A report on "Budget 2020-21 & its

acceptablity,oppurtunities and
challenges for ensuring the
sustainable development of
Bangladesh"

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 Department of Finance and Banking

h Comilla University, Cumilla

Course Name :Public Finance
Course code :FIN:324

Submitted To
Md.Al-Amin
Lecturer,
Department of finance and
Banking,
Comilla University

Submitted By
Rabeya Basri
ID: 11817051
On behalf of the of the group member,
Department of Finance and Banking,
Comilla University.

Date of Submission: 20-04-2021

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 Group Members Name

Name ID
Rabeya Basri 11817051(Leader)

Priya Saha 11817013

Imtias Uddin 11817009

Tisha Saha 11817034

Sumi khandakar 11817045

Tumpa Akter 11817011

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 LETTER OF TRANSMITTAL

20thApril , 2021

Md. Al-Amin,

Lecturer,

Department of Finance & Banking,

Faculty of Business Studies,

Comilla University.

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 Subject: Submission of the report on "Budget 2020-21 & its acceptablity,oppurtunities
and challenges for ensuring the sustainable development of Bangladesh"

Honorable Sir,

This is a great pleasure for us to submit the assignment on “Budget 2020-21 & its
acceptablity,oppurtunities and challenges for ensuring the sustainable development of
Bangladesh” as per your guideline and instructions for partial fulfilment of ‘Public
Finance’ course. It has been a great experience for us to prepare an assignment where we can
practically apply all academic theory that we have learned throughout the course. Here we
are submitting our assignment.

Therefore, we beg your kind consideration in this regard, we will be very grateful if you
accept our assignment and oblige us thereby.

Sincerely yours,

Rabeya Basri

On behalf of the group

Department of Finance and Banking

Comilla University.

Executive summary

Budget 2020-21 has been placed before parliament in a grave situation of Covid-19 pandemic.
Unfortunately, the country has taken 18th position in the cumulative number of coronavirus
cases surpassing China and the economy has been struggling for more than a quarter to survive
despite a prolonged crisis. Bangladesh was set to achieve around 8.5 per cent economic growth
in the outgoing fiscal year. Investment has declined from 31.57 of 2018-19 to 20.8 in 2019-20.
Industry and services, the two most important drivers of economic growth, have also registered
dismal record. Presumably, the growth of gross domestic product (GDP) has been estimated to
be 5.2 per cent in the Medium Term Macroeconomic Policy Statement (MTMPS) 2020-21 to
2022-23 due to extraordinary contraction of these two sectors. The targeted growth of GDP in

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2020-21 is 8.2 per cent when the budget will be implemented, even though it would be hardly
achievable given the great uncertainty all around. As the national budget for fiscal year (FY) 21
has been announced at a time of the novel coronavirus (COVID-19) pandemic, so there are many
challenges and limitations faced in this budget.

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 Table of content

Content Name Page No.

LETTER OF TRANSMITTAL IV

Executive summary V

Introduction 1

What is Budget? 2

2-3
Why budget is important?

3-9
An Overview of Bangladesh
Budget Fiscal Year 2020-21

Is this budget is acceptable or not? 9-12

Opportunities of FY20-21 Budget 12-14

Effects of FY20-21 Budget 15-17

Challenges of budget 17-19

Limitations of budgeting 19-21

21-22
Recommendations for ensuring the
sustainable development of Budget

Conclusion 23

Reference 24

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 Introduction

The national budget for fiscal year (FY) 21 has been announced at a time when the economy has
been worst hit by the novel coronavirus (COVID-19) pandemic ever in the history of
Bangladesh.

 Even before COVID-19 attack in Bangladesh during Jul – Feb of FY20,

except for the remittance flow, major economic indicators of Bangladesh
economy exhibited some worrying signals; these include negative export
and import growth, low FDI growth, subdued domestic resource
mobilization and low utilization of allocated development expenditure and
weak balance of payment situation
 COVID-19 has aggravated the performance of the economy which was
already under pressure
 CPD feels that risk mitigation and economic recovery in the backdrop of
COVID-19 should be the twin overarching objectives of FY2020-21 budget –
the COVID Budget.

 Because the Health-Humanitarian-Economic risks originating from

the ongoing COVID pandemic make FY2020-21 Budget a budget with
a distinction.

 The report on budget 2020-21 analysis has been structured as follows:

Introduction

 overview of the budget

 Acceptability of the budget
 opportunity of the budget
 Challenges faced in the budget
 Recommendations
 Conclusion remarks

 The analysis of this report is based on data from relevant government

publications

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 What is Budget?

In the general sense, the budget is described as a precise statement, representing a financial
estimate of income and expenditure of the government for a certain period. In cost accounting,
budget means a quantitative statement, prepared before a particular period to serve as an estimate
of future receipts and disbursements.

Why budget is important?

Budget plays a crucial role in the proper utilization of available resources in order to achieve
over all goals and objectives of an organization.

