn around in a very short time, the benefit of which will be visible in the overall economy. In the same way, expatriates returned from abroad must be given administrative support including capital-aid with low interest to make them financially self- sufficient. But it is apprehended that the lion’s share of the bank loans announced by the government for the SMEs and formal and informal sector industries will go to the big loan defaulters. Government’s allocation of Tk. only 500 crore for the expatriates is simply inadequate. In BNP’s economic package we had recommended to allocate Tk. 1,000 crore for the expatriates who already arrived home and also for capital-aid and easy loan for them including those yet to return home. But unfortunately, the government so far has not adopted any effective program for distributing cash among the low income people. We hope that in the coming budget, the government will take effective measures to transfer emergency cash to the daily wage earners, extreme poor and low income people for at least six months and ensure transparent distribution through the military.

Deplorable health sector

Our health sector is severely neglected. While heath sector is enjoying enhanced allocation all over the world, it is constantly declining in our country every year. Though the government in March declared that it was fully prepared to deal with the Corona out-break, the ground reality is that the government frustrated the people. Even an ambulance equipped with ICU facilities could not be provided to transport a dedicated physician of Sylhet to Dhaka who tested positive for Corona. A doctor lost his life without treatment. The condition is so miserable that we don’t even have a single ICU ambulance for 160 million people. This is how the health system has totally collapsed across the country. Added to this, is the utter mismanagement, misrule, disorder, lack of transparency and unprecedented corruption in the health sector. Corruption in purchase of medical equipment and other goods for hospitals across the country including Faridpur General Hospital has gone rampant. The news of transfer of a doctor prior to a few days of his retirement, as punishment for not endorsing an unnecessary letter of indent has recently been revealed in the media. Surprisingly, two hospital directors were immediately transferred as they refused to accept low quality PPE and masks in the initial Corona phase. However, the government in an investigation later proved that those PPE and masks were indeed of low quality. On the other hand, many a people view that a significant number of physicians and health workers died from Corona while discharging their duties wearing these low quality PPE and masks. One will wonder as to who will shoulder this responsibility? Meanwhile it is learnt that the cost projected under the World Bank and ADB loans for the procurement of PPE, ventilators, masks, goggles including various health equipment are 2 to 3 times higher than the current market price. It is reported that proposals are being made for buying a goggles worth Tk. 500 at Tk. 5000, and a PPE worth Tk. 2000 at Tk. 4800. The people of this country have not forgotten the news of looting crores of Taka for buying products at exorbitant prices for hospitals across the country and for the “Ruppur” Project. Recently in a construction project of a youth training center, the   cost of each lift was shown at Tk. 2 crore, each AC at Tk. 52 lakh and that of each security light at Tk. 12 lakh. The helplessness in the health system has reached its extreme limits. At present, hospitals all over the country are in serious crisis of oxygen and oxygen cylinders. Artificial crisis is being created to inflate the price of oxygen and oxygen cylinders. Meanwhile, the prices of essential medicines have been hiked inhumanely amid mysterious silence of government. Moreover, the government has failed to place the health sector as the highest priority sector in the coming budget. The Government is underestimating the health sector. On the other hand in this third month of Corona detection, the nation has plunged into an uncertain horrible state of fear due to the sharp upward curve of Corona Infection. There is no way the economy can recover without effective prevention of Corona infection. With such a potential risk in the health sector, there is no respite for the economy.

On behalf of the Bangladesh Nationalist Party, we think that the budget needs to be formulated in the light of a 3 year recovery plan. In order to overcome this situation, a new system needs to be formulated in the medium-term budgetary framework combining monetary and revenue policy. It is also necessary to retain employment, prevent income contraction and give maximum importance on creation of new jobs in order to prevent shrinkage of economy. In this crisis, government’s failure to ensure basic human needs such as food, health, social security, education and housing has been exposed. Some programs taken under the banner of corruption ridden ‘Social security net’ are not adequate at all. Allocations in the public service sectors have seen sharp fall. Weaknesses in agriculture, industry and service sectors have also been exposed during this crisis.

Under the effect of Corona, the indicators in terms of consumption, demand, government spending, import and export have weakened day by day resulting in remarkable decline in the GDP growth. With the decline of income of the jobless people, shopping tendency is also on decline. Savings are being decreased with consequential decrease in investment. Expatriate remittance fell by 12% in March last. Such decrease in income, both domestic and overseas, the country will lead to a significant loss in consumption expenditure. It will have a massive brunt on the rural economy. In our country, the consumption expenditure of private sector is 70% of GDP. Meanwhile, the export income has decreased by about 6 % in last 6 months. Farmers are being denied fair price of their produce due to transport crisis. As a result, they will certainly lose interest in production next year. Activities of various small and medium industries, tourism and service sectors including formal and non-formal sectors have in fact come to a deadlock. Government should provide financial assistance to people without savings and the depressed sectors. As public spending and export decline, in an effort to boost aggregate demand, government must increase government investment as depression-time consumption. Increase in government investment will help generate the GDP rate.

