More contraction of budget likely

New Age

Shakhawat Hossain   | Jan 10,2021

 The lingering COVID-19 pandemic is likely to prevent the government from projecting an expansionary national budget after the percentage of increase in the budget size fell to a single digit in the past fiscal year for the first time since 2009–10.

In the coming fiscal year, the increase in the budget size is likely to fall further due to a sluggish growth in revenue mobilisation, said Finance Division officials.

Economists said that a break in a continuous increase in the budget size would be a ‘blessing in disguise’ as it would create scopes for enhancing the capacity of government agencies to ensure a proper implementation of the financial plan.

The Finance Division officials pointed out that a 15 per cent increase, on average, in the national budget size was a regular practice maintained by former finance minister AMA Muhith between 2009–10 and 2019– 20.

But the trend was broken in the past fiscal year when Muhith’s successor AHM Mustafa Kamal announced the Tk 5.68 lakh crore national budget with an 8.5 per cent increase over the previous financial blue print of Tk 5.23 lakh crore.

The increase in the next budget is likely to be only 4.45 per cent over the 2020–21 financial plan as per decisions taken in a meeting of the coordination council on macro-economy and budget management on December 31.

Chaired by AHM Mustafa Kamal, the meeting, attended by the secretaries of the Finance, Internal Resources and Economic Relations Divisions, among others, decided to project the next budget at Tk 5.93 lakh crore.

Former World Bank Dhaka Office chief economist Zahid Hussain noted that the contraction would provide the budget implementing agencies with  an opportunity to improve their performances, which had earlier failed to implement the incremental budgets due to inefficiency.

Available Finance Division data show that there were big differences between the budget projections and the implementation rates in the last one decade. The actual portion of the 2016–17 budget implemented was Tk 3.9 lakh crore in place of the projected Tk 4.6 lakh crore, representing a 15 per cent reduction.

Planning minister MA Mannan on Saturday said that inefficiency of budget implementing agencies could not be improved overnight as it was a decades-old problem.

The contraction in the budget size, he noted, is temporary as the government is waiting for an increase in revenue mobilisation with the revival of business activities after the COVID-19 pandemic comes to an end.

Despite the stimulus packages offered, overall demand has not increased, reflected by the poor growth in the collection of value added tax by the National Board of Revenue.

The VAT growth rate hovered around 1 per cent in the first four months of the current fiscal year, along with a 5 per cent growth in the customs duty collection and 4.9 per cent growth in the income tax receipt.

A proper budget implementation always requires proper revenue generation, which has continuously fallen short of the targets over the years, said executive director Ahsan H Mansur of Policy Research Institute.

Noting that the COVID-19 situation has starkly exposed the inefficiency of the tax administration, he said that the country needed more revenue for a successful budget implementation.

Echoing a similar view, Dhaka University development studies department professor Rashed Al Mahmud Titumir said that enhancement of capacity for more public investment was a must against the falling private investment.

Economists criticised the government for relying too much on monetary policy rather than fiscal measures for reviving economic activities that have borne a major burnt of the COVID-19 onslaught since March 2020.

The GDP growth will shrink further, they predicted.

The World Bank in a recent forecast has said that the country’s economic growth will slow down to 1.6 per cent in the current fiscal year against 2 per cent in 2019–20.

It has also projected a 3.4 per cent growth in 2021–22.

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