Budget 2020-21

An Analysis by Research and Policy Integration for Development

(RAPID)

Highlights of Budget 2020-21

Fiscal Year 2019-2020 (R) 2020-2021 Growth

Budget 5,01,577 5,68,300 13.24%

Budget (% of GDP) 18.64 17.91 -3.92%

Budget Deficit (% of GDP) -5 -6 -20%

Income

Revenue Income 3,48,069 3,78,003 8.60%

Financing

Domestic Borrowing (Bank) 82,421 84,980 3.10%

Domestic Borrowing (Non-Bank) 14,924 25,000 67.50%

Expenditure

Non-Development Expenditure 29,5280 34,8180 17.92%

Development Expenditure 20,2349 21,5043 6.27%

ADP 19,2921 20,5145 6.34%

Note: R implies Revised budget. 2

Implementation of previous budgets

Actual expenditure of budget has been historically lower than the proposed budget, implying the continuous challenge in budget implementation.

251

295

341

400

465

204

238

269

322

392

82%

81%

79%

80%

84%

78%

79%

80%

81%

82%

83%

84%

85%

0

50

100

150

200

250

300

350

400

450

500

FY15 FY16 FY17 FY18 FY19

(im

ple

me

nta

tio

n ra

te. %

)

Am

ou

nt (

tho

usa

nd c

rore

ta

ka

)

Comparison of total proposed and actual expenditure

Total Proposed Expenditure Total Actual Expenditure Implementation rate (Total Expenditure)

3

Ambitious growth and recovery projection

A V-shaped recovery is projected according to government estimation of GDPgrowth, export, remittances and gross investment.

Amid the uncertainty and bleak future of a global economic recovery, the ambitioustarget of 8.2 per cent GDP growth in FY21 seems to be devoid of the pandemicreality. Similarly, export and investment growth are likely to be slow and theprojections are highly ambitious.

0

1

2

3

4

5

6

7

8

9

-20

-10

0

10

20

30

40

FY19 (A) FY20 (B) FY20 (R) FY21 (P) FY22 (P) FY23 (P)

GD

P g

row

th

Inve

stm

en

t, r

em

itta

nce

s, a

nd

e

xp

ort

A V-shaped recovery projected

Gross investment (as % of GDP) Export (growth in %) Remittances (growth in %) GDP growth (%)4

Investment

23.5 24.2

12.7

25.3 26.6 27.7

8 8.6

8.1

8.1 7.9 7.9

0

5

10

15

20

25

30

35

40

FY19 (A) FY20 (B) FY20 (R) FY21 (P) FY22 (P) FY23 (P)

Public and private investment (% of GDP)

Private investment (as % of GDP) Public investment (as % of GDP)

According to budget documents, private investment figure for FY 20 is estimated at only 12.7

percent of GDP and projected to more than double (25.3%) in FY21.

5

Budget deficit The overall budget deficit in FY21 will be Tk 190,000 crore, which is 6 per cent of GDP.Although Bangladesh adhered to a deficit ceiling of 5 per cent of GDP for many years, thisbudget deficit is nothing unanticipated due to the COVID-19 impacts.

-3.9 -3.8-3.5

-4.7-5 -5

-6

A FY15 A FY16 A FY17 A FY18 A FY19 RB FY20 B FY 21

Budget deficit (% of GDP)

Note: ‘A’ implies Actual budget while ‘R’ and ‘B’ implies Revised and Proposed Budget respectively. 6

Share of revenue sources and foreign grants in total revenuesAs usual, share of NBR tax revenues is the major source of revenue collection (86% of totalrevenues).

0%

20%

40%

60%

80%

100%

A FY11 A FY12 A FY13 A FY14 A FY15 A FY16 A FY17 A FY18 RBFY19

A FY19 B FY20 RBFY20

B FY21

Share of revenue sources and foreign grants in total revenues

NBR Tax Revenue Non-NBR Tax Revenue Non-Tax Revenue Foreign Grants

NBR Tax Revenue, 86%

Non-NBR Tax Revenue, 4%

Non-Tax Revenue, 9% Foreign Grants, 1%

Share of revenue sources and foreign grants in total revenues for FY21

7

Tax revenue distribution

146,242171,637

187,103

218,616

300,500

330,000

5,645 6,438 7,223 7,347 12,567 15,00021,066 23,136 22,229 25,921 35,002 33,000

0

50000

100000

150000

200000

250000

300000

350000

A FY16 A FY17 A FY18 A FY19 RB 20 B FY 21

Am

ou

nt

(cro

re T

k)

NBR Tax Revenue Non-NBR Tax Revenue Non-Tax Revenue

The government is aiming Tk 3,78,000 crore in revenue income at about 9 per cent higher than

that of the revised target of FY20.

