• Tuesday, Jun 06, 2023
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Budget deficit financing remains a challenge

  • Published at 07:29 pm June 1st, 2021
File photo: Dhaka Tribune

The challenges depend on the pandemic situation, economists say

As the country waits for the national budget tomorrow for the fiscal year 2021-22 amid the countrywide lockdown, economists foresee that providing funding to meet the budget deficit could be a big challenge.

They pointed out that the National Board of Revenue (NBR) is lagging behind in collecting revenue for the current fiscal year 2020-21 due to the economic onslaught brought on by the Covid-19 pandemic.

The challenges in deficit financing depend on the pandemic situation. 

However, the government should build capacity to increase the use of foreign loans without relying on banks to meet the deficit, they stressed.

Hossain Zillur Rahman, executive chairman of Power and Participation Research Centre (PPRC) and former adviser to the caretaker government, said: “There will always be pressure on the government to finance the budget. To cope with this pressure, the government will borrow from domestic and foreign sources. However, if the government meets this deficit from domestic sources, the private sector will not get loans if it borrows too much from the banking sector.”

Also Read - Budget FY21: Deficit will be 6% of GDP

"Our investment situation is not comfortable due to the pandemic. As a result, dependency on the banking sector to meet the budget deficit should be reduced," he explained.

According to the National Board of Revenue (NBR), revenue collection surged 116% year-on-year to Tk19,326 crore in April, in the current fiscal year.

In the first nine months of the current financial year, the revenue deficit (July-March) hovered at Tk51,000 crore. 

Until March of the ongoing financial year, Tk2.27 lakh crore was collected against the total and revised revenue target of Tk3.01 lakh crore. 

As a result, the deficit stands at Tk74,000 crore.

According to the officials of the Ministry of Finance, the probable size of the expenditure in the next budget is Tk6.03 lakh crore.

The total revenue is estimated at Tk3.90 lakh crore. Of them, NBR's revenue income is estimated at Tk3.30 lakh crore. Non-NBR  revenue is estimated at Tk48,000 crore.

Highlighting past trends of budget deficit, Prof Muhammad Shahadat Hossain Siddiquee, development policy researcher and faculty of economics at the University of Dhaka, said that it would be a challenge depending on how the government actually copes up the deficit financing. Interest rate payment is already becoming a burden.

Also Read - Budget FY21: Deficit financing from banks will hurt the private sector, says BUILD

However, the expert recommended that for budget deficit financing, the government should focus on savings certificates and alternative sources apart from domestic banks so that the private sector keeps the flow of growth.

He also cited that overall production should not be affected and private banks certainly.

The former lead economist of the Dhaka office of the World Bank Zahid Hossain mentioned that the increase in the budget deficit is normal. 

The 6% deficit in the budget is not a matter of concern even in normal times, now it is all right amid the pandemic, he also said. 

"However, the government should increase its ability to use foreign sources. Because all the problems have been identified, now we have to take steps to solve them."

Whether the budget financing will be a challenge depends on the passage of the pandemic situation. However, spending according to budget targets will benefit the economy and society, which will bring benefits to the economy, he further noted.