1.Helps in forecasting future

Budget helps in predicting the impact of future on operations of the firm. It also enables us to
make confident financial decisions and meet objectives

2. Standards of performance:
Budgets provide standards of performance for various periods and sub-periods. Actual
performance can be compared against standards at frequent time intervals and timely correction
of deviations can be made.

3. Optimum use of scarce resource:

We have scarce resources. Budgets help to utilize our scarce resources properly. That means
budget ensures optimum use of scarce resources.

4 .Defines objectives

It defines the objectives of an organization in numerical terms for a specific period.

5. Helps in defining strengths and weaknesses

It reveals the strength, weaknesses, inefficiencies and deviations in an organization promptly and
provides a means to overcome them for the purpose of achieving goals.

6. Problems can be anticipated

 Budgeting forces the management to study about the problems relating to the timely
implementation. It generates a sense of caution and careamong the line managers.

7. Responsibility can be easily fixed 

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Budgets ensure proper allocation and understanding of the responsibilities of individuals.

8. Increases the efficiency

An efficient and economy in production control is achieved through budgeting. When efficiency
increases the probability of the companies goals and objectives will be achieved.

9. Measures performance
It provides a basis or yardstick that can be used to measure the performance of department and
an individual in an organization.

10 . Systematic and disciplined approach

A systematic and disciplined approach is followed to solve the problems in an organization
through budgetary control.

An Overview of Bangladesh Budget Fiscal Year 2020-21

Budget Structure FY 2020-21 (BDT )

FY’21 R. FY‘20 Growth FY'20

Budget Size 5,680 5,016 13.24% 5,232
% of GDP 17.9% 17.9% 18.1%
Revenue 3,780 3,481 8.6% 3,778
Earnings(A):
NBR Tax Revenue 3,300 3,005 9.8% 3,256
Non-NBR Tax 150 126 19.4% 145
Revenue
Non-Tax 330 350 -5.7% 377
Revenue
Public 5,680 5,016 13.2% 5,232
Expenditure (B):
Non-development 3,112 2,749 13.2% 2,779
Expenditure
Dev. Expenditure 2,150 2,023 6.3% 2,117
ADP 2,051 1,929 6.3% 2,027
Others 418 243 71.8% 336
Budget Deficit 1,900 1,535 23.8% 1,454
(B-A):
Financing:
Domestic Sources 1,100 973 13.0% 774
Bank Borrowing 850 824 3.1% 474

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 Non- Bank 250 149 67.6% 300
Ext. Borrowing 800 562 42.5% 680
Source: EBL Securities Limited

Finance Minister AHM Mustafa Kamal presented his second and the country's 49th budget in the
Parliament. The title of the budget speech is ''Economic Transition and Future Pathway''.
Prevention of epidemic COVID-19 is being given priority in this year's budget. It is the biggest
budget in the history of the country to revive the country's economy by making a living for the
affected people.

Size of the budget

The finance minister has tabled a national budget of TK.568,000 crore for the fiscal year 2020-
2021.The proposed budget for the fiscal year 2020-2021 is 13.24 percent i.e. TK.66,423 crore
higher than the revised budget of the current financial year. Noted that the budget of TK.
523,190 crore was announced for the financial year 2019-1020, but later, the revised budget
stood at TK.501,557 crore.

GDP

The size of the Gross Domestic Product (GDP) for the next financial year has been set at TK.
3,171,800 crore. The growth rate has been fixed at 8.2 percent which has been revised to 5.2
percent in line with maintaining 5.4 percent inflation for the next fiscal overcoming all the
challenges and impacts of the COVID-19 global pandemic.

Budget income proposal

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 Revenue Sources
Non Tax Revenue
9%
Non-NBR Tax Revenue
4%

NBR Tax Revenue

87%

The government set the target of total revenue income in the fiscal year 2020-21 at TK.3,78,000
crore. Out of this, TK.3,30,000 crore will be collected through the NBR. Tax revenue from non-
NBR sources has been estimated at TK. 15,000 crore, while the non-tax revenue at TK. 33,000
crore.

Proposed expenditure

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 Budget Allocation
Development Expenditure Non-Development Expenditure Others

7%

38%

55%

Sectorial Allocation
Others 30%

Social Security &Welfare 6%

Defence SERVICES 6%

Interest 11%

Transfort & Communication 11%

Education & Technology 15%

Public Services 21%

Source : EBL Securities Limited

The total allocation for operating and other expenditures is estimated at TK. 3,62,855 crore while
the allocation for the Annual Development Program (ADP) is TK. 2,05,145 crore. For the social
infrastructure sector in the proposed budget is TK.1,55,536 crore, which is 27.38 percent of total
allocation, in which allocation for human resource sector (education, health and other related
sectors) will be TK. 1,40,222 crore.

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Besides, the allocation proposed for the physical infrastructure sector will be TK.1,67,011 crore
or 29.40 percent, in which TK. 69,553 crore will go to overall agricultural and rural
development, TK. 61,435 crore to overall communications, and TK. 26,758 crore to power and
energy. A total of TK.1,40,265 crore has been proposed for general services, which is 24.69
percent of the total allocation.

