Govt to tighten belt further

Infographics: TBS

• Govt plans austerity measures to better utilise Tk35,208cr block allocation for FY24
• Tk11,794cr allocation for operational budget to be suspended
• Use of Tk23,414cr for development budget to be restricted
• Govt officials' foreign travel for training to be restricted
• Austerity measures aim to effectively manage budget deficit, maintain forex reserves

In response to mounting demand for funds and declining revenue, the government is now going to be austere in spending Tk35,208 crore in block allocation, the amount kept aside in the annual budget for development and routine works, officials of the finance ministry have said.

The Finance Division is soon expected to issue directives with instructions to suspend the spending of Tk11,794 crore block allocation for the operational budget, they said.

Also, Tk23,414 crore block funds allocated for the development budget will be subject to usage restrictions, they said.

The Finance Division will also impose restrictions on foreign travel for projects primarily focused on skill development through overseas training.

The officials said the decision was made to manage the budget deficit effectively and to maintain reserves in anticipation of potential additional funding requirements surrounding the upcoming national elections.

They said block allocations have never been subjected to such constraints before despite complaints about fund mismanagement.

Analysts welcomed the decision, pointing out its potential to conserve funds during a period of fiscal pressure as revenue collections and inflow of foreign funds have fallen short of expectations.

"The government is facing financial challenges and expects lower revenue. They're also working to control inflation. Given this, it makes sense to hold back the block allocation money."

Mahbub Ahmed, former senior secretary, Finance Division

Welcoming the decision, Mahbub Ahmed, former senior secretary of the Finance Division, told The Business Standard that he was against block allocations as ministries tend to spend this money extravagantly.

"The government is facing financial challenges and expects lower revenue. They're also working to control inflation. Given this, it makes sense to hold back the block allocation money," he argued.

Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue, told TBS that imposing restrictions on block allocation is a very important and good decision because these are spent on political considerations. "Politicians spend heavily on projects in their own areas."

However, the economist cast doubt as to how much money can be saved in the block allocation in the election year by imposing restrictions.

"Especially with the existing institutional capacity, there is little chance of success in this regard," she added.

Savings from last year's austerity measures

Shortly following Russia's invasion of Ukraine in February 2022, the government introduced a series of austerity measures aimed at generating approximately Tk23,000 crore in savings during the fiscal 2022-23. However, the projections fell short of the target with the actual savings totalling Tk15,000 crore as reported by finance ministry officials closely involved in the process.

Preparation for elections

The decisions were made in an internal meeting of the Finance Division in July, several ministry officials confirmed to The Business Standard. 

"There is a possibility of additional financial demands from some ministries during the current financial year with the election looming. Precautionary measures should be taken in this regard," according to the minutes of the meeting.

To address such unforeseen circumstances, the current fiscal year's budget has allocated Tk4,000 crore for unexpected expenditures. If further funds are needed, they will be drawn from the block allocation for operational expenditures.

However, former senior secretary Mahbub Ahmed mentioned that extra funds have already been allocated to ministries concerned, including the Election Commission, to cover election expenses.

"If further funds are necessary, they can be drawn from the fund allocated for unexpected expenditures. Therefore, block allocation funds won't be required for elections. Moreover, trimming expenses from the block could help lessen the budget deficit," he added.

Block allocation trend

A Finance Division official explained that due to the project-focused workload during budget formulation, it is challenging to pinpoint the exact spending areas for allocated funds. 

Thus, a block allocation is provided in the development and operating budget. 

There is no scope to misuse these funds, the official said. "During budget revisions, the specifics of spending from the block allocation are determined." 

Therefore, block allocations are not generally used in the development budget before the revised budget, the official added.

The official further explained that budget revisions occur from December to February annually.

However, if elections are scheduled for December this year, the revision process will shift to January-March. This implies that the bulk allocation in the development budget needn't be utilised before March.

Therefore, instructions are forthcoming to limit fund release, he added.

This fiscal year, the largest share of block allocation for development, amounting to Tk4,697 crore, is designated for special assistance under the Planning Commission.

The remaining Tk19,097 crore constitute block allocations for unapproved projects across different ministries.

In the main budget of FY23, the total allocation for development was Tk18,515 crore. In the revised budget, the total came down to Tk13,250 crore.

For operating expenditure this fiscal, out of the total block allocation of Tk11,794 crore, the Finance Division has been allocated Tk7,274 crore.

In the main operating budget of FY23, the total allocation was Tk7,688 crore, later revised to Tk2,788 crore.

Other measures

All foreign travel, including participating in workshops and seminars, was already restricted. However, certain projects focused on skill enhancement through overseas travel remained exempt. The Finance Division has now chosen to impose a ban on such foreign travel as well.

For those training institutes which include inbuilt foreign training in their curriculum, the foreign training will not be considered until further instructions, the Finance Division has decided.

On 2 July, the Finance Division said in a circular related to austerity, the prior approval should be taken for the expenditure of the allocated Tk13,206 crore for land acquisitions.

Finance division officials noted that there is a field-level deadlock in land acquisitions, which will be addressed by releasing a clarifying circular to resolve the impasse concerning land acquisition under the development budget.

In addition, the government had also imposed austerity measures in power and energy sectors and also suspended the purchase of new vehicles.