Domestic borrowing is the only source to meet up the current expenditure due to internal revenue shortfall, opines Dr Fahmida Khatun, CPD Research Director; published in The Financial Express on Thursday, 19 December 2013.
Revenue shortfall puts strain on state coffer
Restive politics blamed as govt weighs cut in H1 spending
Doulot Akter Mala
A sustained shortfall in internal revenue collections, mainly due to the ongoing political impasse, put the public exchequer under pressure, officials said.
Such a poor growth in tax revenue might necessitate the government either to down-size its development expenditure or to raise its bank borrowing in the current fiscal year (FY).
According to a provisional data of the National Board of Revenue (NBR), the government’s overall tax revenue fell short of target by Tk 60 billion until November of the current FY.
Taking the declining trend in revenue collection into consideration, the government started reviewing its expenditure plan.
Under the initiative, the ministry of finance (MoF) recently held a meeting to discuss ways to meet its expenditure with the available resources.
A senior MoF official said the government might cut some expenditures including purchasing new vehicles, fuel consumption or establishment cost in the second half of the current FY.
The official said the government’s borrowing target is still within its limit in the first half of the FY 2013-14 despite economic downturn due to the political impasse.
“In the second half the borrowing target may increase if the political situation remains unchanged,” he said expressing hope for resolution of the turmoil soon.
The MoF also issued a circular enforcing austerity measures to cut other costs of the government.
The Annual Development Programme (ADP) of Tk 739.84 billion might be cut down after a meeting on revised budget by the end of January, sources concerned said.
They said the priority projects would be sorted out for which grants or concessional loans of development partners are available.
The deficit in internal revenue collection target might be counterbalanced with the following measures.
For the current FY the government set a Tk 1.36 trillion aggregate target for tax revenue collection. Incidentally, the NBR missed its target last year.
For July-November period, the aggregate target for tax revenue collection was set at Tk 469 billion while the taxmen were able to collect Tk 400 billion. The Value Added Tax (VAT) wing has faced the highest deficit of Tk 25 billion while income tax 15 billion and customs duty Tk 20 billion, according to the provisional figure.
Meanwhile, economists said bank borrowing is possible as excess liquidly is available in banks due to the downward investment scenario.
They, however, feared an impact of non-productive expenditure on account of payment of bank interest.
In the last three FYs the government exceeded its borrowing targets from the banking sector that increased at an alarming rate.
In the budget for FY 2013-14, the government set the borrowing target at Tk 483.62 billion. The overall budget deficit for FY 2013-14 is estimated at Tk 550.32 billion, which is 4.6 per cent of GDP.
World Bank (WB) chief economist Zahid Hussain said the budget deficit might increase by 0.20 per cent due to the economic downturn.
“NBR tax is the largest source of internal revenue. Decline of the tax collection might affect the expenditure plan of the government,” he said pointing out some additional expenditure in the current FY.
The government will have to spend Tk 400 million for its declared Dearness Allowance (DA) for the employees of government and other entities, he said. The expenditure is not included in the budget for FY 2013-14, he added.
The government will be able to borrow from banking sources as private sector credit demand is poor, Mr Hussain said.
The government might have to spend from its investment share and equity fund to make up for the shortfall, he added.
If expenditure in development work declines, it will reduce the need for increased borrowing, he added further.
Investors are now in a wait-and-see approach but demand for private sector credit might go up in February when the political situation is likely to improve, he said.
Dr Fahmida Khatun, research director of Centre for Policy Dialogue (CPD), said domestic borrowing is the only source to meet up the current expenditure due to internal revenue shortfall.
“The government will have to borrow more from the banking sector where huge excess and idle liquidity is available,” she said.
But, the government has to spend on non-productive sectors on account of interest payment, she added. “Such expenditure will not bring any solid refund or generate employment,” Dr Fahmida said.
In FY 2013-14, the total expenditure on interest payment has been fixed at Tk 277.43 billion, which is 18.83 per cent higher than that of FY 2012-13.
Dr Fahmida, however, expressed doubt over the possibility of any significant cut of public expenditure in the election year.
On the increasing budget deficit, she said such deficit is tolerable if it remains below 5.0 per cent of GDP.