Signs are rather ominous that the government might be in trouble in the coming months as far as its fiscal management is concerned. And if that happens, the first casualty will be the annual development programme for the current fiscal year (1014-15).
The tax revenue collection by the National Board of Revenue (NBR) during the first half of the current fiscal fell short of the target by more than Tk 26 billion, mainly due to the lacklustre performance of VAT and customs officials at a time of relative political calm.
The deteriorating political climate does indicate to the possibility of a worse situation in the second half of the fiscal. Unless there is a reversal in the current political standoff, trade and industry would continue to limp, hurting the revenue collection of the government.
It is unlikely that the government's current expenditure would experience any cut due to lower than targeted mobilisation of resources. Rather it may go up in certain cases to meet a few emergencies, particularly in areas of law and order maintenance.
In the midst of an uncomfortable revenue scenario, the reported 'go-slow' approach of the World Bank (WB) to finalise at least two major loans worth $800 million, including a budgetary support loan of $500million, must have generated enough of frustration among the policymakers.
The Bank had assured the government of Bangladesh last year of finalising the budgetary support loan and the financial sector support programme loan within the current financial year. Had the budgetary support loan been finalised, the government would have received the first of three instalments of the loan this fiscal.
The Economic Relations Division officials, who are clueless about the delay on the part of the WB, are no more optimistic about getting the loan this fiscal.
Besides, the volume of loan disbursed by the Bank during the first five months of the current fiscal was quite low.
It would not be out of place to mention here that the next meeting of the Bangladesh Development Forum (BDF), a platform of both Bangladesh government and development partners (donors), would be held in April next after a lapse of five years. Soured relations between the government and a section of influential donors are thought to be the main reason behind the delayed holding of the BDF meeting.
The government would try to mend relations with those donors to ensure adequate and uninterrupted flow of external assistance. However, the ongoing political troubles might have a bearing on the timing of the scheduled BDF meeting and also its outcome.
However, that is an altogether different issue. The important question as of now is: Will the government's investment in development activities suffer due to resource problem?
The economy can hardly afford any major cut in public development spending for the sake of growth and employment generation, particularly when private sector investment has shrunk substantially for the last couple of years.
The government, in fact, is in a catch-22 situation.
In the event of any major shortfall in resources, the mobilisation of funds will not be that problem for the government, particularly when it has highly attractive products--- Sanchaypatras (savings tools) --- to offer to the savers.
The amount of fund the government mobilised through the same in the first four to five months of the current fiscal has already surpassed the annual sales target for the same. The main reason for savings tools becoming so much popular is the substantial cut in the rates of interest offered by banks on deposits. Now the government is reportedly considering a cut in the rates of yield offered to investments in its savings tools.
The higher yields of its savings tools, however, have made things quite difficult for the government. The interest payments now account for the largest single non-development expenditure (18.4 per cent) of the government, followed by the expenditures on the public administration. The government has another option---bank borrowing. Banks that are now sitting on tonnes of idle money would be happy to lend to the government since there are not many takers of loans from the private sector.
However, the current spell of political disturbances is not only taking a toll on trade and business, it has also slowed down the development activities of the government. If the situation persists for a longer period, the government may not have to borrow to finance the development projects. However, the government would not mind borrowing for development projects if the political unrest comes to an end and development activities pick up.
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