The social protection budget continues to elude

Social protection (SP) consists of expenditure programmes designed to reduce poverty and vulnerability through interventions aiming to enhance the capacity to manage economic and social risks. In particular, unemployment, exclusion, sickness, disability and old age.

How much does the FY21 budget propose to spend on SP?  The official claim is that this will increase from 16.3% of the total revised budget in FY20 to 16.8% in FY21, equivalent to 2.9% and 3% of GDP respectively. The budget share will be increasing by 0.5 percentage point and the GDP share by 0.1 percentage point. Given the rapid deterioration in the state of poverty and vulnerability in the aftermath of Covid-19, increases in the SP budget is among the top two priorities, the other being health.

If the story ended here, we could have closed the discussion sighing about the relatively small increase both in the budget and GDP shares.  The story unfortunately does not end here.

Creative accounting 

The level and the direction of change in the SP budget is vastly overstated. This owes to some creative accounting in its composition.  It includes several items representing change in accounting treatment such as the inclusion of interests (excess over the Bank Rate) paid on the National Savings Certificates, agricultural subsidies and agricultural rehabilitation. 

In addition, the SP budget continues to include expenditures unrelated to addressing poverty and vulnerability such as public pensions, stipends to secondary and higher education, subsidies to interests on bank loans to provide relief to borrowers, subsidies to interests on loans as well as the amount of loan to the financially excluded households and enterprises.  

Total allocations to social protection excluding the above has in fact declined.  Total decline is about Tk1,700 crores—from Tk45,086 crores in the revised FY20 budget to Tk43,386 crores in the FY21 budget, equivalent to 1.8% and 1.4% of GDP respectively.  The budget share has declined from 9% in FY20 to 7.6% in FY21. 

Public pensions and interests on NSCs constitute nearly 31% of the FY21 total social protection budget, down from 36% in the revised budget. This decline was offset by interest subsidies in response to Covid-19 which, non-existent in the FY20 revised budget, constitute 5% of the total FY21 social protection budget.  These together largely account for the difference between officially reported allocation and the corrected allocation. 

Anything but pro-poor, pro-vulnerable

The benefit incidences of the excluded expenditures can be anything but pro-poor or pro-vulnerable. The public pensions are drawn by the retired folks who also hold a large part of their lifetime savings in the NSCs.  They belong to the middle- and upper-income groups.  While the crisis is universal, there is no reason to assume that the beneficiaries of public pensions, interests on NSCs and bank borrowers are among the hardest hit in terms of livelihood disruptions. 

Loans to the financially excluded households and enterprises, even if they reach the badly hit, do not count as transfers for the simple reason that they have to be repaid. Subsidies to interests on commercial bank loans do not count because micro and small enterprises cannot obtain bank loans. Complying with all the stringent requirements of bank financing, especially collateral or guarantor, is next to impossible for them. Banks are reluctant to deal with the enterprises, especially the ones they have not dealt with before.     

The officially reported increase is largely due to changes in the treatment of interest subsidies in response to Covid-19 and agricultural subsidies. A useful way of looking at the changes in allocations is to compare the biggest drivers of the increases with the net increase in the total SP budget.  The latter amounts to Tk13,709 crores.  Subsidies to agriculture and interests on credits constitute 66% of the net increase in the reported SP budget for FY21.  Loans constitute 34% while increases in the expenditure on stipends at the secondary and higher education levels 10%. 

The increases in the above items account for 110% of the net increase.  So something else must have decreased to offset the excess of the gross increases over the net increase.  

Unambiguous SP expenditures have decreased

Allocations to some unambiguous SP expenditures have decreased. These include targeted cash transfers introduced in response to Covid-19, primary education stipends, school feeding, reaching out of school children programme, and income support for the poorest. Allocations to these programmes together have decreased by Tk 2,247 crores, constituting (in absolute value) about 10% of the net increase in the social protection budget.  

In addition to the loss of human lives, the pandemic has increased poverty and inequality, with particularly adverse effects for older persons, persons with disabilities and chronic diseases, migrant workers and the urban poor. BRAC's rapid perception survey covering low-income communities in early April 2020 painted a worrying picture of the economic vulnerability of the lower income groups. Income of the poor and vulnerable households have declined significantly, forcing them to cut down on medication and food. 

The pandemic has exposed serious gaps in the disaster responsiveness of the social protection programmes. Findings from a rapid phone survey conducted between 30th April and 17th May 2020 covering 5,872 beneficiaries across 16 districts, led by researchers from Harvard Business School, on the cash transfer program for the elderlies are sobering. Since January 2020, 17% of beneficiaries received no payments; 24% received Tk1,500; and 52% received Tk3,000 in payments. In the BRAC survey cited above, only 21% of households reported receiving food assistance from the government since the start of the pandemic. 

The urban poor seem to get very little attention

The budget speech recognises that the pandemic is threatening our achievements in poverty alleviation and social security. The intention to provide extended coverage of the social security programme to all poor senior citizens; widows and women deserted by their husbands; insolvent persons with disabilities; and creation of self-employment opportunities for the poor and helpless people in rural areas are music to public ears. However, the response in the FY21 budget falls woefully short in supporting these groups both in terms of funding and programme design. The urban poor seem to get very little attention in both the statement of intentions and budgetary allocations.

It's not just that the budget does not have adequate provisions for directly reaching the old and the new rural and urban poor.  The amount proposed to be spent is less than the amount estimated to be spent in the outgoing fiscal year! Camouflaging the allocation by including line items not directed towards the poor adds salt to the injury. It is difficult to see how a response so small will bring one-fourth of the families in the country under the social security programme, as hoped by the Finance Minister in his budget speech.