National budget under Covid-19 and related issues


Jamaluddin Ahmed

Challenges: COVID-19 is an invisible enemy not limited by the borders of countries. It has adversely affected the economic, social and political aspects of human life. The running of the “Economic Machine,” through the creation of billions and trillions of economic transactions, has surrendered to the COVID-related lockdown cast on the people of Bangladesh. 

Bangladesh has been at the mercy of the disease since March 2020. Before that, we have experienced natural calamities such as floods and cyclones. Cholera, Malaria, Polio and many other diseases have been overcome, but COVID-19 has created panic in our public health system and social life has come to halt. 

Unlike Europe and other industrialised countries, our nation is built on strong familial bonds and the joint family system has influenced all aspects of everyday life such as the education system, professional life, business practices and economic management. This makes our way of life quite unique. 

The virus has created large barriers and disruptions to our way of life such as not being able to attend the Janaza of friends and family who have sadly passed away because of it. This means that we cannot perform our day-to-day activities following the religious and familial values in the way that our parents and ancestors have before us. 

It seems that the biggest challenge of overcoming the coronavirus is that we have to reorient our social, cultural, economic and political activities. If we think back to earlier this year, we had to abandon all public functions celebrating our Independence Day on the 26th of March. 

Bangabandhu’s 100 year birthday celebration, our Bengali New Year celebrations and even the Holy Month of Ramadan have also fallen mercy to COVID-19. 

Most importantly, from an economic perspective, our Economic Machine has been locked for the last 4 months and we have lost around BDT 4-5 lakh crore. We do not know how to recover this amount, and at the same time we are yet to predict the future losses or how long the disease will continue to hamper our economic progress. 

Barrier to the graduation of Bangladesh to a developing country: Obviously COVID-19 will adversely affect our graduation to a developing country. However the magnitude will depend on the continuation of the virus and also the ability of the global scientific community to create a vaccine to challenge its spread and growth. 

The faster we get the vaccine, the quicker we proceed with our development programmes and unlock our Economic Machine to reach pre-COVID era output. 

The adverse impact of the pandemic to our graduation process cannot be denied, but we can overcome this. We must estimate our recovery process using short, medium and long-term categories and revise the graduation plan by creating alternative scenarios and options. 

Impact of COVID-19 on poverty in Bangladesh: This year, the Bangladesh Economic Association (BEA) presented its Alternate Budget Document 2020 on the 8th of June 2020 through a Zoom conference. This presentation has been an annual practice since the fiscal year of 2015-16. This year, the COVID-19 impact was discussed from different angles. 

This Zoom conference was attended by 43 different districts of Bangladesh including Dhaka, our capital. Section 7.2.4 of the BEA Alternate Budget 2020-21 elaborates on the pandemic’s impact on poverty. 

The lockdown has halted the smooth operation of Bangladesh’s Economic Machine which has ultimately increased unemployment. The BEA attempted to compare the pre- and post-COVID class structure of Bangladesh population routing from pandemic and the findings are listed below:

Table-1 of the BEA Alternate Budget 2020-21 (page 41) describes the pre-COVID (Feb 2020) condition and post-COVID (31May 2020) impact on the different classes of the Bangladesh social system structure. The class structure is divided into the following: Total poor (10%) including the ultra poor (5%), the middle class (70%), subdivided into the lower middle (30%), the mid-middle (20%), and the high-middle (20%) class, and the rich class (10%) including the super rich (5%). 

The poor (20%) share total household income in pre-COVID period (Feb 2020) which has increased to 40% of households in post-COVID. In case of the ultra poor (10%), the percentage of households has increased to 25%. In the case of the lower middle class of pre-COVID, the number of households (30%) fell to 14% while the upper middle class (20%) fell to 13% in the same times. Regarding the richer groups, there is no reduction percentage in terms of households but it shows increase of household income share from 38.09% to 46.09%. 

Most significantly, the Gini-Coefficient Ratio and Palma Ratio in the pre and post-COVID is 0.482 and 0.635, 2.92 and 7.53 respectively which is a clear symptom of rising inequality in the Bangladeshi social class structure. Policymakers in such situation must carefully monitor to take necessary measures to overcome such a situation. 

The social class ladder transformation should be looked at in a very thorough manner. Depending on the length of continuation of COVID, the transformation of the social class ladder may increase further. If the COVID is sorted out quickly, then the damage may be reduced. However, the damage could also increase if not remedied soon.

Effectiveness of GoB incentive package and role of banks: The government’s initial response to the problem is encouraging through the declaration of the incentive package. The government of Bangladesh (GOB) decided to flow the funds to the garments workers through banking channels and mobile financial services. 

The GoB monetary package to the industrial borrowers, declared through the central bank, also deserves credit through the series of declaration to the banks. It also ensured that this is the beginning and not the end. However, with the grace of automation and reliable electricity and grid system, we are hopeful of deriving the benefit of keeping the Economic Machine functioning. 

The challenge remains to banks which are in the front line of implementing these packages. Both the bank management and board are required to monitor the effective implementation of these packages in the most diligent and reliable manner. If we can implement these programs efficiently, Bangladesh shall survive from the damage incurred thus far within the targeted timeframe. 

Initiative has to be taken by banks for the affected start-ups and others eligible under the series of GoB packages and banks are to be in close contact with the district chamber of commerce and the FBCCI as well as other chamber bodies such as the Women Entrepreneur’s Association alongside the existing clients and new borrowers. 

All the GM offices, area offices and branch managers have been instructed to support the new starts and existing ones within the GoB framework instructions. Supervision and monitoring from the highest to the lowest level must be ongoing. Whole nation is looking for positive results on the effective implementation of GoB packages. 

Regarding National Budget 2020-21: This year’s budget preparation has a different perspective because of COVID-19. The country is in a war-like situation because of the appearance of the pandemic in China since early January 2020 or late 2019. Bangladesh was not aware of the severity of COVID. 

Budget preparation in our country has been following a practice used since the times of the British East India Company and the Mughal Emperor Akbar. 

Because of the British rule of 190 years and the Pakistani rule of 23 years, Bangladeshis could not enjoy the budget preparation on their own terms. For the first time after the victory of 16th December 1971, Bangladeshis had the opportunity to prepare their own national budget. Every year, we prepare the budget following the practices inherited from previous colonial rulers. 

If we compare the GoB budget with the corporate budget, we observe that the capital expenditure ratio of corporations is higher than the revenue expenditure in the government budget. 

We observed that the proportion of operational expenditure is higher than the development expenditure. Bangladesh is currently following revenue to development expenditure in the manner of 60:40 ratio. This should be reversed to a ratio of 40:60 in terms of operational to development expenditure to achieve decent economic development. There must be a paradigm shift in order to graduate Bangladesh to a developed country. 

    (To be continued)


Jamaluddin Ahmed, PhD, FCA is the General Secretary of Bangladesh Economic Association and the Chairman of Janata Bank Limited. He can be reached through the email address: jamal@emergingrating.com