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The Financial Express

Revenue resurrection helps cut Bangladesh's budget deficit

| Updated: February 18, 2022 08:35:54


Revenue resurrection helps cut Bangladesh's budget deficit

Bangladesh's widening budget deficit narrowed to Tk 1.29 trillion in the past fiscal year with the gap between spending and revenue earning declining amid economic recovery from pandemic-induced slump.

Economists conversant with the corona-time economics, however, attribute much of the lower deficit to tightfisted public spending when people and businesses at loose ends as well as medical care needed pretty much.

Official statistics show the budget deficit was Tk 1.56 trillion in the previous financial year, FY2020-21, that had to bear the brunt of the all-upsetting covid-19 pandemic.

Outlay for the whole fiscal year (2020-21) rose to Tk 4.58 trillion or just 8.0 per cent up from that of the fiscal year 2020. On the other side of the balance, total revenue came to Tk 3.28 trillion in the past fiscal or up by nearly 24 per cent than fiscal year 2020. And it stood at Tk 3.3 trillion when foreign grants are taken into account.

People at the finance division say that enhanced revenue performance against less-than- expected government spending resulted in overall budget balance to improve compared to the previous year. The budget deficit (excluding grants) for FY21 is estimated to be 4.49 per cent of GDP. Grants inclusive the gap is expected to be 3.63 percent of GDP (considering new base year 2015-16).

In FY20, actual budget deficit (excluding grants) as percentage of GDP was 6.5 per cent. Including grants it was 5.27 percent of GDP (considering new base year 2015-16).

But economists familiar with the developments are critical of the lower spending in the covid year-when money was much needed as support to people and businesses at loose ends and medical bill ballooned.

They say the government used the banking system to support the economy, which actually made the banking system vulnerable.

Dr Ahsan H. Mansur, executive director at the Policy Research Institute of Bangladesh (PRI), told the FE that the below-par spending was the main reason behind the deficit having dwindled.

"To my mind, the government has failed to disburse the funds for welfare and for the economy even during the onslaught by the covid," he says.

He points out that the nonperforming loans in the banking sector surged alarmingly following reliance on the banking system for providing covid-related supports.

Dr Zahid Hussain, former lead economist at the World Bank, says the deficit was lowered as the revenue performance had been better until March in the fiscal year 2021.

"The performance was better as the economy started to recover after the reopening of the economy after prolonged restrictions on movement," he told the FE about the macroeconomic health of the country around the global health emergency brought about b the pandemic.

However, the economist notes that this lowering of deficit does not make any sense as the government had failed to spend on many key divisions.

"We've failed to spend in right time for the people, so this lowering has no meaning".

The deficit was mostly funded by non-banking sources, amounting to Tk 492.37 billion, followed by foreign borrowings worth Tk. 448.3 billion.

The government borrowings from the banking sector amounted to Tk 284.32 billion while sales of the national savings certificates fetched Tk 430.4 billion in the year under review.

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