An amount of TK. 36,610 crore has been allotted for public-private partnership (PPP), financial
assistance to different industries, subsidies and equity investments in nationalized corporations,
banks, and financial institutions, which is 6.45 percent of the total allocation.

As per the ministry and division-wise allocation, the Local Government Division received a
proposed budgetary allocation of TK. 36,103 crore, followed by TK. 22,883 crore to the Health
Services Division alongside TK. 6,362 crore to the Ministry of Health and Family Welfare, TK.
29,442 crore to the Road Transport and Highways Division, TK. 24,853 crore to the Power
Division, TK. 15,442 crore to the Ministry of Agriculture, TK. 33,118 crore to Secondary and
Higher Education Division, TK. 24,937 crore to the Ministry of Primary and Mass Education,
TK. 34,842 crore to the Ministry of Defense.

Budget deficit(%ofGDP)

AFY15 AFY16 AFY17 AFY18 AFY1

-
- - 3.5
3.9 3.8
-
4.7 -
5

-6
The overall budget deficit has been estimated at TK.190,000 crore, which is 6 percent of GDP,
up from 5.0 percent in the last fiscal year. Out of the total deficit, TK. 80,017 crore will be

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financed from external sources, while TK.1,09,983 crore from domestic sources of which TK.
84,983 crore will come from the banking system and TK. 25,000 crore from savings certificates
and other non-bank sources.

Deficit Financing

42% Bank Borrowing

45% Non-Bank Borrowing
External Borrowing

13%

Distribution of domestic and foreign borrowing in deficit

financing
Foreign Borrowing NET Domestic Borrowing
76% 55% 65% 87%

45%
35%
24%
13%

FY 19 FY 20 RFY 20 FY 21

Source : An Analysis by Research and Policy Integration for Development(RAPID)

Distribution of domestic and foreign borrowing in deficit financing:

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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.

Is this budget is acceptable or not?

To judge the acceptance of this budget, we first need to see the overview of this budget.The
budget, which was announced on the 11th of June, is the largest yet in Bangladesh’s history with
a set target of BDT 568,000 crore for the fiscal year 2020-2021. Admittedly, the size of the
budget is only relevant if its major components are targeted towards alleviating the healthcare
and economic challenges faced due to the pandemic. Healthcare and agriculture should be the
main priority segments to receive the most support. Research conducted by BRAC showed that
the COVID-19 pandemic caused a loss of more than BDT 565.36 billion for the farmers in the
past one and a half months alone.
The current proposed budget is 13.24 percent (BDT 66,423 crore) higher than the revised budget
of the current financial year and is 8.56% higher than the main budget for FY2019-20. The
pressure is on the government to reduce the budget deficit of last year and ensure higher revenue
collection this year, especially given the impending financial needs due to the pandemic. In the
budget speech, the revised private sector investment for 2019-20 has been shown to be 12.7 per
cent of GDP. This is almost half the private investment-GDP ratio of the previous year (2018-
19). This shows how badly the private sector has been affected. Low investment in the past year
will also have adverse implications for economic activities and job creation in the coming year
through its lag effects.

There are many items which prices has been increase in this budget such as,

Cosmetics: Locally manufactured cosmetics to have 10% SD from the existing 5%.
Ceramic sink and basin: 10% SD imposed at the manufacturing stage.
Industrial salt: Existing duty rate on industrial salt proposed to be hiked.
Imported honey: Natural honey in bulk to have 10% hike in customs duty and a fresh
15% VAT.
Lightning arrester: Customs duty doubled to 10% from existing 5%.
Local tobacco products: All local tobacco products including cigarette, jorda will see a
duty hike.
Cigarette: Increase in the price of three out of the four levels of cigarettes.
Processed chicken meat: Increase in duty for imported processed chicken meat.
Pin, screws: Price of small parts including pin screws may increase as proposal made to
increase import duty to encourage local production.

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Routers and PCB: 5% VAT likely to be imposed on locally produced printer circuit
boards (PCB), unloaded PCB and routers.
Furnace oil: Withdrawal of concession on furnace oil imports was proposed to
discourage oil-based power plants.
Onion: 5% customs duty each on import of bulk onions and wrapped or canned onion up
to 2.5kg. Currently, there is no duty on the import of onion.

Furniture: Furniture to see 2.5% VAT hike at showrooms.

Car registration, renewal and other services: Supplementary duty (SD) proposed to be
hiked to 15% from the existing 10% on all BRTA services. Mobile services: SD hiked to
15% from existing 10% on services provided through mobile phone SIM/RIM cards
including internet charge.

Mobile phone Cost: Tax(Vat) Increased from 10% to 15%

Imported cell phones: Existing duty rate proposed to be hiked.

Others: Television, online shopping, aluminium products, imported poultry goods,
painting charge, cement, printer ink, raw material for glue, and lighting items also may
see a hike in duty.

