Budget for FY21 at a glance -
- The government plans a Tk566,000 crore budget for next fiscal year
- The revenue collection target has been set at Tk386,000 crore
- The budget deficit stands at Tk180,000 crore which is 5.7% of GDP
- GDP growth rate has been targeted at 8.2%
- Allocations under social safety net stand at Tk88,000 crore
- No hike in incentives to exports and remittances
- The government will not get loans in large amounts from banks, the deficit will be met with loans from the central bank
The coronavirus outbreak has further deepened the country's economic crisis. Investment, export-import activities have been declining steeply, triggering a concern that people's savings and consumption expenditure might witness a fall. Revenue earnings will fall naturally if people's income and expenditure decrease.
Rejuvenating the economy, increasing spending on health and agriculture sectors and bringing more poor people under the social safety net – all those now hinge on the next budget.
And to deal with this pressure, the government is planning to place the national budget to the tune of Tk566,000 crore for the fiscal year 2020-2021. The budget deficit is estimated to be Tk180,000 crore, which is 5.7 percent of the GDP that is going to cross the 5 percent benchmark after a decade.
Of the Tk523,190 crore national budget for the current fiscal year, the overall budget deficit was Tk145,380 crore, which is 5 percent of the GDP.
Finance ministry officials said in the 1990s Bangladesh set a benchmark to limit the budget deficit to 5 percent of GDP. However, in the 2007-2008 fiscal year, the budget deficit exceeded that benchmark for the first time and stood at 6.2 percent of GDP.
Due to the global recession on the one hand,and the country's military-backed caretaker government's anti-graft campaign on the other hand, many business people left the country in fear of being arrested by police. Cyclone Sidr also caused colossal damage to crops, and a food crisis emerged.
In the following fiscal years, the budget deficit was limited to 5 percent. In the fiscal year 2018-2019, the deficit was 5.1 percent of GDP after a decade.
Officials at the Finance Division are now planning to set a target to borrow Tk88,000 crore from banks, Tk33,000 crore from internal sources, including savings certificates, and Tk77,000 crore from external sources to meet the deficit of Tk180,000 crore.
In the next budget, the finance ministry has fixed a revenue collection target of Tk3,30,000 crore for the National Board of Revenue (NBR).
NBR Chairman Abu Hena Md Rahmatul Muneem has already informed Finance Secretary Abdur Rauf Talukder in writing that it would not be possible for them to achieve the target.
He said export-import activities will fall from the effects of Covid-19. People's income and consumption expenditure will also decrease. Considering all these aspects, it will not be possible to collect more than Tk250,000 crore in revenue in the next fiscal year.
In other words, the budget deficit is likely to increase further if the government fails to reduce the spending pressure, and revenue collection does not reach the target.
In the ongoing fiscal year, to meet the deficit, a target was set to collect Tk47,364 crore from the banking sector, Tk77,363 crore from internal sources and Tk68,016 crore from foreign sources.
Economists say the government has announced various packages amounting to Tk1 lakh crore to combat the effects of the coronavirus. Almost all of those will be disbursed from banks. In this situation, the scheduled banks do not have the opportunity to invest such a large amount of money in meeting the budget deficit.
To meet the budget deficit, they suggested borrowing from the Bangladesh Bank by printing money and spending only on essential sectors instead of investing in projects not necessary at the moment.
Besides, they also supported borrowing more from abroad at lower interest rates.
Economists have urged to start working on curbing tax evasion and reforming the revenue sector in the next financial year.
Former Bangladesh Bank governor Dr Salehuddin Ahmed told The Business Standard that people's income has decreased, which will result in a fall in bank deposits. The banks will also implement the government-announced incentive packages. Hence, the government will not be able to borrow too much from the banks to meet the budget deficit in the next fiscal year. So, the government has to be careful about its spending.
He said the country now has more power generation capacity than the demand. Therefore, it would be wise not to allocate funds for the projects to set up new power plants in the next fiscal year. The power sector's money can be used to reduce the deficit instead of spending on other sectors.
Former senior secretary to the Finance Division Dr Mohammad Tareq told Business Standard that increasing revenue collection should be the main priority in the next budget for meeting a rising pressure for spending and controlling the deficit.
Next year, revenue collection will have to be enhanced to 13 percent of GDP. Therefore, tax evasion must be prevented, he added.
Ahsan H Mansur, executive director of the Policy Research Institute, said the economic downturn caused by the Covid-19 pandemic would not be reversible in the next one fiscal year.
"Due to the global recession, our export earnings and remittance inflows will nosedive. The country's entrepreneurs will not invest either. Even the investments that are there now will not be able to bring production at full capacity. As a result, there is less opportunity to increase revenue collection," he added.
Emphasising on the revenue sector reform, he said the banks would implement various incentive packages worth Tk95,000 crore announced by the government to revive the economy. As a result, the government will not be able to cover the deficit with loans from commercial banks. So, it has to try to increase foreign loans.
The government will also have to print money and take loans from the central bank,he pointed out.