The budget deficit for the next fiscal year would be 41.26% higher than that of the outgoing fiscal year, mainly due to increased expenditure for the government employees who would be entitled to get pays in accordance with the new pay scale starting from July 1 this year.
The deficit in the outgoing fiscal year was Tk613.46bn and is now expected to be Tk866.57bn in the next budget, according to the budget document obtained by the Dhaka Tribune.
However, the deficit is not going to cross the 5% of GDP - a standard practice in Bangladesh. Development partners also suggest that the budget deficit do not cross this limit.
Earlier in 2009-10, the deficit had increased by about 45% from the previous fiscal year due to the implementation of a new pay scale.
In the coming fiscal year 2015-16, the government makes a provision of around Tk220bn in addition to the existing salary expenditure, which contributed to the increased budgetary outlay. There are around 2.1 million government employees at present.
The government plans to finance 65.23% or Tk565.23bn of the total budget deficit from local sources – borrowing from banks and savings instruments.
The revenue expenditure for the next fiscal year is expected to increase by 25.19% to Tk1.93tn from the existing Tk1.54tn because of the new pay scale implementation. The government will keep aside Tk220bn as a block allocation in the new fiscal budget.
Finance Minister AMA Muhith is scheduled scam-hit state-owned banks, the soaring costs of the Padma bridge project and public servants’ increased salaries will add difficulty to the finance minister’s already challenging task.
But nothing could stop Muhith from planning an outlay that is over three times higher than the one he presented six years ago as the finance minister of Sheikh Hasina’s government.
He is expected to propose today a budget of over Tk2.95tn, which is almost 23% higher than the revised budget of the outgoing fiscal year, top government sources said.
Analysts have already started saying that implementation of the budget will be a challenging job for the finance minister in a situation affected by political uncertainty, insufficient infrastructure, a lingering energy crisis, inept administration and corruption.
Former finance adviser to the caretaker government AB Mirza Azizul Islam said the success of a budget depends on its implementation. “The targets the government are going to announce are far from reality.”
Over the last few years, the Finance Ministry has been projecting higher revenue earnings to keep the fiscal deficit target low. The tax growth target for FY2015-16 will be closely watched.
The finance minister is expected to set a revenue earnings target of over Tk2tn for the upcoming fiscal year, up nearly 22% from the current revised estimate.
“The revenue earnings target is not realistic as the revenue growth required needs to be 30% of GDP, whereas the existing trend ranges between 10% and 11%,” Mirza Aziz said.
Although the government had offered sops to private investment, Mirza Aziz said the gas crisis, political uncertainty and corruption could hold back investment.
“These are the main challenges to implementing the new budget. Although public investment has increased gradually, it did not foster faster growth because returns on the investments are low compared to private investment,” he said.
Executive Director of the Policy Research Institute Ahsan H Mansur said: “The key challenge will be to boost private investment that has been stagnant for so long due to infrastructure constraints, the energy crisis and, to some extent, political uncertainty.”
Unnecessary fund allocation to recapitalise scam-hit banks and loss-making state-owned enterprises are a burden on the budget because they are a waste of money spent because of inefficient administration and corruption, he said.
The finance minister is expected to pump funds valued at Tk5,000 crore into the ailing state-owned banks for FY2015-16. During the previous two fiscal years, Tk9,000 crore was allocated to recapitalise the banks.
Mansur said Bangladesh does not have a friendly tariff regime to woo both foreign and domestic investments, something he said was needed for faster and better economic growth.
“This is also a big challenge for the government. Tariff policy is usually made to satisfy individuals who have political clout and who are getting fatter day by day,” he said.
The finance minister hinted that the GDP growth target would be 7.1% in the new fiscal year. Bangladesh Bureau of Statistics said the GDP growth in the outgoing fiscal was 6.51%, far from its original target of 7.3%.
The government has had to revise down its growth target due to political unrest over the last two years.
This year, the finance minister is expected to fix the growth target in line with the seventh five-year development plan beginning in the new fiscal year.
The budget is expected to chalk out a strategy to raise subsidies and boost investment in both the public and private sectors.