Some items which price was decreased:

Covid-19 kits: VAT exemption proposed on import, manufacturing and trading of Covid-
19 related kits.
Personal Protective Equipment (PPE) and Surgical Mask (including face mask) :
VAT exemption proposed on local companies’ manufacturing and trading stages.
Covid-19 medicine: VAT exemption proposed on import, manufacturing and trading.
Sanitary napkin and diaper: Customs duty to come down on import of raw materials.
Gold: Import of gold bar exempted from 15% VAT.
SME goods: Concessions proposed on import of several raw materials used in the
production of SME products.
Poultry, fisheries and dairy goods: Soybean oil cake and soy-protein concentrates for
the fisheries, poultry and dairy goods likely to see decreased import duty.

Agricultural Machinery: VAT to be exempted on power reaper, power tiller operated

seeder, combined harvester, rotary tiller.
Local items: Locally made fridge, air-conditioner, cell phone, motorbike, refrigerator,
plastic goods, LP gas cylinder, automobile products etc. will also see a decrease in duty.

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From the above summary we can see there are some problems and acceptance are
available.
Others: Detergent, ICU equipment, sanitizer, disinfectant spraying machine, hand
operated agriculture equipment, mild steel sheet, raw materials of production based
industry, artificial leather and cloths to produce shoes (shoe industry), X-ray plate,
compressor raw material, petroleum goods, textile fabrics, garlic, sugar, and lubricants
will likely see reduced duty.

Because of COVID pandemic, world was faced very bad situations, so decreasing the cost
on kits and medicines items of COVID is a good decision.
Agriculture sector was identified as one of the priority sectors for FY2021 in view of COVID
pandemic.High level of damage caused by COVID-19, and cyclone ‘Amphan’ on agriculture
sector. This is estimated to be as high as $633 mill. (ADB, 2020)

Poultry, dairy, fishery and livestock sub-sectors have been affected at varying degrees. This
called for special attention in the national budget for FY2021.

On the other side there was a jump in growth in terms of the allocation of education budget in
FY17 (8.18% in FY16 to 55% in FY17), which then observed a sharp decline in the following
FY.

There are some bad impact of budget 2020-20201 because of tax increased in mobile
cost.Mobile phone users will have to pay higher bills as supplementary duty is set to increase to
15 percent from the existing 10 percent in the proposed budget for fiscal year 2020-21.

Because of Covid pandemic telecommunications becomes an effective and efficient way to

communicate with others, where cost was increased in budget 2020-2021.

There is also a jump of car licensing. Which become nearly double than previous amount.

So it maybe acceptable in many terms, but there are also some rejection available there.

Opportunities of FY20-21 Budget

Budget 2020-21 has been placed before parliament in a grave situation of Covid-19 pandemic.
Unfortunately, the country has taken 18th position in the cumulative number of coronavirus
cases surpassing China and the economy has been struggling for more than a quarter to survive
despite a prolonged crisis. Bangladesh was set to achieve around 8.5 per cent economic growth
in the outgoing fiscal year. Investment has declined from 31.57 of 2018-19 to 20.8 in 2019-20.
Industry and services, the two most important drivers of economic growth, have also registered
dismal record. Presumably, the growth of gross domestic product (GDP) has been estimated to

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be 5.2 per cent in the Medium Term Macroeconomic Policy Statement (MTMPS) 2020-21 to
2022-23 due to extraordinary contraction of these two sectors. The targeted growth of GDP in
2020-21 is 8.2 per cent when the budget will be implemented, even though it would be hardly
achievable given the great uncertainty all around.

As discussed in the MTMPS document, the proposed budget has been formulated keeping in
mind the targets of the 8th Five Year Plan, Sustainable Development Goals (SDGs) and Vision
2041. The government could not move beyond the medium term budgetary, macroeconomic and
revenue frameworks during the Covid-19 pandemic. It implies that the proposed budget did not
bring a big change and innovation as it did not have enough freedom to formulate a budget to
adequately address the health concerns from the menace of and massive downturn of the
economy. The government had to continue allocating on mega infrastructure and energy projects
because otherwise costs would be heavily escalated. These projects would also be required to
achieve double-digit growth when the Covid-19 would be over.

As can be readily understood, the budget is aimed at striking a balance between life and
livelihoods triggered by the miserable consequences of the spread of Covid infections and loss of
life in recent days. Obviously, we cannot afford to opt for 'herd immunity' as the existing health
infrastructure, manpower and support services are no well-prepared to provide enough care.
Substantial allocation is required to create new infrastructure, medicines and equipment, testing
facilities, intensive care units, ambulance and support services vis-à-vis increased physicians and
nurses to counter such a formidable challenge. Even though the proposed budget for the health
sector includes two foreign-funded projects and block allocation, it is not adequate in the context
of skyrocketing number of new Covid-19 patients.

The revenue target set in the proposed budget seems to be quite optimistic, and the National
Board of Revenue (NBR) will remain under tremendous pressure if the current menace does not
end at the earliest. Conversely, the government has opted for a 'big risk' of setting nearly 6 per
cent budget deficit, which would be financed through borrowing mostly from domestic banking
and foreign sources.

