FY23 budget: Little room for trimming as austerity fails

In the end, was the government's austerity stance just lip service?

After rolling back most of the austerity measures earlier this month, the government's apathy towards prudence was reflected in the revised budget.

In the revised budget, more allocation has been made for interest payment and subsidies for food, agriculture and power, while funds were made available for resumption of normal service after the retraction of austerity measures.

As a result, the budget could be downsized by about 3.6 percent to Tk 654,537 crore, The Daily Star has learnt from finance ministry officials involved with the proceedings.

On the first day of the fiscal year, the government announced several austerity measures such as bans on vehicle purchases and foreign trips and reduced allowances for petrol, oil, fuel, lubricant and gas.

Now, vehicle purchase is allowed, while the ministries and divisions can spend up to 80 percent of their allowance for petrol, oil, fuel, lubricant and gas. Only the ban on foreign tours by government officials remains.

As a result, Tk 11,500 crore has been made available for these purposes in the revised budget, down from Tk 18,000 crore in the original budget.

In other words, it can be assumed that the austerity measures yielded savings of about Tk 6,500 crore.

"Although the allocation is there in the revised budget, the total amount might not be spent at the end of the year," said one of the officials on the condition of anonymity.

For instance, the ban on foreign tours remains but some officials need to go abroad out of extreme necessity. "So an allocation was kept to accommodate such trips," the official added.

In the revised budget, the government's subsidy for the power sector has increased by a staggering 59 percent to Tk 27,000 crore despite the recent increases in the electricity price.

At a time when fuel and energy prices are on the decline around the world, the government thrice increased the electricity price by 5 percent each time this year.

However, the subsidy for liquefied natural gas purchase has been slashed by a third to Tk 4,000 crore as LNG prices plunged more than 70 percent since the start of the year in the global market from the record high seen in August last year.

Also, there will be no subsidy for the Bangladesh Petroleum Corporation on fuel imports this fiscal year, said a finance ministry official asking not to be named.

Similarly, in the revised budget the subsidy for the agriculture sector has increased by about 62 percent to Tk 26,000 crore as the government looks to ramp up production by incentivising farmers.

Last fiscal year, Tk 12,000 crore has been provided as subsidy for the agriculture sector and Tk 9,500 crore the year before.

After the subsidy increase, the outstanding liabilities in the power and agriculture sectors will be Tk 70,000 crore.

Another Tk 1,000 crore has been extended as food subsidy to take the total to about Tk 7,000 crore.

Given the elevated inflation level, the Trading Corporation of Bangladesh and the other food distribution channels need more funds, so the subsidy was increased significantly.

In the first eight months of the fiscal year, inflation averaged 8.74 percent, way above the budgetary target of 5.6 percent, according to data from the Bangladesh Bureau of Statistics.

Meanwhile, the government's expenditure on interest payments has increased by about Tk 10,000 crore because of the devaluation of the taka against the US dollar.

Taka depreciated by about 14 percent so far this fiscal year, according to data from the Bangladesh Bank.

The government had earmarked Tk 80,375 crore for servicing both foreign and domestic loans in this fiscal year's budget. Now, about Tk 90,000 crore would be needed. For next year, more than Tk 100,000 crore would be needed for this end, said another finance ministry official.

Already the government's expenses on interest payments rose about 22 percent to Tk 40,792 crore in the first half of the fiscal year.

"This happened not just because of devaluation of taka against the US dollar but also because of higher expenditure on treasury bills," said the finance ministry official.

The interest rate for government securities increased, according to the quarterly debt bulletin of the finance ministry.

Treasury bills and bonds are one of the major tools the government uses when it comes to borrowing. The interest on the securities has gone up recently owing to the liquidity shortage in the banking system. The sharp depreciation of the taka was one of the factors behind the liquidity shortage.

The revenue budget has been revised downwards by 1.16 percent to Tk 426,971 crore and the development budget by 7.51 percent to Tk 227,566 crore.