Revenue growth turns negative, yet lofty target set for FY24

The National Board of Revenue (NBR) is going to be tasked with earning 16% more in the next fiscal year to bankroll over a Tk7.6 lakh crore annual budget in the backdrop of a dismal performance with revenue growth turning negative in April for the second time since the pandemic.

According to the latest data from the NBR, revenue collection in April was 2.29% lower than a year-ago period in stark contrast with the usual phenomenon of higher earnings towards the end of the fiscal year. Revenue growth was only 4% in July 2021 which shot up to 22.8% in April last year.

The fiscal 2019-20 experienced negative growth in revenue collection because of Covid lockdowns that brought business to a standstill.

The following financial year, revenue collection returned to a positive trend, which continued until April this year.

Although the value-added tax (VAT) collection rose by 15%, a double-digit negative growth in collection from imports, income tax and travel tax led to the drastic fall in monthly revenue income in April this year, officials said. 

Yet, the finance ministry has set a revenue collection target of Tk4.30 lakh crore in the next fiscal year to raise the tax-GDP ratio as per the IMF's terms for $4.7 billion loan packages.

The Tk7,61,785 crore new budget for the 2023-24 fiscal year is set to be placed tomorrow amidst the pressures of repayment of government loans, providing massive subsidies and meeting higher social safety needs. 

NBR's revenue collection target for the current financial year has been set at Tk3,70,000 crore. Revenues fell 12.15% short of the target during the July–April period.

Farid Uddin, a former NBR member, told The Business Standard, "There is a slowdown in revenue collection due to the lack of expected momentum in the economy and lower imports."

He predicts that there will be a slight increase in revenue collection in May and June when more development work is carried out.

However, during that period, the revenue collection target will also be higher.

"Overall, there will be a big shortfall in revenue collection this fiscal year compared to the target," he added.

He believes the speed of revenue collection will not come even in the next financial year.

Explaining the reason for this, he said, "There is no sign of any particular momentum in the economy. Again, there is a dollar crisis, and non-performing loans are increasing. The financial and industrial sectors showed no signs of picking up momentum. If the economy fails to gain momentum and accelerate, it is likely that revenue collection will not see significant improvement."

Zahid Hussain, former lead economist at the World Bank's Dhaka office, told TBS that NBR's achievement may be Tk60,000–70,000 crore short of the current fiscal year's revenue target. However, in the next financial year, it has taken the initiative to increase revenue by increasing customs duty on all the products that people use regularly, including cigarettes and mobile handsets.

"The target given to the NBR for the new financial year is difficult to achieve even in the regular time of the economy. But now the economy is not in normal condition. If the dollar crisis is not resolved, imports will not be normal. And if the import is not normal, it will not be possible to achieve the growth of 7.5% and the revenue will not increase," he added.

Towfiqul Islam Khan, research director of the Center for Policy Dialogue, told TBS, "This year there may be a total revenue shortfall of Tk75,000 crore compared to the target of NBR and others combined. The target being set for the next fiscal year will be around 40% higher than that of this year's collection. This target has never been achieved in the past."

"Considering the economic situation, it is not possible even in the upcoming fiscal year. If there is no separate source of revenue, 13.5% growth can be achieved in the next financial year," he added.

The Center for Policy Dialogue (CPD) feels that the NBR's revenue collection may be Tk70,000 crore short of the target for the current fiscal year. While the Policy Research Institute (PRI) put the shortfall figure at Tk50,000-60,000 crore.

That is, the target of revenue collection in the budget of the next financial year has been fixed at Tk5 lakh crore.

It includes a revenue collection target of Tk20,000 crore from tax and Tk50,000 crore from non-tax sectors outside the NBR. 

To meet the target, the NBR will have to collect at least Tk1 lakh crore in additional revenue compared to this year. And if the revenue collection target is not achieved, the budget deficit financing will increase, and the government's dependence on bank loans will go up. Or else, the allocation for development expenditures should be reduced.

Since the government's expenditure pressure is higher than its income, the finance ministry has stopped releasing funds for low priority projects by imposing conditions on Annual Development Program (ADP) spending for the last two fiscal years.

The next budget will have an overall deficit of Tk2,61,785 crore, which is 5.2% of GDP. And more than half of this deficit financing will be borrowed from the banking system.

The finance ministry has estimated that it will borrow Tk1,32,395 crore from banks, which is about 25% higher than the original budget target for the current financial year.

In the current budget, the target of borrowing from banks was fixed at Tk1,06,334 crore. But due to the pressure of increased expenditure on interest and subsidies and declining revenue, the finance ministry has revised the target to Tk1,15,425 crore.

During the July-April period of the current fiscal year, the government borrowed Tk82,057 crore from banks, including Tk29,697 crore in April alone.

For higher borrowing from the banking system, additional money has to be allocated in the next budget to pay interest on internal loans.

The current budget had an allocation of Tk73,175 crore for the payment of interest on domestic debt. It has been increased to Tk80,691 crore in the revised budget.

And in the next financial year, the allocation will be further increased to Tk82,000 crore. It also includes the interest payment on savings certificates.

However, due to high interest costs, the finance ministry will make it more difficult for the middle class to buy savings instruments in the next year. New rules and regulations will be announced in the upcoming budget so that people cannot buy savings tools easily.

Economists say that if the government borrows more from the banking system, the private sector does not get credit as per demand, which has a negative impact on investment, employment generation, and GDP growth. As a result, it will be difficult to achieve the target of raising investment to 33.8% of GDP in the next budget. And if there is no investment at the desired level, it will not be possible to achieve 7.5% growth as per the target.

However, bankers say, at the moment, the liquidity crisis of the banks has started to ease and the demand for loans in the private sector has decreased. Therefore, if the government increases borrowing from banks through treasury bills in the short term, it will not have a negative impact on the disbursement of loans to the private sector.

Salehuddin Ahmed, former governor of the Bangladesh Bank, told TBS, "If the government borrows more from banks, it will affect the private sector. There will be inflationary pressure. Banks will face liquidity crises again. This will create a crowding out effect."

"Borrowing heavily from the banking system is not good at all for the overall economy. The government borrows at high interest rates. This discourages banks from disbursing loans to the private sector, which is not expected," he added.

The borrowing target from savings certificates has been reduced to Tk18,000 crore in the next budget due to rising interest costs for the government and IMF conditions. This is almost half of the current fiscal year's target. In the current fiscal year, the target of borrowing from savings tools was Tk35,000 crore, but the revised budget reduced it to Tk20,000 crore.

The finance ministry has set a target of borrowing more than Tk1 lakh crore from foreign sources in the next financial year to meet the deficit financing. This is an increase of more than Tk19,000 crore compared to the revised target for the current fiscal year.

The government will borrow Tk1,02,490 crore from foreign sources, up from the Tk95,458 crore target set in the original budget of the current fiscal year. But foreign financing has declined year-on-year by 21% due to the Ukraine-Russia war and slow implementation of projects.

As a result, stakeholders believe it may be difficult to achieve the estimated amount of funding from foreign sources for the next financial year.

Economist Zahid Hussain said new opportunities are being created to get budget support from foreign sources.

"If the government utilises the foreign aid and budget support in the pipeline, it will be possible to get foreign financing," he added.

The outlay of the new budget has increased by about 15% compared to the revised budget of the current fiscal year, but overall development spending has not increased at the same rate due to a rise in the operational expenditure of the government.

Tk2,77,582 crore has been allocated to the overall development sector in the new budget. Of this, Tk2,63,000 crore has been earmarked for the Annual Development Program and Tk7,986 crore for development programs outside the ADP.