It will eventually mount pressure on the domestic financial sector as the banks are already loaded
in implementing the incentive package of the Prime Minister. Nevertheless, governments are
allowed to increase budget deficit during crisis in order to avoid recession if crisis endures.
Bangladesh's Public Moneys and Budget Management Act 2009 reveals that deficit-GDP ratio
can be kept at a 'tolerable limit' and it has not fixed any number of such limit. Therefore, even
though it can create pressure on both fiscal and monetary sides, it would help restore the
economy if the budget can be properly implemented. At the same time, the government must
create emergency healthcare facilities, encourage private investment, transfer cash and kind to

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people in need, especially distressed poor and marginalized groups under social safety net
programmes (SSNPs) and minimize Covid-laden unemployment as outlined in page 37 of the
MTMPS document. It is widely perceived that a major global economic downturn is imminent,
so the budget must be ready to increase resilience of domestic economy. At the same time,
international financial institutions and bilateral donors would be unable to finance the deficit
financing target of the proposed budget since almost all the countries would require international
support. In that case, the government should prepare an alternative deficit financing mechanism
without increasing much stress on banking system any further.

The proposed allocation in SSNPs is about 17 per cent in the proposed budget, which marked a
significant rise due to new schemes and increased coverage to benefit low-income and Covid-
stressed households. Now a big challenge is how to counter a possible large shock in domestic
and foreign employment due to job loss of migrant workers in the Middle East, Europe, and
other parts of the developed world as well as decline in global demand for goods and services.
An interim employment strategy is required as the readymade garments sector has already
declared to release a huge number of workers and many small-medium enterprises have lost
capital over the last couple of months. Foreign remittance would also decline drastically if
overseas workers return at a massive scale. Therefore, the workfare schemes under the SSNPs
would need a significant change.

Finally, the proposed budget has not elaborated the strategy of the government to grab
opportunities unveiled by Covid-19 besides combating a large number of threats and challenges.
One of such opportunities is to take measures in introducing a universal healthcare system
supported by medical insurance, which would be useful to create a shield against future
pandemics and develop human capital in a sustainable manner to utilize demographic dividend
of Bangladesh in the long run. Another important opportunity is to attract global investment --
from Japan and other countries -- which is currently moving out of China due to Covid-19.
While Vietnam and Thailand are successfully diverting the investment to their economies,
Bangladesh should immediately declare fiscal and policy incentives in this arena. The
government should also rethink of reforming tobacco tax through increasing price, decreasing
price tiers of cigarettes into two, and introducing specific duty and three per cent health
surcharge. It would immensely help reduce health risks of Covid-19 and significantly increase
tax revenue from this sector.

Bangladesh is braving the Covid-19 crisis to keep its dream of transition to middle income
country alive by putting its economic growth rate for the fiscal year 2020-21 at 8.2 percent. This
is to be pursued simultaneously with boosting farm production, tackling Covid-19, providing
social security, and keeping unemployment low.

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 Effects of FY20-21 Budget

Bangladesh is not new to taking up challenges. It has grown steadily for several years (averaging
a GDP growth rate of about seven percent per annum), enjoyed macroeconomic stability, a good
foreign exchange reserve (USD 33 billion in May 2020) and low debt service ratio (7.2 percent
in 2018). It also has good social sector achievements, including the reduction of poverty and
hunger, compared to most developing countries.

But with Covid-19 still raging at full swing, It is a tough call for the country in an uncertain
economic and social environment.

The priority on growth may undermine the fight against Covid-19. The push for an annual
growth rate of 8.2 percent for FY20-21 will require moving the country's economic activities full
steam ahead, with finance, trade and services, manpower development, all moving forward in
tandem. It will require the movement of goods and services and people across the country and
beyond, and most importantly, it will require removing lockdowns.

The recent decision to withdraw the lockdowns did have the desired impact of movement of
goods and services, and opening of shops and businesses, but it has also led to a significant spike
in the Covid-19 infection rate. Currently, about 3,500 to 4,000 people are getting infected daily,
and fatalities are mounting. It is anticipated that the infection rate may accelerate further in the
days to come. With a high density of population, especially in urban areas, the underdeveloped
public health care system, and poor compliance with lockdowns, the country remains a fertile
ground for further spread of the coronavirus. The cost in terms of loss of lives and livelihoods
can mount very rapidly.

The agricultural sector is also getting caught in the coronavirus trap. At the onset of Covid-19
infection in late March, thousands of people "fled" from urban areas to the relative safety of rural
areas. They, and those already engaged in the rural and agricultural sectors, seem to have
remained largely unscathed by the virus.

There is no guarantee that they will remain so in the future. People engaged in agricultural
activities, carried out in the open with adequate space around, are naturally in the low risk
category. But one cannot ignore the eventual spread of the virus to the people working in rural
areas. Farm workers getting infected with Covid-19 may lead to labor shortages and eventually
affect agricultural output. Food production may decline, and prices can increase, with negative
impacts on the poor in both rural and the urban sectors. This eventuality seems remote, but it can
be a possibility.

