• Wednesday, Oct 21, 2020
  • Last Update : 08:22 am

Budget 2020-2021: Donor support, bank borrowing to be greater

  • Published at 08:15 pm June 7th, 2020
Budget 2020-21

Around Tk1,85,000cr budget deficit likely

Budgetary support from donor agencies to fix the coronavirus-ravaged economy, and significant bank borrowing, are going to be the two major components of next year’s ballooning budget deficit, said sources at the finance ministry.

The budget deficit is likely to be 6.25% , or Tk1,85,000 crore of the next fiscal year’s anticipated gross domestic product (GDP).

Quick responses from donor agencies such as the World Bank(WB), Asian Development Bank(ADB), Asian Infrastructure Investment Bank(AIIB), International Monetary Fund(IMF), and the Japan International Cooperation Agency(JICA), are helping the government in making allocations for the next budget, a top finance official says.

Besides project financing for the Annual Development Programme(ADP), multilateral lending agencies have so far also committed nearly $3.5 billion in budgetary support for financial year 2020-2021, amid clear signs of lukewarm revenue earnings in the first half of the next fiscal year.

The government has so far received $1.48 billion from donors as budget support for the corona-induced economic situation.

Of the $1.48 million, the IMF has disbursed $732 million, ADB $500 million, and the WB $250 million.

Another $1.70 billion will be disbursed in the coming fiscal year to finance a good portion of the government’s budget deficit, an additional secretary at the ministry informs.

Of that $1.70 billion, WB is to provide $600 million, ADB $500 million, AIIB 250 million, and JICA $350 million.

“A considerable portion of our deficit financing, nearly Tk35,000 crore, will come from donor agencies which is a huge relief as the government with the help of commercial banks has been implementing 19 stimulus packages of around Tk 1 lakh crore,” another senior finance official told Dhaka Tribune.

The budget support would come in addition to project funding by donors, which will be approximately Tk70,000 crore for the next budget, he added.

Officials at the finance ministry said the country has been receiving budgetary support from the WB since 2018, though the support per year is a modest $250 million. Other than the WB, and the IMF which provides Balance of Payment (BoP) support that can apply in the budget, no other agency routinely provides direct budgetary support to Bangladesh .

It is learned that as far as domestic borrowing is concerned, the government is likely to about double the bank borrowing it projected for the current fiscal year to fund the next fiscal year’s deficit.

Bank borrowing for the next fiscal year has been estimated at Tk85,000 crore which was Tk47,364 crore in the current fiscal year.

The government has revised its current bank borrowing target upward to Tk72,953 crore.

Borrowing from savings certificates is going to be Tk24,000 crore in the coming budget, against Tk27,000 crore for the current fiscal year ending this month.

Ahsan H. Mansur, executive director, Policy Research Institute, said the government should seek more assistance from donors, rather than borrowing from banks.

“If the government demonstrates its political desire for reforms in the financial sector, it is even possible to get $7 to $8 billion from donor agencies to meet its budget deficit needs,” Mansur told Dhaka Tribune.

He said the government should avoid bank borrowing to fix the pandemic-induced slump as the private sector is likely to need significant bank financing next year.

Avoiding bank borrowing, the government might opt for Bangladesh Bank to print money as printing money this time round would most likely not fuel inflation, as it might under normal circumstances.

“Since domestic demand has dropped and massive falls in spending marked the final quarter of this fiscal and is expected to continue the whole of the next financial year, money printing will not stoke inflation,” asserted Mansur.

He said the Tk3,30,000 crore revenue target is an overly ambitious target to achieve next year, and as a consequence, deficit financing is likely to exceed 6% of GDP.

“Donors and the BB are two viable options for the government to finance the budget deficit.”

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