Published in Daily Sun on 5 January 2021
Tk 2.08trn budget deficit likely in FY22
The potential budget deficit in the upcoming 2021-22 fiscal year is going to be Tk 2.075 trillion or 5.8 per cent of GDP on the back of revenue losses due to the impact of Covid-19 pandemic.
The government plans to pick up a Tk 5.92 trillion (GDP’s 16.7 per cent) budget in FY22 to pump in enough money to Covid-19-induced priority areas to revamp the dented economy.
The budget and deficit figures were preliminarily estimated at the first meeting of Budget Monitoring and Resources Committee held last week with Finance Minister AHM Mustafa Kamal in the chair.
The current fiscal’s budget deficit has been projected at 6 per cent of total economic output, which the government is trying to meet predominantly mobilising budget support from development partners.
“With the budget, the government wants to supply sufficient money to priority areas and implement stimulus packages to fight against Covid-19 impacts,” a finance ministry high official said seeking not to be named.
The estimated budgetary figures may not see any significant change finally, the official, who attended the meeting, said.
The government has managed to maintain GDP’s 5 per cent or below budget deficit in recent years until FY20 when it soared to 5.5 because of Covid-19 emergencies coupled with a slump in revenues.
“Budget deficit increased in FY20 as the government had to meet emergency expenditure need amid Covid-19 crisis when revenues were poor. Given the present context, the deficit might expand more,” Prof Mustafizur Rahman, Distinguished Fellow of Centre for Policy Dialogue (CPD), said.
“A comparatively lower 5.8 per cent budget deficit is being projected for the next fiscal year based on a better revenue-earning projection,” he added.
The main reason for the growing fiscal deficit is the government’s inability to raise domestic resource mobilization, the noted economist thinks.
Even the 7th five-year plant’s target of raising revenue to GDP ratio was undershot by a large margin as it remained only 10 against 14 per cent target at the end of the plan, he pointed out.
“It is a major concern for the economy as the domestic revenues are declining gradually while the fiscal deficit is on the rise,” Prof Mustafizur said.
The government eyes to mobilise Tk 3.85 trillion or GDP’s 10.8 per cent revenues in the next fiscal year, including Tk 3.35 trillion NBR revenues which will be GDP’s 9.4 per cent.
Revenue target has been set at Tk 3.78 trillion for the current FY21. But until November revenue collection was only Tk 963.71 billion or only 26 per cent of the target, according to the finance ministry.
For the deficit financing, the government expects to collect Tk 845.65 billion from foreign sources, while it hopes to collect net Tk 1.23 trillion from domestic sources, including Tk 930 billion from the local banking system.
“The government is trying to meet the deficit from external sources while being burdened with domestic borrowing. Large infrastructure financing with external resources might finally shoot the government’s debt servicing,” Prof Mustafizur Rahman fears.
Public debt-GDP ratio soared to 35.6 per cent in FY20 from 33.2 per cent in FY19 after the corona crisis. CPD projects that it might soar to 36.8 per cent this fiscal.
As an effective means of raising domestic revenues, Prof Mustafizur suggested that the government should seriously try to stop tax dodging and bring the taxable persons in the tax net.
Any public debt to GDP ratio below 40 per cent is seen as a safe zone for any economy, according to the Economic Relations Division (ERD) analysis.