The financial challenge of restarting the garment industry is another hurdle for the new economic
growth target. The readymade garment (RMG) sector employ nearly four million workers

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(mostly women) and it is a major foreign exchange earner of the country (USD 33 billion in
2018). The high growth scenario will require opening up of the RMG sector as soon as possible.
The sector has suffered from lockdowns through lost production, lost export earnings and
continued payment to furloughed employees. The government will undoubtedly be under
pressure to provide support to the sector. One innovative way to do this could be to offer
matching loans to well-conceived and jointly agreed private sector initiatives for restarting
factories and exporting products abroad.

There is also the issue of a slump in remittance income. Quite a large number of Bangladeshi
migrant workers recently returned from abroad, and this trend may continue, with host countries
themselves being increasingly affected by Covid-19. It is anybody's guess how the countries
hosting Bangladeshi migrant workers will perform in the coming year, and what lies ahead for
Bangladesh in terms of the flow of remittance income (which stood at about USD 15 billion in
the pre-Covid-19 period). One could however expect that remittance income will go down
steeply and recover very slowly when the Covid-19 infection subsides globally.

The financial sector underperforming and misfiring is a very real possibility in the new fiscal
year. Bangladesh has regularly underperformed in terms of revenue collection. The new budget
sets an ambitious revenue collection figure of Tk 3,300 billion. In the first half of fiscal year
2019-20, revenue from taxes fell short by Tk 318 billion, creating worries of a projected shortfall
for the whole year that could be as high as Tk 800 to 900 billion. Government's bank borrowing
soared to Tk 508 billion by January 15, 2020. Given this backdrop, it is unlikely that the FY20-
21 revenue collection target will be met.

The money whitening opportunity through investment in the construction sector (housing) is an
innovative one. It can work, but it is expected to increase the demand for construction workers. If
this works, it will push up aggregate demand for the basic necessities of workers engaged in the
construction sector. This will help keep agricultural prices up and favorable for the producers,
but it can also have inflationary consequences, if supply fails to respond fairly quickly (for
reasons mentioned above).

The huge budget deficit (Tk 1,860 billion) is expected to create significant demand for funds in
both domestic and external markets, leading to increased pressure on the financial sector.
External borrowing (estimated at Tk 800 billion) can probably be met, but domestic borrowing
of about Tk 1,100 billion (of which Tk 850 billion will come from domestic banks), can create
significant stress on the domestic financial sector, and crowd out the private sector.

It is still not clear how the combination of various stimulus packages, the refinancing schemes,
the government's borrowing from Bangladesh Bank (Tk 150 billion) and re-lending at a four
percent interest rate, will work out. Injection of funds into the economy can be effective if supply
elasticity is positive and high. In the Covid-19 context, this may not be so. It can instead lead to a

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rise in inflation, which can eventually lead to lower living standards for the poor and for fixed
income earners.

Challenges of budget

Budget 2020-21 has been placed before parliament in a grave situation of Covid-19 pandemic.
Unfortunately, the country has taken 18th position in the cumulative number of coronavirus.

As a result the budget implementation is not easy in such a pandemic situation. Government
faces many challenges in every sector. Such as

Difficult to achieve economic growth :

Bangladesh was set to achieve around 8.5 per cent economic growth in the outgoing fiscal year.
But Investment has declined from 31.57 of 2018-19 to 20.8 in 2019-20. Industry and services,
the two most important drivers of economic growth, have also registered dismal record.
Presumably, the growth of gross domestic product (GDP) has been estimated to be 5.2 per cent
in the Medium Term Macroeconomic Policy Statement (MTMPS) 2020-21 to 2022-23 due to
extraordinary contraction of these two sectors. The targeted growth of GDP in 2020-21 is 8.2 per
cent when the budget will be implemented, even though it would be hardly achievable given the
great uncertainty all around.

Proposed budget can't reach it’s target & goal:

As discussed in the MTMPS document, the proposed budget has been formulated keeping in
mind the targets of the 8th Five Year Plan, Sustainable Development Goals (SDGs) and Vision
2041. The government could not move beyond the medium term budgetary, macroeconomic and
revenue frameworks during the Covid-19 pandemic. It implies that the proposed budget did not
bring a big change and innovation as it did not have enough freedom to formulate a budget to
adequately address the health concerns from the menace of and massive downturn of the
economy. The government had to continue allocating on mega infrastructure and energy projects
because otherwise costs would be heavily escalated. These projects would also be required to
achieve double-digit growth when the Covid-19 would be over.

Budget focuses on service sector in Covid-19:

The budget is aimed at striking a balance between life and livelihoods triggered by the miserable
consequences of the spread of Covid infections and loss of life in recent days. Obviously, we
cannot afford to opt for 'herd immunity' as the existing health infrastructure, manpower and

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support services are no well-prepared to provide enough care. Substantial allocation is required
to create new infrastructure, medicines and equipment, testing facilities, intensive care units,
ambulance and support services vis-à-vis increased physicians and nurses to counter such a
formidable challenge. Even though the proposed budget for the health sector includes two
foreign-funded projects and block allocation, it is not adequate in the context of skyrocketing
number of new Covid-19 patients. On budget 2020-21 which amount is fixed for service sector it
is much lower in Covid-19 situation. It's a big challenge for proposed budget.

