The Financial Express

Coronavirus crisis: Efforts on to get external aid to bankroll higher budget deficit

| Updated: May 01, 2020 16:41:10

Representational image Representational image

The government is frantically looking for external aid to narrow its budget deficit both for the current and next fiscal years due to the adverse impact of coronavirus pandemic, officials say.

The World Bank has recently said Bangladesh's budget deficit might swell to 7.7 per cent of the Gross Domestic Product (GDP) during the current fiscal year, highest in the last one and a half decades.

The deficit in FY2021 will go up to a new height of 9.8 per cent of the GDP, the Washington-based lender forecast.

A joint secretary at the ministry of finance said that they were mainly seeking external funds to bankroll the deficit budget for both the current and upcoming fiscals as the government needs to spend a huge sum of money on offsetting the effects of COVID-19.

"It will be difficult to keep the budget deficit within the 5.0 per cent of GDP limit. Since we need to provide different stimulus packages and fiscal incentives to help the Coronavirus-ravaged economy recover, public investment will have to be increased," he said.

At the end of the current fiscal, the budget deficit would cross the 5.0 per cent limit as the government has already started to spend money in increased volume after the COVID-19 outbreak, he said requesting anonymity.

In the current fiscal, the government projected a Tk 1.45 trillion deficit, or 5.0 percent of GDP, of the Tk 5.23 trillion national budget.

Of the deficit, Tk 680.16 billion will come from external funding and Tk 773.63 billion from domestic sources.

"Actually, we cannot even predict the budget deficit at this moment due to the shutdown that is in force across the country. We are exercising on it and are now working on the preparation of the upcoming national budget and revised budget of the current fiscal," the finance official said.

Another official involved with the budget preparation said it was difficult at this moment even to project the possible budget deficit for the current fiscal as the amount of revenue earnings in the last few months recorded fall.

He, however, hinted that the budget deficit in the next FY2021 budget would reach 6.0 per cent of GDP as the government would boost public expenditure to maintain the growth momentum.

The authorities have already requested the International Monetary Fund, the World Bank, the Asian Development Bank and the Asia Infrastructure Investment Bank to finance the deficit budget.

"We are expecting at least US$1.0 billion from the IMF, $750 million from the World Bank, and $500 million from the ADB," he added.

Meanwhile, the government in the first six months (Jul-Dec) of the current fiscal spent Tk 1.47 trillion from its Tk 5.23 trillion total budget.

Out of the expenditure, it had a deficit of Tk 257.36 billion during the period as the revenue income was below the expectation.

According to the National Board of Revenue, or NBR, revenue collection fell short of the target by Tk 450 billion during the first eight months of the current fiscal year.

Until February of this fiscal, the board earned Tk 1.45 trillion in taxes against the target of Tk 1.90 trillion, the data showed.

Executive director of the Policy Research Institute of Bangladesh, or PRI, Dr Ahsan H Mansur said the budget deficit would go up during the current fiscal and in the next fiscal too as the government needs investments in new areas alongside the regular expenditure on different sectors.

"The big problem of the government is the revenue collection, which might shrink. So, the external fund is the best options for the deficit financing," he told the FE.

Dr Mansur suggested the government should allocate at least Tk 200 to 250 billion to feed some 50 to 60 million people, who are likely to be the worst victims of the COVID-19.

He favoured the cash transfer tools for feeding the vulnerable groups of the society in next 6-12 months.

Meanwhile, the Centre for Policy Dialogue, CPD, predicts a Tk 1.0 trillion revenue collection shortfall this fiscal considering the impact of COVID-19 on the economy.

The CPD predicts revenue loss and increased public expenditure for a virus package would widen fiscal deficit to 5.5 per cent or above of GDP this fiscal.

[email protected]

Share if you like