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Budget deficit, which is when spending exceeds revenue, is set to cross the sensible perimeter of 5 percent of GDP in fiscal 2018-19 for the first time in 12 years on the back of ebbing collections of the tax administrator.
Revenue collection grew 10.67 percent last fiscal year against the target of about 46 percent, according to provisional data of the National Board of Revenue. But, data from the Comptroller and Auditor General office shows that the growth was less than 10 percent.
As per the finance division’s provisional data, the budget deficit last fiscal year was 5.2 percent.
“In the end, it may be even bigger,” said a finance ministry official upon condition of anonymity.
It takes at least six months to work out the actual deficit after the conclusion of the fiscal year. The final accounts are expected to be worked up within the next couple of days, he added.
For developing countries a budget deficit is not unusual as the government needs to spend big on building infrastructure to shore up future economic activities.
The government meets the gap between income and expenditure through domestic and foreign borrowing obtained as loans or grants.
But keeping the deficit within 5 percent is recommended, and is in fact considered international best practice.
In Bangladesh, when the budget is drafted a 5 percent deficit is projected. The actual deficit turns out to be about 4 percent every year as the ministries and divisions fail to use up their allocated funds.
Finance Minister AHM Mustafa Kamal acknowledged that revenue growth was slow.
“But the government’s expenditure also increased for the implementation of some mega infrastructure projects. It was capital expenditure, which will ultimately bring benefits to the economy,” he told The Daily Star.
As a result, budget deficit could not be contained to the previous limit.
“But, this is a one-off,” he said, adding that the deficit will be restricted within 5 percent this fiscal year as revenue is expected to grow.
Last fiscal year coincided with the national elections, so the government’s spending from its own funds was higher than from foreign sources, said another finance ministry official.
This also had an effect in raising the budget deficit, he added.
Fiscal deficit in 2018-19 increased due to both revenue shortfall and expenditure increases, said Zahid Hussain, former lead economist of the World Bank’s Dhaka office.
Usually, shortfall in expenditures buffers the revenue shortfall relative to the budget target, thus keeping the deficit below the original 5 percent of GDP budget target.
“Last fiscal year was an exception to this trend and it is most likely to continue this fiscal year as well.”
While the government can afford such temporary deviation from the target because of a low debt to GDP ratio, the financing of deficit is the real issue.
If the financing came from concessional foreign sources as reimbursements to cover the accelerated investments in development projects, there will be no real reason to worry. Such increases in deficit are indeed welcome.
But that may not have been the case as evident from cuts in foreign borrowing in the revised fiscal 2018-19’s budget relative to the original budget.
It will be useful to look at the sources of expenditure increases in order to identify opportunities for reducing waste, Hussain added.
(TDS)
