Revenue, subsidy, fiscal deficit – three major challenge of the next budget

Maintaining the revenue growth, effectively managing subsidies and tackling growing fiscal deficit are the three major challenges for the new budget, said Ahsan H. Mansur, executive director of the Policy Research Institute (PRI) of Bangladesh.

"The target for FY23 has been set at Tk3.7 trillion which will require NBR revenue to grow by about 28% in in FY23," he said at a post-budget panel discussion organised by the American Chamber of Commerce in Bangladesh (AmCham) on Sunday at Hotel Sheraton in the capital's Banani area.   

"The actual growth rates are ranging between 13%-15% per year and according to that revenue shortfall in FY23 will be about Tk 400 billion," he added.

On subsidy, he said, the subsidy bill has been relatively stable, although growing in recent years. However, the amount of subsidy surged in FY22 and likely to increase sharply again in FY23.

 "The Tk720 billion allocation for subsidies is a soft number and likely to increase further if prices of fertilisers and food items increases further in the international market. No major effort was made to review the extensive subsidy program despite the surge in subsidy bills," he observed.

About the budget deficit he said, the budget assumes foreign financing of about $11 billion, net amortisation payments in FY23.

On the domestic financing side, borrowing from the banking system is budgeted to be Tk1.06 trillion which was only Tk 320 billion in FY21.

The money market is already tight. Deposit growth is slowing due to foreign exchange intervention ($6.5 billion) and the decline in the net foreign assets. T-bond rates are already 8% for 10 –year bonds which are likely to increase further.

"Bangladesh's budget is the smallest of almost all countries. Whether this is a curse or blessing that is yet to be determined. We need large government spending to meet the growing needs of society. But at the same time if the resources are not well utilised, the economy will suffer," said Ahsan Mansur.

AB Mirza Azizul Islam, former advisor of the caretaker government, said, "Borrowing from the banking system to meet the budget deficit will bring down the flow of credit to the private sector and this will have an impact on employment."

Terming the private sector as the driving force of the country's economy, he said, "we must facilitate more investment opportunities in this sector."

He also said the revenue collection is low in proportion with the GDP ratio and reforms are needed in the revenue sector.

Planning Minister MA Mannan, the chief guest at the event, said, "The legal framework for revenue collection has been changed. The government is working step by step to develop the revenue sector as per the vision."

Ahsan Mansur, in his keynote paper said, the existing challenges for the Bangladesh economy is manageable through the application of right policy instruments for the right objectives. 

He said the reduced size of the budget (in relation to GDP), will help reduce domestic demand pressure.

"The exchange rate should be left with the market and Bangladesh Bank should only focus on ensuring its stability without interfering with its trend. The interbank foreign exchange market must be allowed to work freely", he added.

The panel discussion was moderated by AmCham President Sayad Ershad Ahmad.