Corona Budget: the Long View

The public discourse around the budget in Bangladesh is limited to a few days in the middle of June when news outlets parrot the government talking points, and a handful of critics recycle the same arguments — that the budget is unrealistic (if not based on false data) and not pro-poor enough (if not actually enabling the rich to become richer through massive public corruption).  Remarkably, hardly anyone ever mentions the medium term macroeconomic policy statement (MTMPS) — the most important document released by the government every June.

I wrote very similar words a decade ago, in the Daily Star Forum.  Along with fellow Drishtipat writer Syeed Ahamed who used to pen a piece titled Budget: the good, the bad, and the uncertain, the July issue of the Forum would print the Long View where I would analyse the MTMPS (yes, an ugly acronym if there ever was one — must have been an econocrat who came up with it!).

Much water has flown through our delta over the years since both Drishtipat and the Forum ceased to exist.  But a few things remain unchanged: the government still publishes the MTMPS in the Ministry of Finance website; hardly anyone talks about it; and the budget discourse is still same as it was then, albeit done more in Facebook than anywhere else.

The Statement typically begins with a summary of the key budget announcements, before providing a detailed analysis of the macroeconomic projections — how fast the economy is expected to grow, driven by which sectors, and what that means for external balances or inflation, and ending with a fiscal analysis — expenditures, revenues, deficit and its financing, and the dynamics of public debt.  Interesting side note: the current Secretary of Finance, Abdur Rouf Taluqder, led the team that put together the country’s first MTMPS in the mid-2000s.

Published in the midst of the most severe economic crisis in over four decades, the importance of this year’s MTMPS is self-evident.  The document is internally consistent — that is, the fiscal outlook is consistent with the macroeconomic narrative.  Of course, it would be an understatement to say that there is considerable uncertainty around the macroeconomic outlook.  The truth is, no one know when and how the world will recover — when and how the pandemic will end, what and how the society will adjust to, and therefore how fast the world economy will grow by when: no one has any answer to these questions.

As such, any quibbling over the numbers in MTMPS is completely besides the point.  Much more important is that the Statement has no scenario analysis — what if the world does not evolve the way Mr Taluqder’s talented team expects it to?

This is not a rhetorical question.  The Statement is based on the IMF’s World Economic Outlook from April 2020, which projected the world economy to contract by 3% in 2020 on the assumption that the pandemic would end in the first half of the year.  Judging that this assumption was no longer tenable, the Fund updated its forecasts in June — the world economy was now projected to contract by 4.9% in 2020.  Emerging and Developing Asia, of which Bangladesh is a part, was now expected to contract by 0.8% in 2020, compared with a 1% growth forecast in April, with the downward revision reflecting a worsening pandemic.

The IMF revisions alone might render the MTMPS less-than-credible!

It is regrettable that risks and uncertainties aren’t explored at all in the Statement, as some back of the envelop calculations show that the government could well face some difficult choices in the coming years.

Revenue — a good news story

This is Dr Nasiruddin Ahmed.  Chances are, you’ve never heard of him.  I hadn’t until recently.  And yet, he is arguably the most successful econocrat in today’s Bangladesh.  Dr Ahmed is the Secretary of the Internal Resources Division of the Ministry of Finance, and the Chairman of National Board of Revenue.  That is, he is the country’s main Taxman.  Under his leadership, since April 2009, NBR — the taxation agency of Bangladesh — has led the effort to raise revenue for the government.

As this chart shows, revenue-to-GDP ratio has been rising steadily over the past decade.  The chart also shows that since 2009-10 financial year, revenue-GDP ratio has risen at a faster pace.

More importantly, and in a rare feat for Bangladeshi bureaucracy, revenue-to-GDP ratio has essentially met the target set by the 2010-11 Budget over the subsequent two years.

And now, in the latest Budget, the government has set an even more ambitious task for the taxmen.

Will they achieve their task?  I am cautiously optimistic that they will.