The government has projected to reduce the budget deficit to 5.7% of the GDP in the next FY2022-23 from the existing 6.2%, according to an official document.
The budget deficit for FY2023-24 has been projected at 5.5%.
In the FY2020-21 budget, the deficit was revised at 6.1% from the original projection of 6%. The deficit for the FY2019-20 was 5.3%.
The official document says the government has been seeking additional funds from the multilateral/ bilateral development partners to implement its declared fiscal stimulus package of TK1.28 trillion - 4.2% of the Nominal GDP in FY21) since the pandemic hit the economy in March 2020.
The government's financing requirement has been projected at Tk. 2.1 trillion (6.2% of GDP) in FY2021-22.
The government's request for budgetary/BOP support has received favourable responses from the major development partners, including the World Bank, the Asian Development Bank, the Asian Infrastructure Investment Bank (AlB), the Japan International Cooperation Agency (JICA) and EDCF (of Korea), says the document.
It says that the government has already received $1.7 billion in FY2019-20 and is expected to receive $6.2 billion in total by FY2022-23 out of which $1.5 billion would be used for vaccination programmes and the rest would be used for budget/BOP support.
With this external support, the government will avoid crowding out the domestic economy as the government's domestic financing requirement will reduce by 8.5% of GDP in running FY2021-22 from the previous fiscal year.
For the FY2022-23 some Tk990 billion will come from external sources as loans, Tk40 billion as grants while Tk105.50 billion will be used for amortisation.
Among the domestic sources, the banking sector would provide the major share as the government has been phasing out its dependence on expensive nonbank borrowing gradually.
As per the official document, in FY2022-23, Tk1020.10 billion will come from the banking sector, Tk330 billion will be from the non-banking sector, Tk280 billion from National Savings Certificate while Tk50 billion from other sources.
For FY2023-24 some Tk1010 billion will come from external sources as loans, Tk42 billion as grants while Tk152.5 billion will be used for amortisation.
In FY2022-23 an amount of Tk1210.30 billion will come from the banking sector, Tk310 billion will be from the non-banking sector, Tk260 billion from National Savings Certificate while Tk50 billion from other sources.
The document reads that the government projects to reduce its financing requirement by narrowing the fiscal deficit in the medium term as the economy is expected to recover from the Covid-19 fallout with the implementation of the mass vaccination programme and the fiscal stimulus package.
Medium-term financing projection shows that government financing requirement would gradually come down to 5.5% of GDP in FY2023-24 from the peak of 6.2% of GDP in the running FY2021-22.
Domestic financing that remains the major source of government finance in the medium term is projected to come down to 3.5% of GDP (bank and non-bank ratio 3.9) while external financing to 2.1% of GDP by FY2023-24.
In the absence of a vibrant domestic bond market, the government projects to keep the share of expensive nonbank borrowing (e.g. NSCs) low while the share of bank financing rises, the document adds.
