Revised Budget FY 21-22: No room for downsizing

Every year, the budget gets bigger, and like clockwork, gets revised down -- much. But not this year.

In the face of growing demand for subsidies, rising interest burden and higher government wage bills, the finance ministry will be cutting the budget for fiscal 2021-22 by about 1.69 percent -- the lowest in recent memory -- to Tk 593,500 crore.

An additional Tk 2,655 crore is being channelled to service the government's debt, while a fresh Tk 1,500 crore is needed to pay the wages and salaries of government employees, according to a finance ministry official.

Neither of the expenses was factored in when the revenue and expenditure forecasts were made during the preparation of the budget last year, he said.

The higher interest bill is for the government's domestic borrowing, which comprises national savings certificates and bank borrowing.

The government's payroll expanded during the pandemic as additional nurses and doctors were recruited to manage the global public health crisis.

The allocation for subsidy is being revised upwards by 24.1 percent to Tk 66,825 crore, and the bulk of the additional funds is going towards liquefied natural gas imports and electricity generation.

It was earlier proposed that there would be adjustments in the gas and electricity tariffs but given the rising inflation, that has been put on hold, the finance ministry official said.

"For now, the government is footing the difference," he said, adding that the exercise will continue in the incoming fiscal year too.

In March, inflation hit a 17-month high of 6.22 percent on the back of higher food costs.

To rein in the runaway food prices, the government has also decided to increase the subsidy for the import of fertiliser, whose price has gone up in the global market.

The higher subsidy allocation for electricity, gas and fertiliser would not be enough for the remaining months of the fiscal year, the finance ministry official said.

"The line ministries would be given a loan from other sources. The subsidy for electricity, LNG and fertiliser needs to be more in next fiscal year's budget."

The addition of four sectors eligible for cash incentive on exports in November last year and the hike in cash incentive for sending in remittance through the official channels from 2 percent to 2.5 percent means another Tk 2,000 crore is needed.

As a result, the allocation for operating expenditure, which is almost always slashed in the revised budget, is being raised by Tk 7,593 crore.

The funds are being re-routed from the annual development programme (ADP), which will be trimmed 7.89 percent to Tk 225,324 crore in the revised budget for fiscal 2021-22.

"Whenever there is a budget cut, it is the ADP that is the main casualty -- this has become the custom now," said Selim Raihan, executive director of the South Asian Network on Economic Modeling.

But development activities are a priority and should never get the chop to navigate the government's fund shortage.

"This is because there is no interest group to protest the slash in the development budget. If the budget must be revised down, it should be done unilaterally."

In practice, the non-development budget is never touched and is sometimes revised upwards to accommodate higher wages and salaries for government employees, for instance, said Raihan, also a professor of the University of Dhaka's economics department.

The allocation for health sector and social safety net programmes should always be more.

The government's growing subsidy bill every year is not ideal, he said.

"Being liberal with subsidies is not good as cutting them later on becomes tough -- many pressure groups work against it."

The process is less painful if the government retracts subsidies gradually in a planned manner.

"But we have seen no such planning in the finance division."

However, the higher subsidy allocation in the revised budget is understandable given the rise in living expenses for the ordinary people, Raihan said.