The Financial Express

Q1 budget deficit soars

Experts suggest caution on spending

| Updated: December 10, 2019 19:47:45

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- Picture used for illustrative purpose - Picture used for illustrative purpose

The budget deficit during the July-September period last increased by nearly 200 per cent compared with the corresponding three months in 2018, as gains in tax receipts were offset by higher spending and growing debt servicing, according to the government statistics.

The statistics show that the deficit widened to Tk 321.44 billion (32,144 crore) during the first quarter or Q1 of this fiscal year. The rise is 183 per cent compared to the same period a year earlier.

During the period under review the total spending was Tk 876 billion against the revenue receipts to the tune of Tk 554.6 billion.

There was no grant during the Q1, but loan disbursement and other flows from external sources were much lower than expectation and stood at Tk 6.37 billion.

On the other hand, borrowing from the banking sources (net) was astonishingly high at Tk 279.5 billion through bills, bonds and other debt instruments.

The budgetary target of borrowing from the banking system was Tk 473.4 billion for the entire fiscal year.

Debt-servicing was also high at nearly US$ 500 million during the period under review, approximately $100 million higher than that of the previous period a year earlier, according to the statistics.

Economists view that this budget deficit will jump significantly during the second half of the fiscal year at a time when the payment for both development and non-development activities usually remain high.

They suggest prioritising development activities, otherwise the deficit will far exceed the benchmark and unsustainability may stalk the economy.

Dr Zahid Hussain, an independent economist, told the FE: "The revenue will improve to some extent, but that will not be adequate to feed the spending."

"We now need to prioritise the development programmes."

"To my mind, there is the need for putting a restriction on fund release for less important projects."

Dr Hussain, who served as lead economist at the Dhaka office of the World Bank, told the FE that banks usually find comfort while lending to the government as such investment is viewed as risk-free from the banks' perspective.

"If borrowing from the banking system by the government increase further, it will create a crowding out effect on the economy."

"We now see around 10 per cent growth in the credit to the private sector, and it will drop to a single digit, once the borrowing persists further."

On the other hand, Dr Ahsan H Mansur, executive director at the privately-owned think-tank Policy Research Institute of Bangladesh (PRI), said the borrowing from the banking system would even touch Tk 1.2 trillion.

"I think, government borrowing from the banking system will reach Tk 1.2 trillion or more at the end of this fiscal year."

Dr Mansur said: "I don't understand how the deficit grows, if the economy expands at a rate of over 8.0 per cent."

He said deficit grows, when the government takes some stimulus measures to boost the economy.

The annual budget deficit, however, has been projected at Tk 1.4 trillion for the entire fiscal year and it will be met by financing from both domestic and external sources.

However, the wide deficit was attributed to some extent to more spending on interest payments on debts that reached Tk 121.7 billion during the Q1.

The development activities during the July-September period accounted for Tk 134.6 billion.

Grants to other institutions by the government amounted to Tk 67 billion and social safety net costs were put at Tk 41 billion during the period under review. The food account was also high at Tk 35 billion.

Dr Mustafa K Mujeri, an economist, said such higher a deficit leads to unsustainability of the economy.

"We're even not progressing up to the expected levels by many macro indicators, excepting remittances," Dr. Mujeri, who heads a research institution, namely Institute of Inclusive Finance and Development, told the FE.

He said the government estimation of the revenue earnings should be realistic.

Dr Mujeri suggested austerity measures in some unproductive sectors to narrow the deficit.

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