Bangladesh News

The budget for fiscal year 2008 is likely to be 22 percent bigger than the current one, largely to service the massive outstanding debt owed by Bangladesh Petroleum Corporation (BPC) to national commercial banks.

Usually, a budget receives an 8-9 percent increase from the previous year’s original budget, but the finance ministry’s preliminary estimates this year suggest that the budget for FY2008 might be Tk 85,150 crore from Tk 69,740 crore allocated for the FY2007 budget.

The finance ministry estimates show the amount of bank borrowing for FY2008 might jump by 196 percent from the FY2007 estimates. The projected bank-borrowing figure for FY2008 is Tk 15,900 crore in comparison to the current budget estimate of Tk 5,400 crore.

Out of the estimated FY08 bank borrowing of Tk 15,900 crore, the government will issue bonds worth Tk 8,400 crore just to service the outstanding BPC loans.

Currently, the BPC owes around Tk 10,000 crore in loans with interest to various local banks.

Sources said the government has resolved to improve BPC’s financial situation through various reforms to at least ensure that the corporation reaches a break-even point in its accounts.

The government has recently increased the prices of petroleum goods as part of this initiative and is also likely to install a pricing formula mechanism to open up local petroleum prices to global market forces.

The initiative to finance BPC’s loans and interest by issuing bonds would work simultaneously with these reform programmes to improve the BPC’s finances.

Other than servicing the BPC loans, the government plans on designing a less ambitious and more “realistic” budget to strike a balance between revenue and expenditure, sources said.

The government also does not plan on bringing any significant changes to the Annual Development Programme (ADP) by restricting the FY08 original allocation for ADP within Tk 26,000 crore. The original ADP budget for the current budget is Tk 26,000 crore, which was revised down to Tk 21,600 crore.

The government will also raise expenditure to service local and foreign debts in its revenue budget, while expenditure will be increased to finance reforms in several sectors.

Preliminary estimates project Tk 10,900 crore to service local and foreign debt in the FY08 budget. In the current budget, Tk 7,640 crore has been allocated for this purpose.

The government is also looking at ways of financing its reform programmes through foreign aid, sources said.

The revenue budget is also projected to be less ambitious than the budgets pitched by previous political governments, with the estimated revenue income target for FY08 to be Tk 57,290 crore, which is around 16 percent higher than the correct revised revenue target for FY07.

Currently, the total revenue income target for FY07 is Tk 52,540 crore, which could be revised down to Tk 49,200 crore, sources said.

The preliminary revenue income target for FY08 by the National Board of Revenue (NBR) is Tk 43,640 crore, which is around 7 percent higher than the original FY07 target of Tk 41,060 crore. The FY07 target for NBR revenue earnings is also likely to be revised down to Tk 37,360 crore.

Sources said the FY08 NBR revenue target is only 16 percent higher than the revised FY07 target because it is more “realistic” as the FY07 earnings were targeted 20 percent higher than the FY06 even though the earnings are expected to rise by only 12-13 percent.