We think in preparing the next budget the following issues need to be addressed :

• Our financial assistance package proposal of Tk. 87000 crore declared on 4^th April on 2020 for providing emergency cash assistance, distribution of ready food and essential commodities, opening of temporary shelters for the uprooted, giving financial support to garments and export oriented industries, formal and non-formal industries, agriculture and expatriates, and for food procurement should be considered as the primary basis for the formulation of next budget.
• In this time of crisis, top priority should be given for protection of human live and livelihood without emphasizing much on economic growth.
• Government investment needs to be increased to stimulate aggregate demand due to decline in investment, consumption expenditure and exports.
• Allocations need to be increased on a priority basis for basic needs such as health, social security, labor, agriculture, education, local government and rural development.
• Strategic measures such as diversification of agriculture, industry and services, production and technological capacities, productivity and competitiveness need to be taken.
• Rural income need to be enhanced by increased agricultural production, ensuring profitable commercial agriculture, food and nutrition security, and creating employment in agriculture and rural areas. Extensive agricultural, poultry and livestock loans should be provided on easy terms.
• Assistance in the export sector including readymade garments should be continued. Exports need to be diversified. Alternative markets need to be found out.
• An active monetary policy needs to be adopted to ensure cash flow in the market. This monetary policy will have to bear the responsibilities of stabilization and development under the traditional guardianship of Bangladesh Bank. Various remedial measures have to be taken beyond conventional system for the revival of economy. The economic package given by the BNP on April 4 made specific recommendation in this regard.
• Target and sector-specific recovery programs need to be adopted. Emphasis should be placed on eradication of poverty and inequality and creation of employment.
• It is the responsibility of the state to ensure supply chain of essential commodities in times of crisis and this should not be left to the normal market mechanism. In order to overcome the social insecurity in the institutional life cycle of the jobless, able-bodied unemployed and the poor employees need to be given cash support and financial incentive. Otherwise another brunt like Corona might jeopardize the crisis.
• Massive investment in the education sector is a must to increase efficiency and introduction of social security systems and creation of universal public health system. Employment in agriculture, industry and services sector need to be retained. Areas for creation of new jobs have to be granted huge incentives.
• The state means the people. It needs to be confirmed that people’s money does not get concentrated in the hands of a handful. Incentives should go only to the actual victims. It should be put in mind that although business is important, employment is the regulator of an economy.
• Corona has exposed the collapsed health system across the country. For the greater interest of public health, health system has to be restored, restructured and stabilized. The financial package announced by BNP on April 4 initially focused on the health sector and recommended for initial allocation of Tk. 15,000 crore on an emergency basis. In the long run, sustainable health care needs to be institutionalized so that in addition to general health care, a sufficient number of specialized hospitals are established to deal with crisis such as the Corona epidemic, which will always be prepared on a war-time footing in a built-in system.

Life cycle based social security activities and universal health and education

A large number of people in Bangladesh are now hungry, insecure and without income. Marginalized people, specially those living from hand to mouth need to be provided cash assistance (cash transfer) under the universal social program. Those working in the informal sectors should be given unemployment allowance, disability allowance, child rearing allowance, pension allowance and health benefits under the said program. Initially, 6-7 percent of GDP should be allocated to this sector. The allocation for this sector in the last financial year was only 1.01% of GDP which is 5.6% of the budget.

Health sector

The health sector is under severe threat due to inadequate budget allocation, shortage of medical equipment, infrastructural weaknesses, poor quality health care and unplanned expenditure. The challenges in the health sector need to be tackled holistically and proper strategies should be adopted in consistent with adequate health budget. A clear reform outline needs to be taken from the lesson of Corona crisis. Every person should be brought under national universal health system by issuing a national health card. The poor should be brought under health allowance. 5% of GDP needs to be allocated for the health sector as per BNP’s Vision-2030 as announced by its Chairperson Begum Khaleda Zia. BNP had pledged health care for all and appointment of a registered doctor (GP) for every person. It also promised to implement universal health care system in the country.

