Luxury expenditures to be discouraged, creating jobs to be focused, says Finance Minister
Amid the coronavirus crisis, writing a national budget presents untold difficulties. Finance Minister A.H.M. Mustafa Kamal played it mostly safe in his proposed document for the 2020-21 fiscal, which clocked in at Tk 568,000 crore, venturing “a comprehensive plan” with four main strategies including discouraging luxury expenditure and prioritizing government spending that creates jobs.
"We have taken up a comprehensive plan to overcome the possible negative impacts of the pandemic on our economy and people," Finance Minister AHM Mustafa Kamal said while placing the proposed budget for the fiscal year 2020-2021 on Thursday, June 11.
Under this plan, he said, they have taken measures that were necessary in the immediate term and would be looking to implement some in the medium term.
"We have also taken up a range of initiatives that will be implemented in the longer term to achieve full economic recovery," said the Finance Minister.
Due to sound macro-fiscal operation by the government during the last ten years, the Minister said, the Debt-to-GDP ratio is still as low as 34 percent.
This provides a cushion against any negative macroeconomic implication while they are increasing public spending to overcome the crisis.
"Secondly, we are creating loan facilities through commercial banks at subsidised interest rates for the affected industries and businesses so that they can revive their economic activities and maintain competitiveness at home and abroad," said the Finance Minister.
The third strategy is to expand the coverage of the government’s social safety net programmes to protect the extreme poor and low paid workers of five informal sectors from the sudden loss of their source of earning due to the pandemic.
"Finally, we will increase money supply to the economy while making a delicate balance between increased money supply and possible inflationary pressure," said the Finance Minister in his budget speech.
In light of the comprehensive plan and strategies described above, he said the government has declared a number of stimulus packages to support the emergency healthcare services, to protect jobs and to achieve smooth economic recovery.
Economic Recovery Packages
The economic recovery packages declared so far have totaled Tk. 103,117 crore, said the Finance Minister.
Amid this unprecedented global crisis, the Finance Minister said Prime Minister Sheikh Hasina has announced a number of stimulus packages totaling over Tk. 1 lakh crore to stand by the poor and helpless people, to keep up the momentum in economic activities, and bring back the trend in growth and development.
These are akin to the bold steps she took to save the country during the Asian Financial Crisis in 1997 and the Global Recession in 2009, he said.
The fiscal and financial packages announced by the Prime Minister is equivalent to 3.7 percent of GDP, which is the largest in the South Asia region.
The Economist, an influential London-based weekly, published on 2nd May 2020 a list of 66 emerging stable economies ranking them according to four measures of financial strength, namely public debt as a percentage of GDP, total foreign debt, costs of borrowing and foreign exchange reserves, and Bangladesh was ranked 9th from the top.
"Their estimate reflects our stronger position compared to most of the other emerging countries, and we thank Almighty Allah for that," said the Finance Minister.
At the onset of the coronavirus pandemic, there was a drastic fall in demand in the United States and European market and as a result, export orders to our export sectors including the readymade garments began to witness cancellation and postponements.
This threatened the jobs of about 5 million workers in our export oriented industries.
"To tackle this crisis, we have created a fund amounting Tk. 5,000 crore for the export oriented industries so that they can continue to pay salaries and allowances to their workers and employees," said the Finance Minister.
This quick action from the government has saved jobs of a large number of workers and employees, he said.
The partial shutdown in effect in the country since late March to contain the spread of the coronavirus resulted in massive slowdown in our economic activities.
"Given this context, in our bid to provide much needed support to the affected enterprises in the industrial sector, we have introduced a working capital loan facility of Tk. 30,000 crore at a subsidised interest rate for large industries," said Minister Kamal.
For the same reason, he said, the government has created another working capital loan facility of Tk. 20,000 crore at a subsidised interest rate for the Cottage, Micro, Small and Medium Enterprises (CMSMEs).
To facilitate the import of raw materials under the Back-to-back 6 Letter of Credit facility, the government has increased the size of Export Development Fund (EDF) from USD 3.5 billion to USD 5 billion, at a reduced interest rate.
"To improve our export competitiveness by financing the pre-shipment expenses of exporters, a new Pre-Shipment Credit Refinance Scheme of Tk. 5,000 crore has been initiated through Bangladesh Bank," he said.
The Finance Minister said they have introduced a special honorarium equal to the basic pay of two months for the doctors, nurses and other healthcare workers who are providing critical healthcare services to COVID-19 patients.
