Pandemic could not douse ambition when it comes to budget

Finance Minister AHM Mustafa Kamal is all set with his traditional briefcase to announce a budget of Tk5,68,000 crore for fiscal year 2020-21 with an unreasonable and ambitious target for revenue and growth. And such an ambitious move comes despite the fact that the country is currently plagued by the coronavirus pandemic.

Amid limited economic activities to cope with rising cost pressures, a revenue target of Tk330,000 crore has been set for the National Board of Revenue (NBR).

Even so, the government expects to attain 8.2 percent of GDP (gross domestic product) growth in the new fiscal year with an estimated budget deficit of six percent.

It is to be noted that various international organisations, including the International Monetary Fund, the World Bank and the Asian Development Bank, have predicted that Bangladesh's growth will be much lower in the next financial year.

Research institutes at home and abroad have said it will take 2-3 years for the country's economy to recover from the fallout of Covid-19.

Although some economists have recommended a six-month budget to deal with the pandemic, the finance minister will propose the budget for a full fiscal year in parliament next Thursday.

Already the impacts of Covid-19 have led to a stagnation in industries and services, along with layoffs. Only half the production capacity of the country's largest industrial and export sector, readymade garments, is being utilised.

BGMEA President Rubana Huq has said there will be massive layoffs from this June. Various big industrial groups are also retrenching their workers as they are not able to pay them properly.

The government has eased the lockdown to help reactivate trade and commerce, but the industry and services have not been able to recover the old pace due to Covid-19 concerns and declining incomes and purchasing power of consumers. Overall, large sums have been planned to be spent on a revival of the economy by supporting industry and services.

Before the pandemic outbreak, 20 percent of the population used to live below the poverty line. Different surveys have revealed that the poverty rate has doubled by this time. In the large expenditure plan, there is an attempt to cope with the increasing pressure on social safety net programmes.

NBR Chairman Abu Hena Md Rahmatul Muneem has already written to Finance Secretary Abdur Rauf Talukder, terming the revenue target "unreasonable".

According to him, revenue collection in the new financial year could reach the highest figure of Tk250,000 crore even if growth is 14 percent in line with the rate of previous several years. But the target has been set Tk80,000 crore higher.

Dr Ahsan H Mansur, executive director of Policy Research Institute, opined that emphasis should be laid on increasing revenue and on the implementation of a massive comprehensive reform programme, including amendments to the income tax law, from the next financial year.

Dr Mustafizur Rahman, distinguished fellow at the Center for Policy Dialogue, argued for stopping tax evasion and money laundering in this regard.

The NBR chairman said due to the impact of Covid-19, Tk220,000 crore may be raised in revenue in the current financial year. But the new target is 50 percent higher.

The revenue target for the current fiscal was Tk325,600 crore in the original budget, which is being revised to Tk300,500 crore.

In total, the finance division has estimated a revenue of Tk378,003 crore for the next fiscal year, including Tk15,000 crore from the taxable sector beyond the NBR and Tk33,000 crore from the non-tax sector.

From these two sectors, the budget for the current financial year set a target to collect Tk14,500 crore and Tk37,710 crore respectively. Later, the target was revised to Tk12,567 crore and Tk35,002 crore respectively.

The government expects Tk4,013 crore in foreign grants in the upcoming financial year. In the current budget, a target of Tk4,168 crore was set in the sector while, in the revised budget, it has been reduced to Tk3,454 crore.

Budget deficit Tk189,997 crore

If foreign grants are not available, the deficit will rise to Tk189,997 crore which is 6 percent of GDP and 33.45 percent of the total budget.

Officials involved in budget preparations said no proposed budget in the past had ever estimated a deficit of 6 percent of GDP.

The deficit may rise even further if revenue earnings fall short as stated by the NBR chairman, they added.

In the current fiscal year, the deficit was estimated at Tk145,340 crore, excluding foreign grants, while the revised budget has increased it to Tk153,508 crore or5.5 percent of GDP. It will be 5.8 percent (or Tk185,984 crore) if foreign grants are not available.

Projected bank loans Tk84,980 crore

The government will borrow Tk109,980 crore from domestic sources to meet the deficit, of which Tk84,980 crore will be taken from the banking sector alone.

This is 79.42 percent more than the bank loan target for the current financial year.

After setting a target of borrowing Tk47,364 crore from banks this year, it has been increased to Tk82,421 crore in the revised budget.

AB Mirza Azizul Islam, who was finance adviser to the last caretaker government, and Ahsan H Mansur suggested that the government take loans from foreign sources and the central bank instead of from commercial banks to meet the deficit.

Apart from the banking sector, the government will take Tk20,000 crore from savings certificates and Tk5,000 crore from other non-bank sources in the new financial year.

The government will borrow Tk88,824 crore from foreign sources in the new fiscal year. From there, Tk12,820 crore will be spent on loan repayment. As a result, the government's net loan from abroad will stand at Tk76,004 crore.

The net foreign loan target for the current fiscal was set at Tk63,848 crore, which has been brought down to Tk52,709 crore in the revised budget.

Operational costs increases by around 18%

Operational expenditure will be 17.92 percent more than the amount in the revised budget of the current financial year.

In the 2020-21 financial year, the sector will cost Tk348,180 crore. In the current fiscal, it was Tk310,262 crore, and in the revised budget, it has been reduced to Tk295,280 crore.

Mohammad Tareq, a former senior secretary of the finance division, said initiatives to improve the quality of government spending are particularly urgent. The use of vehicles and travelling abroad by government officials should be rationalised.

Next year, the government will spend Tk63,801 crore on interest payments. Of this, Tk58,253 crore will be spent to pay interest on domestic loans and Tk5,548 crore on foreign loans.

Besides, the government will spend Tk36,990 crore on capital expenditure, Tk567 crore on food and Tk4,210 crore on loans and advances in the next financial year.

Development expenditure Tk215,043 crore

In the upcoming fiscal year, the government will spend Tk215,043 crore on development activities.

Of the amount, Tk205,145 crore will be allocated for the Annual Development Programme (ADP), Tk4,722 crore for special projects outside ADP, Tk2,654 crore for food-for-work programme and Tk2,522 crore for various other schemes.