About the presentation:
Bangladesh's social protection sector aims to provide essential support to vulnerable and poor individuals through various initiatives. Currently, 140 programs are operating under different ministries. However, the current budget to finance the large number of programs consists only 2.5 percent of GDP and 17 percent of the national budget. The financing strategy heavily relies on tax revenues, and due to the low tax/GDP ratio, budget constraints have become an inevitable phenomenon. This limits the potential for expanding the sector or supporting all eligible individuals adequately. As a result, exclusion errors occur, per-person program benefits are inadequate, and the benefit amounts do not account for inflation. To ensure that all citizens, especially those in need, are accommodated under basic social protection support regardless of their circumstances, it is crucial to explore alternative financing options. For example, taxes from different sources like tourism, mining, corporate tax or innovative approaches like Monotax, Sin tax, and Pigouvian tax can be considered to increase the tax base. Lessons from international practices also suggest some innovative approaches, such as reallocation of resources, fuel subsidy, national lottery, social impact bond, environment bond, zakat, etc. All the approaches are subject to a feasibility test in the context of Bangladesh; further research is needed for this. In addition to identifying new funding sources, strengthening the existing tax-based financing model should also be a priority, as most social protection programs rely on it.
PPT slides
here.
Highlights from the Q&A session:
Question: : Why shouldn't we prioritize a direct tax financing approach over other sources for funding social protection?
Response:
Bangladesh's low tax/GDP ratio, along with challenges in collecting taxes from all relevant sectors, makes it difficult to rely solely on direct tax financing. A major obstacle is that many individuals and businesses operate outside the formal economy, limiting the revenue generated from direct taxation. Moreover, direct taxes are particularly challenging to collect from the informal sector, which represents a large percentage (84%) of the economy. While enhancing the direct tax financing approach is crucial, broadening the tax base through more inclusive reforms and improving administrative efficiency are equally important to boost revenue. Additionally, a combination of indirect taxes and innovative tax mechanisms could complement direct taxes, providing a more diversified financing strategy for social protection.
Question: Fuel subsidies will be a burden on low-income individuals, so how rational is it to rely on such an approach?
Response:
Indonesia reprioritizes their spending by reducing costly fuel subsidies and effectively managed political resistance through a compensatory scheme for low-income families. At the same time, it advanced social protection by supporting the development of a universal healthcare system and expanding pension coverage. However, in the context of Bangladesh, this may not be a feasible solution due to the potential economic burden on low-income individuals who heavily rely on fuel. Therefore, when considering alternative financing options, it is essential to carefully evaluate both the pros and cons to ensure the approach is viable and equitable for the country.
Question: What is a social impact bond, as an alternative financing how this can be used?
Response:
A Social Impact Bond (SIB) is a results-based financing mechanism where social investors fund the government to deliver services, such as helping homeless individuals secure housing, and the government repays the investors with interest if the service achieves its intended outcomes. In South Africa, SIBs are used to fund various social programs in the Western Cape Province.
In Bangladesh, where persistent unemployment is a challenge, adopting a SIB approach could be beneficial for initiatives like the "Improvement of Socio-Economic and Livelihood Development of Tribal/Minor Races People Through Integrated Livestock Project." This program aims to improve socio-economic conditions and create employment opportunities for minority communities. By implementing an outcome-based SIB model, the project could set specific targets, such as providing employment to a certain number of individuals from these communities. This approach could attract private investment while improving employment outcomes.
Question: How can consolidating the fragmented social protection programs help address the existent financing gap?
Response:
Fragmented programs can lead to overlapping objectives, where multiple initiatives target the same beneficiaries or have similar objectives, causing inefficiencies. Additionally, a limited budget thinly spread over numerous small programs reduces the funding available for each one. By consolidating smaller or repetitive programs, resources can be freed up and reallocated to scale up major social protection initiatives. While this may not increase the overall social protection budget, it allows for more efficient use of existing funds, increases the budget for key programs, and reduces wasteful expenditure, ultimately enhancing the overall impact of social protection efforts.