Finance readies budget proposal without big spending plan
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Finance readies budget proposal without big spending plan

Budget

Abul Kashem
01 June, 2021, 01:25 am
Last modified: 01 June, 2021, 10:52 am

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Finance readies budget proposal without big spending plan

The outlay is less than the original budget amount for the current fiscal year in proportion to the GDP

Abul Kashem
01 June, 2021, 01:25 am
Last modified: 01 June, 2021, 10:52 am
Financial budget fy22

The finance ministry has finalised a budget proposal to the tune of Tk6,03,681 crore for the fiscal 2021-22 without any major plan to rescue the economy from the pandemic's grip by increasing public expenditure and creating employment.

The outlay is less than the original budget amount for the current fiscal year in proportion to the GDP.  The budget size for the next fiscal year is not going to increase as compared to the original budget of the current year when inflation comes into the calculation.

In the pre-budget meetings organised by the National Board of Revenue (NBR) and the finance ministry, businessmen demanded a big exemption from taxes in the new fiscal year, while export-oriented industries and those meeting local demand requested additional incentives.

Economists suggested that life and livelihood be given priority by further expanding the extent of the social safety net without going for a growth-oriented budget. Therefore, if necessary, they suggested borrowing more from foreign sources.

There is no additional expenditure initiative in the new budget to meet these needs. The size of the proposed budget for the next fiscal year has been set at only 17.46% of the GDP.

The original budget for FY21 was Tk5,68,000 crore, which was 17.90% of the GDP. Later, the outlay had been reduced to Tk5,38,983 crore following a cut in the non-development budget as part of the government's austerity measures and the failure to implement the development budget owing to inefficiency and mismanagement. 

The budget expenditure of developed nations such as France, Belgium and the United States is around 60% of the GDP, while it is 26.9% in India, 22% in Pakistan and 31% in Nepal and more than 23% in Vietnam. 

Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue, said a big portion of the current fiscal year's budget allocations remains unspent. In this situation, the question remains as to how much the budget outlay for the next fiscal year can be increased. Bangladesh's budget size is always low against needs and compared to that of other countries.

A large part of small allocations cannot be spent owing to a lack of capacity. In this situation, alongside increasing allocations in the future, it is also necessary to increase the implementation efficiency.

Ahsan H Mansur, executive director of the Policy Research Institute, said the country's people and the economy now are in crisis. The government will have to increase its spending to overcome this crisis. Even if the budget deficit surpasses 8% of GDP to ensure additional expenditure on the people's welfare, there will be no major problems.

Fahmida Khatun, executive director at the CPD, said there had been an expectation of an expansionary budget since the last fiscal year because of the pandemic, where development expenditure would increase. If necessary, the budget deficit can also increase because money must reach people to ensure the economic rebound. The flow of money needs to be enhanced for people's survival.

The average annual inflation now is between 5% and 6%. The GDP growth target is going to be set at over 6% even at this pandemic time. Considering the two indicators, the government should increase the new budget outlay by at least 12-15%, she added. 

Small and medium entrepreneurs need one-time financial support. Besides, two or three crore new poor people should get cash aid. Keeping all these at the forefront, the government will have to increase spending even if there is a big deficit in the upcoming budget, Fahmida pointed out.

The implementation of the budget for FY22 will depend on the use of foreign loans. Because more than 16% of the budget will be financed from foreign sources. The government could spend foreign loans received as budget supports, but it failed to use project aids in the past.

The neighbouring countries have increased public expenditure after the pandemic hit, but Bangladesh cannot do so because of its implementation inefficiency. Despite receiving a huge amount of foreign aid from various development partners, the government has not been able to spend it. As a result, Bangladesh's actual budget expenditure is hovering between 15% and 16% of the GDP.

Operating expenditure 60% of budget

The operating or non-development expenditure will be about 60% or Tk361,500 crore of the next budget outlay, up by Tk13,320 crore from the allocation for the current fiscal year and Tk37,812 crore from the revised amount.

The maximum amount from the operating expenditure allocation amounting to Tk68,589 will be spent on loan interest payments - some Tk62,000 crore on internal loans and Tk6,589 on external ones. 

As part of austerity measures, the government will reduce land acquisition meant for implementing development projects, construction and public works, investment in shares and equities in the next fiscal year as compared to the current financial year.

Some Tk32,660 crore as capital expenditure has been earmarked for such sectors in the next fiscal year's budget, down from Tk36,490 crore allocated for FY21 that was later slashed to Tk21,141 crore in the revised budget.

 Tk237,078 crore proposed as development expenditure

In the next fiscal year, Tk237,078 crore will be spent on development activities, including those of city corporations and self-governing bodies. 

The amount was Tk215,043 crore in the original budget for FY21. The allocation in the revised budget was reduced to Tk208,025 crore because of mismanagement and inefficiency in project implementation.  

Of the development expenditure, Tk225,324 crore has been allocated for the Annual Development Programme (ADP), which is Tk20,179 crore more than in the original budget for the current fiscal year. The FY21 allocation in the revised budget was trimmed to Tk197,643 crore because of the poor implementation rate of the ADP.

 The ADP implementation rate in the current financial year has been very disappointing although it is very important at the pandemic time. 

As of April, the ADP implementation in the first 10 months of FY21 was only Tk98,840 crore, which was 49.13% of the revised allocation, the lowest in the last five years.

The allocation for the government's food-for-work programme is set to be cut in the budget for the next fiscal year although the programme will create jobs in rural infrastructure construction for the poor. The allocated amount will be Tk2,588 crore in FY22, down from Tk2654 crore for FY21.

The revenue collection target of the National Board of Revenue (NBR) is not going to rise in the new budget as compared to the original budget for the outgoing fiscal year although the government has a plan to spend an additional Tk35681 crore this time. The NBR cannot even 

The NBR is still far away from its Tk330,000 crore revenue target even though it achieved 10% growth till April because of a slight recovery in imports and exports and a rebound in the economy after the first wave of Covid-19. The same target has also been maintained in the upcoming budget for the next financial year although the revised target of the NBR for FY21 was reduced to Tk301,000 crore.

A target has been set to collect 43,000 crore in non-tax revenue.

Besides, Bangladesh prepares a budget with a 5% deficit of GDP every year in line with the formula of the International Monetary Fund, but the next budget is being prepared by increasing deficit financing without increasing the revenue target amid the pandemic. 

The overall budget deficit for the next financial year has been estimated at Tk214,681 crore, which is 6.2% of the GDP. Because of the pandemic situation, the deficit in the current fiscal was Tk190,000 crore, which was 6% of the GDP.

That is why the government's dependence on foreign debts will increase in the next fiscal year to meet the deficit financing. The government will borrow Tk97,738 crore from foreign sources, which was Tk76,004 crore in the current fiscal's main budget.

On the other hand, the government will borrow Tk113,453 crore from internal sources to meet the deficit. Of the amount, Tk76,452 crore will be borrowed from banks and Tk32,000 crore through sales of savings certificates.

In the main budget for FY21, a target was set to borrow Tk84,980 crore from banks, which was reduced to Tk79,749 crore in the revised budget. The target was set to collect Tk20,000 crore through sales of savings certificates.

Economy / Infograph / Top News

Bangladesh Budget FY 2021-22 / Budget FY 2021-22 / Finance Ministry / Budget / Budget Proposal

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