Revenue target seems to be quite optimistic :

The revenue target set in the proposed budget seems to be quite positive, and the National Board
of Revenue (NBR) will remain under tremendous pressure if the current menace does not end at
the earliest. Conversely, the government has opted for a 'big risk' of setting nearly 6 per cent
budget deficit, which would be financed through borrowing mostly from domestic banking and
foreign sources.

It will eventually mount pressure on the domestic financial sector as the banks are already loaded
in implementing the incentive package of the Prime Minister. Nevertheless, governments are
allowed to increase budget deficit during crisis in order to avoid recession if crisis endures.
Bangladesh's Public Moneys and Budget Management Act 2009 reveals that deficit-GDP ratio
can be kept at a 'tolerable limit' and it has not fixed any number of such limit. Therefore, even
though it can create pressure on both fiscal and monetary sides, it would help restore the
economy if the budget can be properly implemented. At the same time, the government must
create emergency healthcare facilities, encourage private investment, transfer cash and kind to
people in need, especially distressed poor and marginalized groups under social safety net
programmes (SSNPs). It is widely perceived that a major global economic downturn is
imminent, so the budget must be ready to increase resilience of domestic economy. At the same
time, international financial institutions and bilateral donors would be unable to finance the
deficit financing target of the proposed budget since almost all the countries would require
international support. In that case, the government should prepare an alternative deficit financing
mechanism without increasing much stress on banking system any further.

To create more unemployment problem :

Now a big challenge is how to counter a possible large shock in domestic and foreign
employment due to job loss of migrant workers in the Middle East, Europe, and other parts of the
developed world as well as decline in global demand for goods and services. An interim
employment strategy is required as the readymade garments sector has already declared to
release a huge number of workers and many small-medium enterprises have lost capital over the
last couple of months. Foreign remittance would also decline drastically if overseas workers
return at a massive scale.

The proposed budget has not elaborated by the strategy of the Govt :

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Finally, the proposed budget has not elaborated the strategy of the government to grab
opportunities unveiled by Covid-19 besides combating a large number of threats and challenges.
One of such opportunities is to take measures in introducing a universal healthcare system
supported by medical insurance, which would be useful to create a shield against future
pandemics and develop human capital in a sustainable manner to utilize demographic dividend
of Bangladesh in the long run. Another important opportunity is to attract global investment --
from Japan and other countries -- which is currently moving out of China due to Covid-19.
While Vietnam and Thailand are successfully diverting the investment to their economies,
Bangladesh should immediately declare fiscal and policy incentives in this arena. The
government should also rethink of reforming tobacco tax through increasing price, decreasing
price tiers of cigarettes into two, and introducing specific duty and three per cent health
surcharge. It would immensely help reduce health risks of Covid-19 and significantly increase
tax revenue from this sector.

Overall 2020-21 budget is effected by Covid-19 pandemic.

Limitations of budgeting

Budgeting is an important exercise that is followed in almost all organizations. Although

budgeting has a lot of advantages, it has a few limitations which are highlighted in the article. In
budget, there are also some limitations. These are :

Inaccuracy

Budgeting is based on a lot of assumptions in estimating the expenses and revenues. These are
generally based on trends and the market scenario prevailing at the time of making the budget.
Budgets can also be based on the predictions made for the coming year considering the data
available at the time of budgeting. Any shift in the macroeconomic conditions, like an economic
downturn or changes in currency exchange rates, changes in interest rates etc., can lead the actual
costs that vary significantly from the budgeted expenses.

Time consuming & costly

Budgeting exercise can be at times a very time-consuming exercise. It involves extra manpower
to get the estimates as accurate as possible. Especially for a big company with various
departments, budgeting exercise takes a huge effort. The time consumed may be low in cases
where the company uses budgeting software and the employees are well-trained. If the company

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uses zero-based budgeting technique, the time, cost and effort involved can be considerably
large.

Rigidity

Budgeted numbers are considered sacrosanct by all the departments and there is usually very less
flexibility after budgeting exercise finishes. The entire focus of senior management is on the
budget and all the strategies revolve around the budgeted numbers. Any change in the market
situations does not generally evoke the attention of the management to make any drastic change
in the strategy due to budget constraint. The company should rather shift as per the market and
book more profit rather than stick to the budget.

Excessive spending

Some managers believe that all the funds that are allocated to their department need to be spent.
It is believed that if they do not use as much as they are authorized to in the current budget, the
funds budgeted for them in the next budget would be reduced. This leads to unnecessary wastage
of funds and proves harmful to the company as a whole affecting its profits.

Scope of Manipulation

At times, an experienced manager may deliberately inflate his expenses and try to reduce the
revenue targets to be set in the budget. This way he can easily get an opportunity to get the
favorable variances against the budgeted numbers, that is, by incurring lower costs than budgeted
cost and achieving higher revenue than the budgeted revenue. This misleads the stakeholders and
demotivates the employees.

Allocation expense

The allocation of expenditure between the departments is generally the call taken by senior
management. Managers of some departments may raise issues in the method used for allocation
of these expenses and this may create controversies. It is not possible to take into considering
suggestions from all the departments regarding budgeting methods and allocation of expenses.

