The country's budget deficit is likely to be the widest at 5.0 per cent of the gross domestic product (GDP) in seven years since 2007-08, in the budget for fiscal 2014-15. The budget is set to be placed in the Jatiya Sangsad tomorrow (Thursday).
The deficit was the widest in the fiscal year (FY) 2008 at 5.4 per cent, when the Bangladesh economy faced two consecutive floods.
Of the 5.0 per cent deficit GDP, the government wants to borrow 3.2 per cent from the domestic sources, while the remaining 1.8 per cent from the external sources.
Of the 3.2 per cent of domestic sources, the government would want to borrow 2.3 per cent from the banking system, mostly through treasury bills and bonds. The remaining would come from the sales of savings certificates and others.
However, economists say the government target of borrowing from the external sources will be difficult to materialise in the next fiscal year.
They said the target of borrowing from the banking system at 2.3 per cent was also too high, and it would affect the liquidity situation.
The economists said higher borrowing from the banking system might affect the economy in terms of crowding-out effect and inflationary pressure.
Prof. A.B. Mirza Md. Azizul Islam, former adviser to a caretaker government, said borrowing at 1.8 per cent from the external sources would be a difficult task for the government.
"If we recall the past, we find we have never borrowed funds exceeding Tk 140 billion a year, so we cannot jump almost 100 per cent to around Tk 280 billion in fiscal year 2015," he noted.
Prof. Islam, who was in-charge of the finance and planning ministry as caretaker government adviser, also noted: "We're not that efficient that we can borrow such a large amount of foreign resources in a year."
He said the alternative to external assistance remains the expansion of domestic borrowing.
Prof. Islam, who is now working as a faculty at BRAC University, however, said such type of high domestic borrowing might hit the economy in terms of possible crowding-out effect and inflationary pressure.
"We saw the highest rate of inflation in FY 2012 as a result of the high borrowing from the banking channels in FY 2011," Prof. Islam observed.
The public borrowing was recorded at its highest level at 2.5 per cent of GDP in fiscal year 2011 since 1987.
Dr. Zahid Hussain, lead economist at the Dhaka office of the World Bank (WB), said Bangladesh could never borrow more than 18 per cent of its committed external funding.
"Our history is that we can utilise foreign aid between 17 and 18 per cent a year from the pipeline," Dr. Hussain said.
He observed that Bangladesh needed to enhance the rate of aid utilisation to at least 22 per cent to meet the targeted external funding in the next budget.
"In my view, it is easy if we can give an extra effort that might lead to realising around 20 per cent, that will be okay…," he added.
The foreign aid committed so far stood at around US$ 19 billion.
About domestic sources, the WB lead economist said the banking sector now had substantial amount of idle money.
He said if the private sector credit picked up in the next fiscal year, then there might be a liquidity pressure.
"The pressure will emerge if the government really borrows 2.3 per cent of the GDP from the banking system," he noted.
Dr. Hussain said Bangladesh's project implementation rate was very slow.
"It (government) might not need the targeted borrowing from the banking system," he added.
Dr. Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh (PRI) said the government should have been more 'ambitious' about external funding.
"We've adequate aid in the pipeline, so we should have concentrated more on the foreign funding instead of the domestic one," Dr. Mansur, who served as economist at the International Monetary Fund (IMF), noted.
He also said: "The external sourcing should be at least 2.2 per cent of GDP instead of 1.8 per cent as higher domestic borrowing is costly and causes pressure on the economy."
Dr. Mansur said the government target of enhancing revenue earnings in the next fiscal year was also challenging for the government.
Dr. Mansur, however, said the present government had a record of not exceeding 5.0 per cent deficit. "The government will cut expenditure if it fails to mobilise revenues."
However, sources at the finance division said the deficit was poised to be widened as the government had stepped up spending on infrastructure and social services.
The government plans to expend Tk 2.50510 trillion including an Annual Development Programme worth Tk 803.10 billion.
The term 'budget deficit' is most commonly used to refer to government spending, rather than business or individual spending.
However, the deficit would be even higher when quasi-fiscal deficit on account of the state-owned enterprises (SoEs) is taken into consideration.