"We are aware of the fact that doctors, nurses and other healthcare workers providing healthcare services to COVID-19 patients and officials from field administration, law enforcing agencies and armed forces and other employees of public service directly engaged in enforcing government’s guidelines in this respect are at high risks of getting infected with the coronavirus and some of them have died," he said.
The government suspended payment of interest for the months of April and May against loans distributed by all commercial banks.
Borrowers of such loans will not need to pay interest proportionately, and of the total interest of Tk. 16,549 crore, the government will give Tk. 2,000 crore as interest subsidy, said the Finance Minister.
"As we are celebrating the Birth Centenary of the Father of the Nation this year, and as it is an auspicious year for our nation, we were fully confident that this year we would achieve the highest ever economic growth," Minister Kamal said.
He said the projection was to achieve growth in the range of 8.2 to 8.3 percent this year.
Kamal said all economic activities gathered a remarkable pace in the first eight months of the fiscal year, before being hit by the COVID-19 pandemic.
"All the media and think-tanks around the world were all in praise of our programmes and achievements. The Asian Development Bank made a forecast of 7.8 percent growth this year based on our performance in the first eight months. But unfortunately, all calculations about the global economy have been turned upside down under the impact of the COVID-19 global pandemic," he said.
The International Monetary Fund (IMF) forecasted that the global economy will shrink by 3 percent in 2020, while the World Bank made a forecast that the GDP growth in the South Asia region would merely be in the range of 1.8 to 2.8 percent.
The World Trade Organisation (WTO) forecasted that global trade is likely to shrink by 13 to 20 percent in 2020.
According to International Labor Organisation (ILO), there will be a reduction of global jobs equivalent to about 195 million full-time workers.
UNCTAD is forecasting that the global flow in Foreign Direct Investment (FDI) will shrink by 5 to 15 percent in 2020. In addition, it is forecasted that due to the global lockdowns and the historic slump in oil prices, global remittance is likely to reduce by 20 percent.
Health sector gets priority
As the country grapples with the coronavirus pandemic, Finance Minister AHM Mustafa Kamal answered a call from various quarters to beef up the country’s health sector, proposing the highest allocation of Tk29,247 crore for health services and health education sector, up by 23.44 percent from last year’s revised allocation.
“I propose to allocate Tk. 29,247 crore for the Health Services Division and the Health Education and Family Welfare Division in FY 2020-21, which was Tk. 25,732 crore in FY2019-20,” the minister said.
He said the increased allocation is proposed for the health and family welfare sector giving a priority to activities undertaken to combat Covid-19.
Kamal said 13 ministries and divisions are currently implementing programmes related to health and family welfare. “The allocation for this purpose in FY 2020-21 is Tk. 41,027 crore, which is 1.3 percent of GDP and 7.2 percent of total budget allocations.
He also proposed Tk 10,000 crore to fulfil the emergency requirements to combat the Covid-19 pandemic. "We have taken all-out measures to improve the health sector. To combat the COVID-19 pandemic, we are implementing different programmes worth Tk 5,500 crore under the Health Services Division.”
The minister said they have made a slight deviation this year from the traditional budget for the sake of effectively combating the deadly coronavirus and resolutely overcoming its economic impacts.
“A structural change has been brought in this year’s budget in terms of setting the priorities of the government. The health sector is given the highest priority, and provisions have been made for this sector in the form of additional allocation, incentives, compensations, etc. Agriculture is our second highest priority sector,” he said.
Kamal said they increased the allocation for the health sector, including that of the Sector Programme and projects, by a considerable amount in the last 10 years with a view to ensuring quality health services for the citizens of the country.
Besides, he said, they are also implementing various projects/activities to fulfill the government’s election pledges and improve infrastructure of the health sector. Most important of them include establishment of new medical colleges in Kushtia, Sirajganj , Manikganj , Jamalpur, Patuakhali, Tangail and Sunamganj , development of the e-health infrastructure to implement 'Digital Bangladesh', expansion of Shasthyo Surokhsha Karmasuchi (SSK) in eight upazilas, and establishment of secondary and tertiary health complexes at district, divisional and national levels.
RMG incentives continue
Coming to some important sectors, Finance Minister AHM Mustafa Kamal proposed to continue with additional export incentive of 1 percent in the next fiscal in addition to existing other incentives for the RMG sector.
Placing the proposed budget for the fiscal year 2020-2021 on Thursday, he said the government has kept on providing all kinds of benefits, including cash incentives, to the readymade garments (RMG) industry as it is the principal export sector of the country.
An additional 1 percent export incentive is being provided to all categories of RMG exports from FY2019-20.
However, due to the growing trade tensions and the recession in world economy, a downturn in global goods trade in 2019 and 2020 has been forecast. Therefore, Minister Kamal said, overall exports from Bangladesh, including that of RMG, have continuously been declining.
