Resource mobilising to meet budget deficit remains major challenge
FE Report | Tuesday, 10 June 2008
The economy of Bangladesh, facing a colossal challenge in mobilising resources to fill the gaping hole in public finances, will be at the mercy of internal and external borrowing as the nearly Tk 1.0 trillion national budget landed Monday.
The national budget for the fiscal 2009 projects 'a worryingly large' deficit, estimated at 5.0 per cent of GDP (gross domestic product), but the Boston-educated finance chief thinks otherwise.
Massive subsidies, expansion of social safety net coupled with lower taxes helped drive up the deficit, which peaked at Tk 305.80 billion.
In his televised budget speech, Dr Mirza Azizul Islam, however, defended his 'expansionary' fiscal policy, saying it is inevitable in view of the poor people's misery stemming from global commodity price shocks.
'In view of a higher deficit, some people might label the proposed budget as an expansionary one. However, one must bear in mind that in the backdrop of the negative impact of international price hike of oil, food and fertiliser together with internal shocks, an expansionary fiscal policy to protect the poor and the low-income group has become an essential necessity,' Dr Aziz observed.
In the proposed budget, the estimated total expenditure has shot up by Tk 203.48 billion (Tk.20,348 crore) compared to that of the original budget of the current fiscal year, which is 3.3 per cent of GDP.
Despite the increase in price of petroleum products in the international market, the finance adviser said no corresponding price adjustments were made in the domestic market. 'This resulted in additional quasi-fiscal costs of Tk 159.91 billion (Tk.15,991 crore),' he added.
Dr Aziz noted that a sizeable chunk of the quasi-fiscal costs amounting to Tk 118.36 billion (Tk. 11,836 crore) could be met from cash resources of the revised budget of the FY 2007-08 because of the increase in revenue earnings during the year.
'And this was possible even after meeting the expenditure involved in the Sidr and flood rehabilitation activities,' he mentioned.
The government has further assumed the liability for paying BPC's (Bangladesh Petroleum Corporation) accumulated losses up to 30 June, 2007 to the tune of Tk 75.23 billion (Tk.7,523 crore) by issuing long-term Treasury Bonds in the FY 2007-08.
The measure will put the overall 'hidden' quasi-fiscal costs at 3.6 per cent of GDP in the budget of the outgoing fiscal.
In the budget, Dr Aziz's second in a row, the Annual Development Programme (ADP) has been pruned by Tk 9.0 billion to Tk 256 billion compared to that of the outgoing fiscal.
But he said the nature of spending is heavily biased toward development.
A closer look into the structure of proposed non-development expenditure will reveal that Tk 169.32 billion (Tk. 16,932 crore) will be required for social safety-net programmes, Tk 136.48 billion (Tk.13,648 crore) will be spent on agricultural inputs, food and fuel subsidies. In addition, Tk 102.53 billion (Tk.10,253 crore) will be spent to meet salary expenses of teachers and doctors.
'All these expenditures are essentially developmental in nature,' the custodian of the national exchequer said.
The budget speech also acknowledged that expenditure also registered an increase in the current fiscal from the original estimate of Tk 796.14 billion (Tk.79,614 crore) to Tk 860.85 billion (Tk.86,085 crore).
The national budget for the fiscal 2009 projects 'a worryingly large' deficit, estimated at 5.0 per cent of GDP (gross domestic product), but the Boston-educated finance chief thinks otherwise.
Massive subsidies, expansion of social safety net coupled with lower taxes helped drive up the deficit, which peaked at Tk 305.80 billion.
In his televised budget speech, Dr Mirza Azizul Islam, however, defended his 'expansionary' fiscal policy, saying it is inevitable in view of the poor people's misery stemming from global commodity price shocks.
'In view of a higher deficit, some people might label the proposed budget as an expansionary one. However, one must bear in mind that in the backdrop of the negative impact of international price hike of oil, food and fertiliser together with internal shocks, an expansionary fiscal policy to protect the poor and the low-income group has become an essential necessity,' Dr Aziz observed.
In the proposed budget, the estimated total expenditure has shot up by Tk 203.48 billion (Tk.20,348 crore) compared to that of the original budget of the current fiscal year, which is 3.3 per cent of GDP.
Despite the increase in price of petroleum products in the international market, the finance adviser said no corresponding price adjustments were made in the domestic market. 'This resulted in additional quasi-fiscal costs of Tk 159.91 billion (Tk.15,991 crore),' he added.
Dr Aziz noted that a sizeable chunk of the quasi-fiscal costs amounting to Tk 118.36 billion (Tk. 11,836 crore) could be met from cash resources of the revised budget of the FY 2007-08 because of the increase in revenue earnings during the year.
'And this was possible even after meeting the expenditure involved in the Sidr and flood rehabilitation activities,' he mentioned.
The government has further assumed the liability for paying BPC's (Bangladesh Petroleum Corporation) accumulated losses up to 30 June, 2007 to the tune of Tk 75.23 billion (Tk.7,523 crore) by issuing long-term Treasury Bonds in the FY 2007-08.
The measure will put the overall 'hidden' quasi-fiscal costs at 3.6 per cent of GDP in the budget of the outgoing fiscal.
In the budget, Dr Aziz's second in a row, the Annual Development Programme (ADP) has been pruned by Tk 9.0 billion to Tk 256 billion compared to that of the outgoing fiscal.
But he said the nature of spending is heavily biased toward development.
A closer look into the structure of proposed non-development expenditure will reveal that Tk 169.32 billion (Tk. 16,932 crore) will be required for social safety-net programmes, Tk 136.48 billion (Tk.13,648 crore) will be spent on agricultural inputs, food and fuel subsidies. In addition, Tk 102.53 billion (Tk.10,253 crore) will be spent to meet salary expenses of teachers and doctors.
'All these expenditures are essentially developmental in nature,' the custodian of the national exchequer said.
The budget speech also acknowledged that expenditure also registered an increase in the current fiscal from the original estimate of Tk 796.14 billion (Tk.79,614 crore) to Tk 860.85 billion (Tk.86,085 crore).