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.

A bad argument about inequality

It’s a common refrain amongst Bangladeshis of a certain age and socioeconomic background that “four decades of independence / two decades of democracy and we’ve got nothing”.  When you point out that in terms of per capita income or life expectancy or most other measurable metric, things are much better in 2012 than they were in 1992 or 1972, the argument changes to “but we have fallen behind this, that or other country”.  Then you point out that, for example, despite being half as rich as India, Bangladesh does better on a range of socioeconomic metrics, showing we have not fallen as much behind as they fear.  When you do that, the last line of pessimism among these doomsayers is “ah, what about inequality'”.

Yes, inequality has risen in Bangladesh over the past decades.  Is this a bad thing?  Perhaps.  Perhaps not.  For example, when compared internationally, Bangladesh doesn’t apper so unequal.  When discussing the subject, we need to explore why we think inequality has risen, and how we think it is affecting the society.  There are strong grounds for possible concerns with rising inequality.  Unfortunately, Rezwana Abed and my friend Syeed Ahamed make a rather poor argument about inequality in their latest Forum piece.

CPD vs Mr Muhith

 

One of the less discussed side effect of 1/11 was the loss of quality output from Centre for Policy Dialogue.  For the uninitiated, the Dhanmondi-based think tanks styles itself as Bangladesh’s Brookings.  And under Debapriya Bhattacharya, the organisation did produce several in-depth and critical analysis of Bangladesh’s economy and public policy in the middle of last decade. 

Then 1/11 happened, and Mr Bhattacharya was sent to Geneva by the then regime.  Analytical products churned out by CPD in the following few years were of a far lesser quality.  However, he seems to be back in Dhanmondi, ostensibly as a ‘Distinguished Fellow’ (whatever that means).  And their latest assessment of the economy is easily one of the best out of Dhanmondi in recent years (and one of the most comprehensive report on the subject). 

This doesn’t mean I agree with everything in the report — this is economics, there is always another hand, always something to disagree on.  But I’ll shelve detailed discussion of the report for later.  For now, let me focus on why it has earned CPD the ire of the Finance Minister. 

The Finance Minister has said the report is ‘totally rubbish’ because it raises questions about recent economic growth performance.    Over the fold, I give a primer of the issue, the CPD’s argument, and my take on it.