Due to a reduction in demand in developed countries, he said, RMG export this year is showing a negative trend compared to the previous year.
The Finance Minister said exports will reduce further in the coming days due to the global lockdown amidst the outbreak of coronavirus. However, he said, it is expected that the RMG industry will see a rebound with the support from the stimulus package being offered by the government to counter the COVID-19 pandemic. The Finance Minister also hoped that exports would return to the desired positive trend in FY2020-21.
Energy & Power’s Tk 26,758 crore, a slight decrease
The country’s power and energy sector has received an allocation of Tk 26,758 crore in the proposed national budget for the fiscal year 2020-21 placed in the Jatiya Sangsad by Finance Ministry AHM Mustafa Kamal on Thursday.
The allocation was reduced by Tk 1,293 in the coming fiscal as the sector had received allocation Tk 28,051 crore in outgoing fiscal of 2019-20.
Of the allocation in fiscal 2020-21, the Power Division received Tk 24,853.30 crore while the Energy and Mineral Resources Division got Tk 1,905.29 crore.
Announcing the allocation, the Finance Minister said the government with its firm commitment to ensure uninterrupted and quality power supply in the Mujib Centenary, together with “Sheikh Hasina’s commitment to extend electricity to all households”, has been relentless in facilitating a coordinated development in power generation, transmission and distribution.
As part of the Mega Plan to generate 60,000 MW by 2041, he said, the government has already been able to enhance the electricity generation capacity to 24,000 MW including captive and renewable energy, extend the electricity facility to 96 percent of our population, and raise the per capita electricity generation to 510 kilowatt-hour.
Currently, 48 power plants with a combined generation capacity of 16,875 MW are under construction, and the signing of agreements for construction of 12 power plants with a generation capacity of 2,785 MW are under process.
Further, the tendering processes for 6 power plants with a generation capacity of 650 MW is underway, he said, adding, “We have also taken up plans to construct 16 more power plants with a generation capacity of 19,100 MW in the near future.”
Identifying Payra, Maheskhali and Matarbari as Power Hubs, Mustafa Kamal said the government has been implementing a number of mega projects in the power sector.
He said the government is currently importing 1,160 MW electricity from neighbouring India as part of energy connectivity under regional and sub-regional cooperation.
An MOU has been signed with Nepal for bilateral energy trade, and negotiation has been finalised to import 500 MW of electricity from an IPP (independent power producer), he added.
Signing of a tri-partite MoU with Bhutan to import hydroelectricity via India is at its final stage. Negotiations to import hydroelectricity from Myanmar and North-east India are in progress, he said.
The Finance Minister said the government has been laying emphasis on solar energy-based electricity targeting to enhance the contribution of renewable energy to 10 percent of total power generation.
“We have so far been able to generate 628 MW of power from renewable energy, and power plants of a combined generation capacity of 1,221 MW are either under construction or in the planning process.”
Following the all-out efforts of our government, the total transmission lines have now increased to 11,119 circuit kilometers and the distribution lines to 560,000 km.
In addition, he said the government is moving ahead with the agenda of bringing all upazilas of the country under electricity coverage by December 2020. The Prime Minister has already inaugurated the full electrification of 257 upazilas, and the same programme for another 153 upazilas awaits inauguration, he said.
About the energy sector’s budget allocation, Mustafa Kamal said short, medium and long-term exploration plans have been taken in both land and sea areas to increase the gas production.
As a result, the gas production capacity in the country has now risen to about 2,522 million cubic feet (mmcf).
To meet the rising demand for gas, he said BAPEX has already completed the drilling of 29 wells as part of its plan to drill 108 wells by 2021.
After gaining the new maritime boundary, the Finance Minister said Bangladesh has framed the Onshore Model PSC 2019 and the Offshore Model PSC 2019 to start new rounds of bidding for blocks in onshore and offshore areas in the country.
To prevent wastage of gas, improve energy efficiency, and reduce monitoring costs by installing pre-paid gas meters, 260,000 pre-paid meters have been installed in Dhaka city and Chattagram region.
As the supply from domestic natural gas is unable to meet the ever-increasing demand for energy, he said two Floating Storage and Regasification Unit (FSRU) with a daily capacity of 1,000 million cubic feet have been installed at Maheskhali. The FSRU currently adds around 560 million cubic feet LNG daily to the national grid.
Further, to install a Land-based LNG Terminal at Matarbari with a 1,000 million cubic feet capacity, activities such as the Feasibility Study and the Terminal Developer Selection are currently in progress, he said.