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Bangladesh's aggregate public spending remains among the lowest in South Asia and in the world at large as the government walks tightrope to make two ends meet principally for weak revenue mobilisation, and finance officials foresee further fall.
The ministry of finance predicts that in the outgoing fiscal year the government expenditure may rise to 13.2 per cent before taking a downturn again to reach 12.7 per cent in the next fiscal year, as a share of GDP.
In the latest Medium-Term Macroeconomic Policy Statement (MTMPS), the finance ministry says while it is projected to remain at approximately 12.8 per cent of GDP over the medium term, "the projected level of government expenditure is highly susceptible to downside risks".
"In the absence of significant enhancements in revenue collection, government's capacity to maintain elevated expenditure levels…may be compromised, thereby constraining long-term economic prospects."
The finance officials think increased expenditure is crucial to advancing key development priorities and supporting sustained economic growth.
The MTMPS points out that Bangladesh's public spending is significantly lower than that of neighbouring countries like India, Nepal and Pakistan. Data show public expenditure in Bhutan is over 25 per cent of GDP, in India is nearly similar, in Pakistan over 15 per cent, Nepal nearly 20 per cent, Indonesia 15 per cent, in the United States over 35 per cent, and Germany's is nearly 50 per cent. A key reason behind low public expenditure is Bangladesh's adherence to a de facto fiscal rule that caps the budget deficit at 5.0 per cent of gross domestic product, it notes.
With the revenue-to-GDP ratio stagnating around 8.0 per cent for many years, the government has little option but to maintain a correspondingly low level of expenditure, the MTMPS reads.
Consequently, the persistently low tax-GDP ratio has emerged as a major structural constraint, limiting government's ability to expand public spending and necessitating gradual efforts to increase it.
The macroeconomic policy mentions that government expenditure in Bangladesh has remained relatively modest and requires substantial augmentation to meet the country's development needs.
Over the past five fiscal years (FY20-FY24), the average annual growth rate of government spending was 9.4 per cent, falling short of the nominal GDP-growth rate, which averaged 11.2 per cent during the same period.
During this period, the overall growth in the revised budget allocation was 10.1 per cent, and the average growth of the development budget was only 8.5 per cent -- an insufficient pace considering the investment-driven demands of Bangladesh's economy.
Moreover, the situation deteriorated further in FY25, with the revised development budget for the year registering a 17-percent decline year on year.
The MTMPS also mentions that "notable strides are being made to improve the efficiency and rationality of public expenditure, particularly through a comprehensive review of ongoing projects".
As a result of these policy adjustments, government spending for FY26 has been scaled down compared to the previous fiscal year.
syful-islam@outlook.com