Of the total amount, the NBR has been tasked to realise a revenue of Tk 330,000 crore, the

non-NBR revenue collection target is Tk 15,000 crore while the non-tax revenue collection

target is Tk 33,000 crore.

8

Realisation of total revenue target

Realising the revenue target of Tk 345,000 crore from the taxable sector will be a daunting task.

Although the revised budget of FY20 showed a 92 per cent revenue realisation, this is likely to be an overestimate as revenue collection efforts were severely affected due to COVID-19.

92%

84%

80%83% 83%

75% 74%

92%

60%

65%

70%

75%

80%

85%

90%

95%

A FY13 A FY14 A FY15 A FY16 A FY17 A FY18 A FY19 RB FY20

Realisation of total revenue target(actual revenue as % of target revenue)

9

Distribution of domestic and foreign borrowing in deficit financing

8%11%

15%

8% 9%

20%17%

25%

36%

24%45%

35%41%

92%89%

85%

92% 91%

80%83%

75%

65%

76%

55%

65%59%

0%

20%

40%

60%

80%

100%

A FY11 A FY12 A FY13 A FY14 A FY15 A FY16 A FY17 A FY18 RB FY19 A FY19 B FY20 RB FY20 B FY21

Distribution of domestic and foreign borrowing in deficit financing

Foreign Borrowing-Net Domestic Borrowing

Out of the total deficit, Tk 80,017 crore will be financed from external sources, while Tk

109,983 crore from domestic sources. Domestic borrowing will comprise of 59 percent of the

total financing.

10

Share of bank and non-bank borrowing in domestic borrowing

82%89%

83%

48%

1%

21%

-15%

15% 15%

29%

61%

85%77%

18%11%

17%

52%

99%

79%

115%85%

61%

71%

39%

15%23%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 RB FY19 FY19 B FY20 RB FY20 B FY21

Share of bank and non-bank borrowing in domestic borrowing (%)

Borrowing from Banking System (Net) Non-Bank Borrowing (Net)

Of the domestic sources, Tk 84,983 crore will come from the banking system and Tk

25,000 crore from savings certificates and other non-bank sources. Share of bank

borrowing in domestic borrowing is about 77 per cent.

11

Deficit financing: banking system and external sources

47

82 85

B FY20 RB FY20 B FY21

Banking System (thousand crore Tk)

68

56

80

B FY20 RB FY20 B FY21

External source, incl . grants ( thousand crore Tk)

The government has increased its bank borrowing

target by more than 79 per cent to Tk 84,980 crore

from the original goal of Tk 47,364 crore for FY20.

The higher borrowing target raises the question of

whether the ailing banking sector has the ability to

provide the funds, or what will be the impact if it is

done. For example,

Financing from external sources has been kept at

only 2.5 per cent of GDP (Tk 80,017 crore).

A more realistic and proactive approach would

be to secure more external funding and thereby

to finance, amongst others, social security

spending for the coming unusual year. The cost of

external borrowing is lower than that from the

domestic sources, so inability to mobilise foreign aid

would be a missed opportunity at this critical time.

12

Share of operating and development expenditure in total expenditure

65% 63%60%

64% 63%66% 65%

59% 60% 61% 59% 59%61%

28% 27%31% 31% 31%

34% 33%

38% 39% 39%40% 40%

38%

0%

10%

20%

30%

40%

50%

60%

70%

A FY11 A FY12 A FY13 A FY14 A FY15 A FY16 A FY17 A FY18 RB FY19 A FY19 B FY20 RB FY20 B FY21

Share of operating and development expenditure in total expenditure

Operating Expenditure Development Expenditure

For FY21, operational expenditure will comprise around 61 per cent of totalexpenditure, dominating the overall expenditure as usual.

13

Growth of operating and development expenditure

For FY21, operational expenditure (Tk 3,48,180 crore) will be around 18 per cent more than that of the revised budget of FY20.

Proposed development expenditure of Tk 215,043 crore is nearly 6.3 per cent higher than that of the revised budget of FY20.