Meanwhile, the government’s allocation for the health sector in the current financial year was only 0.88% of GDP which is 4.9% of the budget. The tragic picture of our fragile health system has been exposed during the Corona Crisis. On the other hand  the, Govt. is set for giving traditional health budget ignoring the fact that radical reforms including huge allocations in the health sector are an inevitable reality. The government initiative is limited to taking two or four new projects and increasing research allocation. The Ministry of Health spends only Tk. 25,000 crore a year on health care for 16-17 crore people, which is less than 1 per cent of GDP, the lowest in the 48 countries in Asia and the Pacific. Surprisingly, it has been reported that the allocation for the annual development program of the health sector in the coming budget is less than that in the current financial year (Prothom Alo-6/6/20).  It is learned that Tk. 5,040 crore has been allocated for health, population and nutrition projects in the next financial year, which could better be used for essential health services like specialized hospitals, ventilators, ambulances, oxygen cylinders etc. in the health sector which is the crying need at the moment.

Education, technology and research

Ongoing higher education activities are failing to create new knowledge, develop skills and create active citizenship. The importance of using the Internet during the Corona crisis has become more apparent. Considering the importance of virtual communication / video conferencing, social media – Facebook, Twitter, etc., special allocation should be made in the field of IT technology and research. This sector will be considered as one of the alternative sources of income in the future. We need to spend 5% of GDP on education, IT & Research as envisaged in BNP’s Vision 2030.

Diversification of agricultural production and technological capacity

40% of the population is still dependent on agriculture. Bangladesh is still dependent on food import, although food self-sufficiency is voiced aloud. Adequate food stocks need to be built to ensure food security. It is imperative to establish an income-based balanced mass food distribution system for low and the middle income people. In the next budget allocation for agriculture and food sectors should be accelerated to 1.5% of GDP or 5.79% of budget allocation, which, in the current fiscal, was 0.97% and 5.4% of GDP and budget respectively. Allocations to industrial and economic services need to be increased by 0.73% of GDP or 2.81% of the budget which was 0.12% of GDP and 0.6% of the budget in the current financial year. In addition to this, Equity Matching Fund can be set up and programs like diversification, green industrialization, rejuvenation of rural economy, integrated industrialization and infrastructure development can be taken. Small, medium and new entrepreneurs should be given priority. An agricultural commission should be set up for the purpose of overall agricultural development and transformation of sustainable commercial agriculture.

Source of money

As the economy has shrunk, income tax and value added tax will also decrease resulting in lower revenue collection. To finance the budget deficit, emphasis on foreign debt will be needed. Budget deficit and GDP-debt ratio should be kept limited within tolerable range. Inflation situation need to be strictly monitored even if there is less possibility of inflation due to poor consumer spending and production. For financial arrangement following integrated strategies may be taken.

• Unnecessary expenditure must be reduced, but austerity should not be pursued lest demand and expenditure drop. Subsidy in capacity charge in power sector should be eliminated; additional manpower in the government should be taken care of.  
• Sectors of easy tax collection will have to be explored. For example, 1 and half billions dollar in terms of income tax and work permit charges can be realized from 2.5 lakh unregistered foreign nationals working in the country. Taxes from multinational companies will have to be raised by activating transfer pricing cells. All the domestic companies which are given group tax benefits need to be reviewed.
• Efforts should be made for increased foreign grants from bilateral and multilateral sources.
• Only long-term low-interest and grace period accompanied foreign loans should be taken.
• Internally loans can no longer be taken from banking sector because the banks are already in liquidity crisis. Treasury bill and saving certificates will only increase date-payment expenditure.  It is the Bangladesh Bank that will have to cater for necessary fund to the government. But how much liquidity will be released to the market depends on the amount of money that will compensate for the loss of money contraction, or put the inflation within tolerable level. Action must be taken according to the given situation.
• Liquidity flow decreases at the beginning of any crisis. Therefore, banks need to be activated. The central bank can set up a foreign currency import fund if necessary, in addition to late payment to importers. Exchange rates need to be stabilized to avoid disruption to trade flows. The central bank can go for currency swaps and barter measures, and control capital outflows. Monetary policy alone or providing liquidity alone will not relieve this crisis. An active revenue policy will be required.

Banking sector, loan defaulters and lack of good governance

Microfinance borrowers have been found to be relatively less defaulters. Those who borrow large sums are usually the biggest defaulters. Many defaulters borrow money and smuggle it abroad without repaying the loan. Nowadays the big shot defaulters also influence the system of governance. The state becomes ineffective when this class of people creates or acquires the power to create unwanted obstacles to political decision-making. Recently, it was reported that the MD of a private bank was humiliated and manhandled by the owners of a corporate group. He has been unjustly threatened with death. A case has also been registered with the police station. Even then the accused managed to flee abroad reportedly by an air ambulance. When the state apparatus helps the criminal to escape, that state is certainly a dysfunctional state. It is reported that a situation was created to let them go scot free. As the political decision are influenced by such criminals, an accused convicted of murder gets pardoned and after release again charged for committing murder. Forgiveness for humanitarian reasons, and forgiveness for political reasons is not the same. In such a situation the common people start feeling helpless. When the common people get to think that he will not get justice, the state begins to collapse. People lost confidence in the existing system of governance.  According to the report of the multinational organization WEALTH-X, Bangladesh has topped the list among the countries where the number of rich people increased in the last one decade. The list rich person of these group owns more than 5 million dollar in assets. One does not need to be an expert to understand how Bangladesh rose to the top in this regards.

