【Dhaka】If there ever was a challenging time for fiscal policy, this is it! The budgeting season for the government has started amidst a potential global health and economic crisis whose depth and duration are as uncertain today as when it started.
The uncertainties are not likely to dissipate in the near future. Bangladesh is highly vulnerable to the public health and economic risks. There is limited fiscal space with deficits and public borrowings already on the rise for the past year and a half. Revenue mobilisation and expenditure prioritisation will be hugely challenging. The capacity to borrow from domestic sources without causing harm to industry and financial markets will face more severe tests. Business as usual in both the revised budget for fiscal 2019-20 and the new budget for fiscal 2020-21 will not do. The primary goal of fiscal policy has to be to expand the capacity of the health system to test, quarantine and treat more patients. Even though the virus has not yet spread in Bangladesh to an extent seen in East Asia, Iran, Europe, and America, the risk to public health is immense and growing by the hour. Fighting the virus is therefore the overarching priority. The question now is not whether to increase the public spending on health; the question is how quickly and effectively this can be done. It requires a fiscal response to flatten the economic costs curve, not just over time as in the case of COVID19 spread, but also across different affected groups. This will inevitably kink the fiscal deficit curve for a year or two the least. Such a kink is unavoidable. The economic impact of the behavioural and policy response to fight the virus is likely to be deep and wide enough to be beyond handling through fiscal readjustments within the existing resource envelope. We need bold and creative initiatives to make the costs of the livelihood disruptions bearable at the point of incidence.
For now, the sorts of response required are: to support individuals, in the informal and formal sectors, who lose income; help affected businesses to prevent this situation from having long term damaging effects; and ensure the delivery of public services. Providing support to households dependent on livelihood from informal sector will be the biggest challenge. It will require broader and continuous access to safety net programmes. This should be the new key focus of the revised fiscal 2019-20 budget and the fiscal 2020-21 budget. Too many Bangladeshi households live on the financial edge in the informal sector. They need support whether or not they meet eligibility requirements for safety net programmes. Of the total 60.8 million employed in 2016-17, 85 per cent were in the informal sector. Many of them are on the brink of losing their daily income even without a lockdown.
Bring on fiscal policy
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