7.0%21.1%

12.1%8.9%

24.4%

24.0%

17.9%

0

50

100

150

200

250

300

350

400

A FY14 A FY15 A FY16 A FY17 A FY18 A FY19 RBFY20

B FY21

Opera

ting e

xpenditure

(in

thousand c

rore

Tk)

Operat ing expendi ture ( in thousand crore T k) and i ts growth f rom previous year

7.6%

27.8% 8.2%

38.7%

23.7%

34.0%6.3%

0

50

100

150

200

250

A FY14 A FY15 A FY16 A FY17 A FY18 A FY19 RBFY20

B FY21

Dev/ expenditure

(in

thousand c

rore

Tk)

Development expendi ture ( in 1000 crore T k) and i ts growth f rom previous year

14

Development expenditure in past

Implementation of development budget has been historically low.

Development expenditure continues to suffer from implementation challenges.

86

103

117

159

180

64

8188

122

151

74%

79%

75%

77%

84%

72%

74%

76%

78%

80%

82%

84%

86%

0

20

40

60

80

100

120

140

160

180

200

FY15 FY16 FY17 FY18 FY19

imp

lem

en

tatio

n ra

te

Am

ou

nt (in

th

ou

sa

nd

cro

re tk)

Comparison of proposed and actual development expenditure

Proposed Development Expenditure Actual Development Expenditure Implementation rate (Development Expenditure)

15

Implementation rate of budget

Implementation rate of total expenditure is usually below 85 per cent.

Implementation rate of development expenditure is generally less than that of operating expenditure.

82%81%

79%

80%

84%

74%79%

75%77%

84%

84%85%

82% 82%

84%

70%

75%

80%

85%

90%

FY15 FY16 FY17 FY18 FY19

Implementation of the budget

Implementation rate (Total Expenditure) Implementation rate (Development Expenditure)

Implementation rate (Operating Expenditure)

16

ADP expenditure

Allocation for Annual Development Programme (ADP) has been estimated at Tk 2,05,145 crore – a 6.34 per cent growth from the revised outlay of FY20.

This can be an important area of review where resources can be saved from some of the not-very-urgent projects to be allocated in favour of health and social security spending.

31.29% growth

6.34% growth

0

50

100

150

200

250

A FY 19 RB FY20 B FY21

ADP expenditure (in thousand crore Tk)

193 205147

17

Sectoral Allocation

Comparison of sectoral share in revised budget FY20 and budget FY21

In terms of share in total budget, public services; education and technology; and transport and communication are the top three sectors.

19.9

15.1

11.4 11.2

76.1 5.6 5.3 5.1 5 4.7

1.2 0.8 0.7 0.8

16 15.4

11.7 11.5

8.16.5 6.1 5.4 4.7

5.5 5.2

1.5 0.9 0.8 0.8

0

5

10

15

20

25

Sectoral share in total budget (%)

Share in B FY21 Share in RB FY20

19

Sectoral share in FY21 (% of total budget)

Public Services, 19.9%

Education and Technology, 15.1%

Transport and Communication, 11.4%

Interest, 11.2%

LGRD, 7.0%

Defence Services, 6.1%

Social Security and Welfare, 5.6%

Agriculture, 5.3%

Health, 5.1%

Public Order and Safety, 5.0%

Energy and Power, 4.7%

Housing, 1.2% Recreation, Culture and Religious Affairs, 0.8%

Industrial and Economic Services,

0.7%

20

Health

The health sector received an allocation of Tk 29,247 crore (Tk 292 billion), which is

nearly 23 per cent more than the revised allocation in FY20.

168

223237

292306

337

33%

6%

23%

5%

10%

0%

10%

20%

30%

40%

0

100

200

300

400

A FY18 A FY19 RB FY20 B FY21 FY22 (P) FY23 (P)

Gro

wth

Allo

cation (

bill

ion T

k)

Health budget allocation and projections: Not enough for future, lacks comprehensive plan

Allocation (Billion Tk) Growth (%)

21

Breakdown of health sector expenditure

Operating expenditure will account for about 57 per cent of the total allocation. Aconsiderable amount will thus go into increments of the employees and officials,bonus, pensions and other trivial issues.

10.944

7.667

3.488

1.593

12.83

10.054

3.917

2.446

0

2

4

6

8

10

12

14

Operating Development Operating Development

Ministry of Health and Family Welfare Medical Education and Family Welfare Division

Allo

cation (

thousand c

rore

Tk)

Breakdown of health sector expenditure

RB 20 B FY2122

Implementation remains challenge

• The government also allocated Tk 10,000 crore for emergency Covid-19 response.