Financial outcome oriented

Budgeting exercise is argued to be numbers-driven. It focuses on the quantitative aspect of the

business or improving the profitability of the company and does not consider the subjective or
qualitative aspect. The fact that the stakeholders including the customers of the company care
about the quality of services along with the cost of it is totally side-tracked. These are taken for
granted as a part of the budget but not really seen in the budget. So budgeting exercise does not
always look into the needs of the customers.

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Conflicts in the organization

At times when a particular department is unable to meet the budgeted targets, the end up blaming
the other department that provides services to it for not providing the necessary support. They
even conflict on the transfer price that is decided internally between the departments. This
creates unnecessary tensions and the company as a whole may not be able to run efficiently.

Although budgeting comes with a lot of limitations, it may be absolutely wrong to conclude that
budgeting exercise is futile for an organization.

Recommendations for ensuring the sustainable development of Budget

Recommendations for budget 2020-21 in light of the Covid-19 crisis:

Bangladesh has been hit hard by the consequence of Covid -19.The budget formulation for next
fiscal year is going to be gargantuan challenge due to the uncertainty about economic activities,
diminished capacity in revenue generation in the face a shrinking economy, subdued
international trade & providing of stimulus packages to facilitate economic recovery. In the light
of this evolving situation a number of issues & suggestions are there for consideration in budget
formulation.

What needs to be in the budget?

1) The practical application of adapting to the new normal.

2) Prepare teachers to meet education needs in emergencies.

3)Facilities for marginal farmers.

4) Reducing corporate tax rates

5) To take initiatives to reduce the tax rate of the listed companies equally

6) Effective measures need to be taken to alleviate the worries of the youth through policy
support in the budget.

7) Provide free treatment

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8 )Taxes must be levied on a registered sole proprietorship

9) Facebook or youtube videos should be brought under the tax

10) Keep special allocations in the budget for disadvantaged students.

11) Eliminate urgent mismanagement & corruption

12) Focuses on immediate & short term aspects

13) In the budget for the fiscal year 2021,health, social security, agriculture, employment and
education should be given importance

14) Government spending must increase

15) The tax sector needs to be expanded

16) Investment in the productive sector must increase

17) Need to be increase spending in the technology sector.

What changes need to be made in the budget?

1) Reducing the prices of domestic products

2) Reduce taxes on cell phone or internet use

3) In order to increase domestic & foreign investment, the corporate tax rate of the country needs
to be further reduced

4) The tax rate gap between listed & unlisted companies should be at least 10 percent

5) In addition to retaining existing employment, there should be specific measures on the part of
the government to increase new employment

6) Finding new tax payers

7) Government funding for medical research needs to be increased

8. Reduction of duty rate on banks

9) Collecting taxes from tax evaders

10) Stop money laundering illegally

11) Less important projects are put on hold for the time being

12) Administrative costs need to be reduced.

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 Conclusion

The budgeting system provides management with a means of controlling it’s activities and of
monitoring actual performance & comparing it to budget goals. Here emphasized on
manufacturing budgets. The process involves developing a sales forecast & based on it’s
magnitude, generating production & manufacturing expense budgets needed by a specific firm.

A comprehensive profit Planning & control program involves budgeting the materials & parts
used in the production process. The budget process involving manufacturing expenses includes
the material usage & purchase budgets, direct labor budgets & factory overhead budgets.

The budget of 2020-2021 has focused on the Nations growth & brings a positive sentiment to the
overall economy. With it’s focused on the agricultural & rural sector, infrastructure, education,
job creation and digital economy etc. It is a budget to all.

Overall, the budget provides a set of measures to help progress across various areas of the
economy. Government is hoping that this will improve the trust within the industry to get their
animal spirits going.

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 Reference

1. https://specialties.bayt.com/en/specialties/q/130370/what-are-the-limitations-of-budgets/
2. https://thefinancialexpress.com.bd/views/views/budget-2020-21-what-else-we-can-do-
1592148593
3. https://www.thedailystar.net/opinion/news/fy20-21-budget-bangladeshs-high-stake-
gamble-keep-its-dream-alive-1919313
4. http://dailybangladesh.com/
5. https://thefinancialexpress.com.bd/views/views/budget-2020-21-what-else-we-can-do-
1592148593
6. https://www.prothomalo.com/business/%E0%A6%AC%E0%A6%BE%E0%A6%9C
%E0%A7%87%E0%A6%9F-%E0%A6%AC%E0%A6%BF
%E0%A6%B6%E0%A7%8D
%E0%A6%B2%E0%A7%87%E0%A6%B7%E0%A6%A3-
%E0%A6%A4%E0%A6%B0%E0%A7%81%E0%A6%A3%E0%A6%A6%E0%A7%87
%E0%A6%B0-%E0%A6%AC%E0%A6%BE%E0%A6%9C
%E0%A7%87%E0%A6%9F-%E0%A6%AD%E0%A6%BE%E0%A6%AC
%E0%A6%A8%E0%A6%BE

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