Govt aims to rein in budget deficit back within 5% from next fiscal

The government has set itself a target to rein in the budget deficit within 5% of GDP once again from the 2021-22 fiscal, relying on a vibrant economic performance resulting from its injection of various stimulus packages for various sectors to overcome the adverse impacts of the Covid-19 pandemic.

In the current fiscal, according to the budget document, the overall budget deficit will be Tk. 190,000 crore, which is 6% of GDP. 

Out of the total deficit, Tk. 80,017 crore will be financed from external sources, and Tk. 1,09,983 crore from domestic sources of which Tk. 84,983 crore will come from the banking system and Tk. 25,000 crore from savings certificates and other non-bank sources.

The original budget deficit for the last 2019-20 fiscal year was Tk. 1,45,380 crore, within the 5%.  However, the deficit in the revised budget was set at Tk. 153,513 crore, which was 5.5% of GDP. 

Against the original budget deficit, the estimation for external financing was Tk. 68,016 crore, which has been reduced to Tk. 56,163 crore in the revised budget. From domestic sources, the estimation of financing from the banking system is Tk. 82,421 crore. 

According to an official document, the government has taken a move to put the budget deficit at 5% of the total GDP for the next two fiscals (2021-22 and 2022-23).

For the deficit financing, 2.9 % of the GDP will be financed from domestic sources for the next two fiscals with 2.2% coming from the banking system for 2021-22 fiscal, while external financing will be 2.1% of the GDP.

For the 2022-23 fiscal, external financing will be 2.1% of the GDP again, while 2.3%  of the 2.9% financed from domestic sources will come from the banking system.

The budget deficit in 2018-19 fiscal was 5.5% of the GDP where internal sources provided 3.9% of the GDP, of which 1.2% had came from banking system, and 1.3% had came from external sources.

According to the official document, the economic activities of the country suffered a serious set back since March of this year while the government went for general holidays to restrict the spreading of Coronavirus.

As the revenue earnings were almost stalled for a couple of months along with export-import activities the government has been forced to increase the budget deficit to 5.5% from 5% percent in the last fiscal while fixing the new target of 6% percent for the running fiscal.   

To put the economic activities in the track again, the government had announced stimulus packages worth USD 14.14 billion, which is equivalent to 4.3 percent of country's GDP, at the initial stage of the general holidays to minimize the impacts Covid-19 pandemic on business, employment and productivity.

These packages include sectors such as export-intensive industries, safety and security of the workers, working capital for Small and Medium Enterprises, loan facilities for export growth, assistance to farmers and agriculture, loan for employment generation, interest relief for the affected business enterprises, refinancing schemes and insurance for the health workers.

For implementing the stimulus packages, government had rolled out four work plans on immediate, short and long terms basis to offset the possible adverse impact on the country's economy. 

These include increasing public expenditure, introducing fiscal packages, expanding social safety net programme and increasing money supply.

In public expenditure, job creation was given priority and foreign trips and luxury expenses were discouraged.

As the loan status-GDP ratio of the country is very low at 34 percent, the excess public expenditure will not create any problem to the macroeconomy, according to the government.

Through the banking system, some loan facilities were introduced with lower interest rates. The main aim of these loans was to revive the economic activities, keep workers and employees in their respective works and keep intact the capability and competitiveness of entrepreneurs.

To meet the basic rights of people living under the poverty line, day-labourers and those involved in non-formal activities, the government expanded its social safety net programme.

About increasing the money supply, it is necessary to overcome the adverse impact on the economy.

Bangladesh Bank has reduced the CRR and Repo to increase the flow of money which will continue in the coming days as per the demand. But for this purpose, there would be no inflation due to the money flow and special attention has been given in this purpose.