• Unfortunately, there is a lack of definite guideline on how the allocated funds will be used.

• Given the nature of the crisis, this allocation is grossly inadequate.

• The allocated funds, despite being inadequate, will have to disbursed judiciously as implementation of the health budget has been a longstanding challenge.

23

Social Safety NetThe government has allotted Tk 95,574 crore– up from Tk 81,865 crore in last year's revisedbudget. This allocation is about 17 per cent of the total budget and 3 per cent of GDP inFY21.

Unlike the widely expected significant rise in social safety net spending, the increase in social safety net (as share in budget) has been a modest one.

Coverage of Social Safety Net, FY21

Amount (crore Tk) No. of beneficiaries (lac)

RB FY20 B FY21

%

change RB FY20 B FY21

%

change

Cash Transfer (Various Allowances) 33048 33739 2.1% 99 107 8.9%

Food Security and Employment Generation Programs 15564 17981 15.5% 841 873 3.8%

Stipend Programs 2526 4090 61.9% 46 74 60.4%

Cash/Materials Transfer (Special Programs) 9154 19758 115.8% 268 357 33.4%

Credit Support Programs 1087 5813 435.0% 274 203 -26.0%

Assistance for Special Communities 515 537 4.3% 5.63 6.25 11.0%

Various Funds and Programs 3099 1378 -55.5% 7.97 7.95 -0.3%

Development Activities (Ongoing Development Projects /

Programs): 16584 11784 -28.9% 4114 4983 21.1%

Development Activities (New Projects / Programs) 288 492 70.7% 0 0 0.0%

Total 81865 95574 16.7% 5654 6611 16.9%

Share in budget 16.32% 16.83%

Share in GDP 2.92% 3.01%24

Social safety net spending

Although an increase in allocation in social security spending has been observed, almost a quarter of

this allocation will be spent on pension payments of retired government employees.

A close look at the allocation reveals that nearly 44 per cent of social safety net budget will be spent

on pension payments, interest subsidies, agricultural subsidies, agricultural refinance scheme and

agricultural rehabilitation. Excluding these items, there is very little support available directly related to

poor and vulnerable which is inadequate to navigate through the pandemic-inflicted crisis.

14%19%

33%

27%

17%

0

20

40

60

80

100

120

RB FY16 RB FY17 RB FY18 RB FY19 RB FY20 B FY21

Social Safety Net Spending (in crore Tk and % change from previous year)

25

Social safety net lacks pro-poor and pro-vulnerable vision

• Social safety net budget continues to include expenditures not linked toaddressing poverty and vulnerability such as public pensions, stipends tosecondary and higher education, subsidies to interests on bank loans to providerelief to borrowers, subsidies to interests on loans as well as the amount of loanto the financially excluded households and enterprises.

• It includes several items such as the inclusion of interests (excess over the BankRate) paid on the National Savings Certificates, agricultural subsidies andagricultural refinance scheme.

• There is a lack of pro-poor and pro-vulnerable vision in the social safety netbudget.

26

Informal sector and new poor remains largely overlooked

• The proposals to extend safety net coverage - particularly for poor senior citizens and all widows and women in the 100 upazilas that are most exposed to poverty -deserve appreciation.

• As poverty rate is expected to jump to 35-40 per cent from the current level, it was anticipated that new poor will be brought under the safety net coverage to cushion the economic fallout of the pandemic.

• Although the finance minister declared Tk 100 crore under the ‘Rural Social Services Programme’ to create self-employment opportunities for the poor and helpless in rural areas, there is no specific direction to support the informal sector which comprises a major portion of the economy. Thus, the informal sector and ‘new poor’ remains largely overlooked in the budget.

27

Education

• With a total allocation of Tk 66,401 crore, the share of education budget intotal budget and GDP has decreased in FY21, compared to the revised budgetof FY20 (Tk 59,408 crore). The amount is 11.69 per cent of the total budget and2.09 per cent of the GDP.

• Of the total amount, Tk 24,940 crore for the primary and mass educationministry, Tk 33,117 crore for secondary and higher education division and Tk8,344 crore for technical and madrasa education division have been allocated.

Education budget RB FY20 B FY21 % change

Operating budget 39887 43156 8%

Development budget 19521 23245 19%

Total education budget 59408 66401 12%

Share of education budget in total budget 11.84% 11.69%

Share of education budget in GDP 2.12% 2.09%

28

Education

• There have been anticipations that the allocation for education will rise significantly to contain the possible increase of school dropouts which will eventually cause an increase in child marriage, early pregnancy, and child labour.

