Making a tightrope walk easy

The finance minister of a country like Bangladesh is always at the receiving end. Mobilising funds to meet both recurrent and development expenditures remains a tough job for him/her.
For the finance minister of a resource-starved country the act of preparing the national budget can be likened to a tightrope walk. The individual holding the portfolio of the finance ministry has to digest criticism from all around and he or she is showered with brickbats in the event of his/her failure to offer tax benefits to a wide variety of sectors and individuals in the budget. And at the same time, the finance minister becomes a subject of widespread criticism if various welfare and development programmes do not get adequate financial allocations.
Over the years the size of the national budget of Bangladesh has grown consistently. The national budget for the next fiscal (2014-15) is likely to involve an expenditure of Tk. 2.5 trillion. The size of the proposed budget may sound quite big. But given the requirements of various sectors of the economy, many would consider the amount insufficient.   
Traditionally, Bangladesh runs under what the economists call a deficit budget regime. That means the expenditure is greater in magnitude than the revenue earned. The shortfall is then managed via foreign & national debts, which are to be paid (with interest accrued) by exacting taxes later on, thus deferring current taxation for a while.
Bangladesh's budget is divided into two parts, a development budget called the Annual Development Programme (ADP) and the Revenue Budget (for funding & destination of public expenditures on non-developmental sectors like compensations & benefits to public servants).
The ADP has two primary sources of funds: the first one is domestic one, from the revenue and domestic debt of the Government of Bangladesh (GOB); the second source being foreign debts & grants by donor agencies (both multilateral & bilateral aid agencies like JAICA, USAID, WB, IMF, and ADB).
During the autocratic rule of Lt. Gen. H.M. Ershad, the ADP was almost entirely funded by the foreign aid that Bangladesh used to receive from donor agencies or foreign governments. But with the passage of time, this reliance on foreign help  has declined substantially.
However, the deficit budget scheme has forced the government to look for other ways of financing the budget: bank borrowing. Over the last two fiscal years, the Government of Bangladesh (GOB) has borrowed no less than Tk. 52,115 crore (521.15 billion) (5.4% of the national GDP) from the commercials banks to finance its deficit, causing a crowding out effect in the financial system. Also the government has channelled to the treasury another Tk. 15,838 crore by non-bank borrowing (Sale of T-bond & bills, National Savings Certificates etc.) (Ministry of Finance, GOB data). Such borrowing also had an effect on the inflation which could not be contained within the government's projected levels in recent years.
The impact of increase in direct taxes on income, and on corporate operations has so far failed to match the increased growth in the governments demand for quick cash to be spent on expense accounts. Indirect taxes like VAT, Motor Vehicle tax, and tariffs & excises on international trade has been the source of controversy both nationally and internationally due to the direct impact on the prices of ordinary consumer goods that results from such taxes.
Concerns for child nutrition and public health have caused a decrease in the tax levied on nutritional supplements for pregnant mothers, and this is also a practical step. However, to reduce the impact of such decreases, the Government must find some alternative source of revenue which will not hamper sustainable economic progress. Unfortunately, we are not seeing the urgency in the government regarding this.
For all the decrease in foreign debt mentioned above, Bangladesh shows an alarming tendency to reduce development expenditure to service its debt. For an exposition of deficit budget trends in the Bangladeshi economy, Data Scientist Christian Prokopp of Rangespan has produced the following statistical analysis showing the percentage of contribution by different sources of public expenditure in Bangladesh (2013-2014 figures are estimates):
Deficit budget: Why is it a bad decision in the long run?
By taking on excessive domestic debt from the local banking system & domestic savings, the government is siphoning off the loanable funds from funding private initiatives that will contribute to economic growth & progress on the country to the treasury to fund the budget deficit. This debt will have to be serviced later by levying more taxes before the debts mature, further constraining economic growth and increasing pressure on the CPI. This produces a crowding out effect when interest rate rises in the market to bring a limited supply with excess government demand into balance, thus stifling investment.
Secondly, deficit budgets are notorious for pumping up inflation, both theoretically & practically; in the fiscal years 2004-2014.
On the other hand, taking on foreign debts, and acceptance of foreign grants create a different set of problems, some political, and some economic.
On the political side, the dependence on foreign funding hampers the progress of projects when government becomes the dependent in the hand of foreign politicians and bureaucrats. Many projects have faced temporary or permanent lockdown due to fund crisis when the donor simply refused to pay unless certain conditions are met by the GOB.  
For the economic reasons, funds by foreign governments many a times require the assistance of their domestic consultants and technical assistance by their own agencies. Moreover, political instability and international relations disasters can adversely affect the country in various ways, such as the embargo on the importation of certain technical systems and equipment. It may cause a certain sector of the economy to become devastated.
After these lessons on the potential problems of taking debts to fund deficit the question comes as to how to get rid of the problem of less revenue compared to the expenditure without hurting the long run interest of our country?
This requires a look into the potential sources of incremental revenue that satisfies the conditions of long run sustainable economic gains. By this, we mean that the government must actively seek new sources of increasing revenue from existing industries, and curb on unnecessary expenditure.
Since we plan to become a middle income country by the end of the 2030, we must prepare ourselves for a reduction in various economic preferences that are currently granted to us the international community due to our LDC status. Unless we become proactive in seeking a new way out of the current economic & political status quo, the targets set out in so many different documents published by the government may always remain in public perception as hot air.
If we take a look from the major contributors of internal revenue of GOB, we will see that tobacco, telecom and construction (real estate and backward linkage industry) sectors are always key ones. So our solution for the eliminating budget deficit issues and a simple path for attaining our budget target of the fiscal year 2014-15 should be harnessing the potential of these big three sectors.
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