Layoff  of apparel sector workers

According to media sources BGMEA president has recently made an official announcement of retrenchment of workers in garment industries. According to the BGMEA president it is not possible for the entrepreneurs to keep 100% workers under 55% capacity. Although it was later claimed that no layoff was announced, the president only expressed her concern over the possibility of layoff. However, in this Corona crisis, the employers have taken incentive of Tk. 5,000 crore so that the workers do not lose job. Receipt of incentives and laying off of workers cannot go simultaneously. The point is retrenchment of workers in this time of crisis will be an inhuman incorrect decision.

Expatriate support package

Government has announced a loan package of only Tk.700 crore including Tk. 200 crore taken from Wage-Earners’ Fund, a fund built out of the expatriate’s savings, at 4% interest. It should be mentioned that the opportunity to give loan from expatriate welfare bank on easy terms already exists. In fact the government tried to gain without spending.

Subsidy and corruption

It has been reported that in the next fiscal year 2020-21 Tk. 47,885 crore has been allocated under the subsidy and incentive head. It is claimed that the subsidy is being allocated for the implementation of the announced government incentive package for fighting Covid 19 crisis. But the real picture is that the LNG sector will be subsidized by Tk. 8,500 crore in the next financial year as well as in the current financial year, Tk. 9000 crore will be conceded to power sector in the coming fiscal year. Government is subsidizing the private sector rental power companies to the tune of Taka 4000 crore every year as capacity charge even without purchasing any power just to fulfill the terms of the contract. This condition has been put at the time of signing the contract so that the money can easily be plundered from government treasury without generating electricity. Those who are responsible for this have been given impunity under law. About Tk. 40,000 crore has been looted from this sector since 2012 against capacity charge alone. In the next fiscal year money earmarked for subsidy also includes this money paid against capacity charge.

While providing cash assistance to the extremely poor was vital as done for their citizens in other parts of the world the government hardly did anything for this category. It was extremely important to provide the poor day labourerers with Cash assistance. Only selling rice at low price without cash assistance will be of little use for the helpless poor as most of them have no ability to buy rice. This opportunity for selling of rice at low price has been misused by a sect of people as blessing for them to make money. Arrangement of distribution of rice in the name of relief instead of cash assistance in the next budget has only paved the way for indiscriminate corruption.

The Daily Prothom Alo of May 18 reported, “Corona virus has become blessings for some”. Opportunists are using this crisis as a tool of making money. The names of rich people from Awami League are known to have been included in the OMS card. The very scant amount of money of Tk. 2500 of per head as Prime Minister’s Eid gift through mobile banking also struck headlines of the national dailies. The news caption reads as follows, “306 names against 4 mobile numbers to receive PM’s Eid gift.” It had been said about the loan defaulters that loan defaulters will not be benefitted from the incentive. But it is learnt on May 11 that the restrictions on disbursement of loans to defaulters have been lifted from the industrial loan package (BD News 24.com, May 11). According to an economist, loan defaulters will eat up all the incentives and good entrepreneurs will get nothing worsening the condition of the banks (BD News 24.com, 11 May). People have not forgotten various irregularities of ruling party men, money laundering, casino scandals, extra judicial killings, mega thefts under mega projects and misappropriation of money by unnecessarily increasing project cost, corruption of thousands of crores of taka in the name of capacity charge without buying electricity, before the outbreak of Corona.

Covid-19 is giving a hint of a kind of change (New Order) in the global society, economy, and politics. Without radical change, the economy will stagnate indefinitely and social stability will suffer. How this change will happen will depend on the people’s relationship with the state. In other words, in a democratic system, the government is accountable to the people. How a country will benefit from a changed world order will, of course, depend on political wisdom and farsightedness. This political wisdom works only when the normal democratic system exists in the country which is, at present, totally absent in our country. The present Awami league government have no accountability to the people as they don’t care for the people’s mandate. Due to the questionable election the government suffers from legitimacy. Yet in the midst of the current Corona crisis, in the greater national interest, we called for a united national effort, regardless of party affiliation. But the government ignored the call and pushed the whole nation to state of extreme risk and uncertainty. The failure to deal with the Corona crisis and its social, political and economic consequences must be borne by the ruling party government.

Allah Hafiz

Bangladesh Zindabad

Mirza Fakhrul Islam Alamgir,

General Secretary

Bangladesh Nationalist Party -BNP