• In fact, UNICEF study indicates that the economic fallout of the pandemic could slide more than 86 million children into household poverty by the end of 2020.

• The budget lacks a specific recovery plan and allocation to avert the adverse impacts on school-going children.

• Also, the allocation will barely lift the hard-hit education sector as online classes are disproportionately affecting students residing in rural areas and belonging to disadvantaged households.

29

Agriculture

Agriculture RB FY20 (crore Tk) B FY21 (crore Tk) % change

Agriculture (net) 19022 20480 7.66%

Subsidy and incentive 8001 9501 18.75%

Pension and gratuities 0 2 -

Total 27023 29983 10.95%

The agriculture sector received an allocation of Tk 22,849 crore for FY21, which is 5.3 per

cent of the total budget. This allocation shrunk in percentage terms compared to the 5.4

per cent sectoral allocation in FY20.

30

Agriculture

• Finance minister announced a new Tk 3,198 crore project for farm mechanization.

• Initiative to modernize the agriculture along with a reduction in import duty on agricultural machinery will contribute to an increase in output which is definitely a welcome move. But modernization also comes with the possibility of reduction in job creation. It would have been better to have a clear guideline on offsetting the adverse effects of such mechanization on employment across this sector.

• The government has allocated Tk 9,500 crore for agricultural subsidies and Tk 200 crore support for farm mechanization. Two refinancing schemes for the sector – one with Tk 5,000 crore agricultural credit to farmers and another Tk 3,000 crore for small income farmers and traders have been included in the budget.

• These four allocations are already included under the stimulus packages declared earlier by the Prime Minister and not exclusively introduced for the current fiscal year.

• However, small scale farmers hardly get any benefit from the majority of the credit facilities as they fail to meet the conditions to receive credits from the banks.

31

Decreased allocation in disaster management

Ministry RB FY20 B FY21 Percentage

change

Ministry of Disaster Management and Relief 11103 9836 -11.4%

Ministry of Youth and Sports 1456 1478 1.5%

Despite being a disaster prone country, ministry of disaster management and relief

experienced an 11.4 per cent decrease in allocation compared to last year’s revised

budget.

Allocation for ministry of youth and sports increased marginally.

32

Stimulus packages Sl Name of the packages Tk (in crore)

1 Special fund for salary support to export oriented

manufacturing industry workers

5,000

2 Working capital loans provided to affected industries

and service sector

30,000

3 Working capital loans provided to SMEs, cottage industries 20,000

4 Expansion of facility provided through Export Development

Fund (EDF) by Bangladesh Bank

12,750

5 Pre-Shipment credit refinance scheme 5,000

6 Special honorarium for doctors, nurses, medical workers 100

7 Compensation in case of infection/death 7508

8 Free food distribution 2,503

9 OMS of rice at 10 taka/kg 251

10 Cash transfer to targeted poor people 1,258

11 Expansion of cash allowance programs 815

12 Construction of home for homeless people 2,130

13 Additional procurement of paddy/rice (2.0 lac ton ) 860

14 Support for farm mechanization 200

15 Subsidy for agriculture 9,500

16 Agriculture refinance scheme 5,000

17 Refinance scheme for professional farmer and small

traders

3,000

18 Employment creation through four State owned entities 2,000

19 Subsidy for commercial bank's suspended interest of April–

May, 2020

2000

Total (In Crore Taka) 103,117

As % of GDP 3.7

• The budget did not come up with any new

stimulus package other than what has already

been announced by Prime Minister Sheikh

Hasina.

• Clearly, there is a critical need for new

stimulus packages to support the informal

sector and new poor, amongst other affected

vulnerable groups.

• In this aspect, the budget lacks innovation and

falls short to be pandemic-responsive.

• As funds from development partners have

started flowing in, the government must come

up with stimulus packages to support the

hardest hit population groups.

• Meanwhile, efficient and transparent handling

of funds will ensure a speedy recovery.33

Budget falls short of being pandemic-responsive

• Although the budget speech is titled as ‘Economic Transition and

Pathway to Progress’, the FY21 budget fails to reflect the

pandemic reality and lacks extraordinary response to chart the

recovery from the current crisis.

• Despite being inadequate, ensuring value for money, effective

utilization of resources, quality expenditure and good governance

at all levels will play a pivotal role for implementation of the

budget. Ongoing unprecedented crisis now demands an

innovative and all-out approach to save life and livelihood.

34

Thank you

35