Finance ministry in a fix over budget size
The finance division is now at its wit's end over fixing the size of the budget for the next fiscal year while keeping the deficit close to 5 percent of GDP.
In April, the finance division balanced the demands of ministries and divisions and the restriction and prepared a draft budget.
But it is now back to the drawing board after the prime minister gave an additional allocation of Tk 4,500 crore for the Annual Development Programme at the National Economic Council meeting on May 14.
The various ministries demanded Tk 5,500 crore in additional allocations under ADP, although many of them could not spend their full allotments this fiscal year.
In the original draft, the finance division set the budget size at Tk 295,018 crore, of which Tk 92,500 crore would go to ADP.
Now, the budget size may be around Tk 300,100 crore, which is 19.79 percent more than the current fiscal year's original budget.
ADP will get Tk 97,000 crore, which is around 29 percent more than this year's revised sum.
The original draft had the revenue earning target of Tk 208,770 crore, of which Tk 176,370 crore would come by way of the National Board of Revenue.
After the increased ADP allocation, the finance division now has the task of increasing the revenue growth target in a realistic fashion such that the deficit is contained within the 5 percent limit.
The new revenue collection target may be Tk 211,870 crore, which is 15.8 percent more than the original target for the current fiscal year, said an official of the finance division.
However, the NBR's collection target may be kept unchanged, he said, adding that the non-NBR segments will bear the brunt of the increased collection target.
In the initial plan, the non-NBR revenue collection target was Tk 32,400 crore and it may now be raised to Tk 35,500 crore. This means the budget deficit will be Tk 88,230 crore, which is 5.1 percent of GDP. The GDP has been projected to be Tk 17,300,000 crore at current prices.
However, Finance Minister AMA Muhith on Friday told reporters in Sylhet that the budget deficit would be kept within the 5 percent ceiling by all means.
If necessary, the revenue collection target will be increased over the original plan. For the current fiscal year, the budget deficit is likely to cross the 5 percent-threshold: it stands at Tk 67,236 crore, which is 5.1 percent of GDP.
Meanwhile, the International Monetary Fund in a recent report said in recent years routine deviations have been observed from the original budget figure in Bangladesh.
Consistently, both the revenue and expenditure turnout have fallen behind the budget target numbers, the multilateral lender said. On average, during the last four years revenues fell short of the budget targets by around 4 percent.
The highest difference has been in non-tax revenue, with an average deviation of 16 percent, said IMF in the report, Assessing Fiscal Risk in Bangladesh.
Similarly, expenditure outturns fell behind by 8.5 percent vis-à-vis the budget, or around 1.4 percent of the GDP.
The main driver has been the under-execution in capital spending, which fell below target by around 19 percent on average.
A negative number indicates that the outturn was below what was forecast at the time of budget preparation, it said. For 11 of the last 12 years, there was underperformance in both the revenues and expenditures.
The main problem associated with the pattern is that while revenue forecasts in budget documents are merely projections, the expenditure allocations are legal spending authorisations, IMF said.
Thus, if revenues fail to materialise, there is a risk that the line ministries may still execute in full their spending envelopes, leading to larger-than-expected fiscal deficits and financing needs.
The GDP growth target may be fixed at 7 percent for next fiscal year and inflation target 6.2 percent, said a finance ministry official. The GDP growth target for this fiscal year was 7.3 percent, but according to a provisional estimate of the Bangladesh Bureau of Statistics, it would be 6.5 percent.
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