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Bangladesh targets higher growth through FY22 budget despite pandemic

  • Published at 08:50 pm June 2nd, 2021
Budget FY 22
Photo: Bigstock

Economists urge the government to refrain from excessive bank borrowing to meet deficit

Bangladesh is aiming for higher GDP growth than the previous fiscal year through its national budget for the FY2021-22, although the country is presently facing the second wave of Covid-19.

Finance Minister AHM Mustafa Kamal will present his third budget in the parliament on Thursday, with a growth target of 7.2% and an inflation rate target of 5.3%, according to sources at the Finance Ministry and the National Board of Revenue (NBR).  

At Tk603,681 crore, this budget is 6.28% or Tk35,681 crore higher than the budget of the current fiscal year, which was Tk568,000 crore. 

The original GDP growth rate for the current fiscal year was earlier set at 8.2% which was later revised to 6.1%. The size of the overall GDP in the next fiscal year is expected to be Tk345,600 crore and the size of the budget is expected to be 17.47% of GDP.

Also read - 603,681C national budget to be placed in parliament Thursday

The overall budget deficit for the next financial year has been estimated at Tk214,681 crore, which is 6.2% of the GDP, which almost matches the ADP budget. 

Because of the pandemic, the deficit in the current fiscal year was Tk190,000 crore — 6% of the GDP.

According to the Ministry of Finance, the revenue target for the next budget is Tk389,000 crores, which was Tk378,000 crores in the current financial year. 

But the revenue collection target of the National Board of Revenue (NBR) is not going to rise in the new budget although the government has a plan to spend an additional Tk35,681 crore this time.

The same revenue collection target of Tk330,000 crore is likely to be maintained in the upcoming budget although the revised target of the NBR for FY21 was reduced to Tk301,000 crore.

The pressure on borrowing to meet the expenditure in the next budget might increase since revenue collection has been difficult with the advent of the pandemic and its disruptions.

For this reason, the government’s dependence on foreign debts is expected to increase in the next fiscal year to meet the deficit financing. The government is likely to borrow Tk97,738 crore from foreign sources, which was Tk76,004 crore in the current fiscal year’s original budget.

On the other hand, the government is likely to borrow Tk1,13,453 crore from internal sources to meet the deficit. Of the amount, Tk76,452 crore will be borrowed from the banking system while Tk32,000 crore through sales of savings certificates.

Economists, however, think the government must not borrow excessively from the banking sector or, for that matter, depend on foreign loans or aid to cover the deficit.

Speaking to the Dhaka Tribune, economist and former Bangladesh Bank governor Salahuddin Ahmed said: "The deficit relative to the pandemic is not significant if compared to developed economies. The government should spend wisely and not increase public administration expenditure. Additionally, the government could borrow from the central bank instead of excessively lending from other banks.”

The government also has to widen the tax net rather than churning taxpayers in a limited pool, he added. 

“The government will not have to depend on foreign aid or loans to meet the deficit,” said Abul Barkat, renowned economist and a professor in the Department of Economics, University of Dhaka. 

“The government has already been made aware of several other strategies in this regard. It can explore taxing excess capital, excess profit, foreign consultancy, and luxury tax to meet the deficit," he added.

He also suggested introducing wealth tax and revisiting the provision of tax-free imported cars for the members of parliament.

Also read - Government to prioritize mega projects in upcoming budget

The budget is also likely to give tax exemption for businesses by further reducing the tax rate of non-listed companies from 32.5% to 30%. The tax rate could also be further reduced to 25% to encourage sole-proprietorships. Apart from this, the tax rate may remain unchanged for other companies.

This budget is going to have four major priorities — social infrastructure, physical infrastructure, general services, and interest-subsidy-loan disbursement, according to the Ministry of Finance.

The budget will set the highest priority in the health sector in light of the impact of the pandemic. 

Mechanization of agriculture, incentives for irrigation and seeds, agricultural rehabilitation and subsidy for fertilizers, and implementation of the Prime Minister's announced stimulus package will follow suit, sources said.

At the same time, overall human resource development, including education and skills development, rural development and job creation, expansion of coverage of social security activities, housing for the homeless poor, and food distribution among low-income people are also priorities.

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