The Tk 2,50,506 crore-budget proposed by Finance Minister AMA Muhith hinges on ambitious revenue target, putting a question mark on its feasibility.
The revenue generation target has been set at Tk 182,954 crore, an increase of 16.77 percent from the outgoing year's revised target.
“This is not beyond the realm of possibility but it has been rather rare. Besides, Bangladesh will enter fiscal 2014-15 on the heels of a disappointing revenue performance in fiscal 2013-14,” Zahid Hussain, lead economist of World Bank's Dhaka office, said.
In the fiscal 2013-14 budget too, the government had set an ambitious revenue target, which was 25.2 higher than the fiscal 2012-13's actual collections.
As the year progressed, it had to be revised down and domestic borrowing, which comes with an average cost of 8.75 percent as opposed to 0.97 percent for foreign financing, increased, which raised the government's debt servicing costs.
The story would be the same this year, too: the highest allocation in the non-development budget – 18.4 percent – has been set aside for interest payment.
The proposed budget has set an overall deficit of Tk 67,552 crore, of which net foreign financing would be Tk 24,275 crore and domestic financing Tk 43,277 crore.
Banks will be a major source to finance budget deficit, and the government has set borrowing target at Tk 31,221 crore.
Hussain though said the composition of deficit financing can be improved by ensuring the net foreign financing target is met.
“This will require a significant increase in the disbursement rate from the outstanding aid commitment,” he said, adding that meeting the target will require a 22 percent disbursement rate in fiscal 2014-15.
The only way this can be achieved is through prioritised attention to large and high-impact projects, the economist added.
He said the domestic bank financing target is rather large and may constrain private credit growth if private investment demand picks up.
But, Helal Ahmed Chowdhury, managing director of Pubali Bank, said the private sector credit growth is slow anyway, so the possibility of a crowding-out effect due to the government's increased borrowing from the banking system is low.
Zaid Bakht, research director of Bangladesh Institute of Development Studies, however, said the revenue target is not too ambitious as such figures were achieved in the past.
He said if a stable situation prevails and investment increases, the sum could be met.
He, too, called for more utilisation of unused foreign assistance to avoid the stress of high-cost domestic borrowing.