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The Financial Express

Bangladesh saw record budget deficit of Tk 1.87tn last fiscal year

| Updated: September 20, 2021 11:20:43


Bangladesh saw record budget deficit of Tk 1.87tn last fiscal year

Bangladesh's budget deficit amounted to a record Tk 1.87 trillion in the past financial year as stimulus packages and emergency health payouts bloated public spending against revenue shrinkage for pandemic.

The budget shortfall accounts for approximately 6.1 per cent of the GDP or gross domestic product -- a gaping gap usually not seen in recent history, of course amid a situation at home and abroad unforeseen in a hundred years, since the 1918 Spanish flu.

In the previous fiscal, 2019-20, such national spending gap was just 5.5 per cent of the GDP. Usually, the government wants to maintain 5.0 per cent of the GDP for a fiscal comfort.

The government announced fiscal and stimulus packages amounting to Tk 1.28 trillion in additional expenditure on healthcare, emergency humanitarian assistance and economic recovery to keep the country's economic activities rolling in the face of the pandemic coronavirus disruptions to normal course of life and business.

The pandemic death toll is nearly 27,000 in the country and over 45 hundred thousand globally.

It emerged as a global phenomenon that private sector remained shattered with people caged home under lockdowns and businesses shuttered in the wake of the pandemic invasion while governments kept handing out splurges in stimulus from reserves and minting money to meet emergencies.

Inflation upturn is a natural outcome of production slump and a splurge from public (government) purses.

The total government expenditure in Bangladesh in the year under review was Tk 5.39 trillion or 17.46 per cent of the GDP. The total revenue mobilisation in the period came Tk 3.51 trillion, according to the Ministry of Finance.

Of the total defray, operating expenditure for running the administration topped the outlay head with Tk 3.24 trillion, followed by development expenditure at Tk 2.08 trillion. The other expenditures amounted to Tk 72.7 billion.

People familiar with the matter at the Ministry of Finance told the FE that the government had to take extra monetary measures in order to address the crisis resulting from the outbreak of the pandemic.

They said the Prime Minister formulated an overall programme with short,- medium-and long-term targets to cope with and tide over the the crisis.

This package programme has four main strategic aspects. The first strategy is to increase government spending. In this respect, priority is given to creating jobs and discouraging luxury spending.

The second is to provide low-interest credit facilities through the banking system to industries and business enterprises for an economic reflation and increase in the competitiveness of entrepreneurs at home and abroad in the recovery process.

The third strategy is to expand the scope of government's social- security programmes to protect the ultra-poor and the low-income groups that have suddenly become unemployed as well as people engaged in informal sectors.

The fourth and last lap is to increase money supply to the market to avert a deflation.

Economists say the fiscal deficit worsened as expenditures have gone up due to the covid which impacted badly the revenue-generating activity.

Dr Ahsan H Mansur, executive director at the private think-tank Policy Research Institute of Bangladesh, explains the situation this way: many transactions which remained stalled due to the lockdown were made in May and June -- at the fag-end of the fiscal -- thus worsening the deficit.

Dr Mansur, who also chairs the country's SME-focused BRAC Bank, said, "Bank borrowing by the government has also increased."

He told the FE that he earlier had predicted the crossing of the gap by Tk 1.0 trillion at the end of June 2021.

Independent economist Dr Zahid Hussain said revenue mobilization, especially the collection of value-added tax, started picking up in March, but a second wave of the virus hit it.

He sees the covid-related expenditure as "rightly justified as there is no alternative to vaccination" to curb the corona transmission.

Policy Exchange of Bangladesh chairman Dr Masrur Reaz says non-tax revenue contributed much to feeding the expenditure.

"Revenue from VAT, tax and customs duties remained poor on the back of poor growth of the private sector," he told the FE.

He noted that the private sector remained almost in stagnant position. And they are the ones who contribute around 60 per cent to the total NBR taxes.

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