Bangladesh News

The government yesterday proposed an expansionary budget of Tk 99,962 crore for the next fiscal year (FY09), which is 26 percent bigger than that of FY08 with big outlays for social safety nets, subsidies, interest payments and block allocation.

In the proposed budget, non-development expenditure has received a 38 percent boost while in a rare move the government has cut development expenditure by 3.39 percent.

To pay for the big spending spree, the government has pushed up revenue target to Tk 69,362 crore, which is 21 percent higher than the target in the original budget of FY2007-08.

But, a large deficit of Tk 30,580 crore, 5 percent of the GDP, is still expected for which the government will borrow Tk 13,498 crore from the banking system–an 86 percent jump from the current fiscal year’s bank borrowing.

In the FY08 budget, bank borrowing target was Tk 7,253 crore, which was later revised at Tk 10,398 crore.

Finance Adviser Mirza Azizul Islam admitted that the government was compelled to take up such an expansionary budget because of a precarious international and local economic scenario still reeling from the oil and food price shocks.

“…In the backdrop of the negative impacts of international price hike of oil, food and fertiliser together with internal shocks, an expansionary fiscal policy to protect the poor and the low-income group of the community has become an essential necessity,” Mirza Aziz observed.

He said the budget would overcome the current economic crises by focusing on nine priority areas: maintaining tolerable food and energy prices, employment generation, ensuring food security, widening and deepening social safety-net programmes, reducing regional disparity, increasing agricultural production and power generation, and improving communication networks, including IT.

He also allayed any fears that a drop in development budget reflects a “lesser development thrust” because “the dichotomy of development and non-development budget is an artificial one”.

The finance adviser said the non-development budget will include Tk 16,932 crore for social safety-net programmes, Tk 13,648 crore for agricultural inputs, food and fuel subsidies, and Tk 10,253 crore for the salaries of teachers and doctors.

“All these expenditures are development in nature,” Mirza Aziz said.

THE NEW BUDGET
The budget for FY09 is around Tk 20,348 crore more than the original budget of Tk 79,614 crore for FY08.

The government will spend Tk 72,584 crore on non-development budget, which is Tk 52,650 crore in the budget of the current fiscal year.

A break-up of the non-development expenditure reveals that 19.7 percent will be spent on pay and allowances, 18.4 percent for paying non-government teachers (grants in aid), and 17.3 percent on interest payments.

It will also include Tk 14,037 crore in salaries for government employees, which is Tk 13,508 crore in the original FY08 budget.

Another Tk 12,565 crore has been allocated for interest payment on debts, going up by 18 percent from FY08.

The non-development expenditure has kept Tk 3,395 crore for block allocation, which is 133 percent higher than the Tk 1,453 crore allocation in FY08.

The destination for the block allocated funds was, however, not mentioned in the budget.

For development expenditure in FY09, the government has allocated Tk 25,600 crore against Tk 26,500 crore in FY08.

The government has also raised its revenue generation target by the National Board of Revenue to Tk 54,500 crore, a 24.28 percent rise from Tk 43,850 crore in the FY08 original budget.

Value added tax (VAT) income in the FY09 budget is expected to grow by 28 percent from the original FY08 budget, with another 21 percent rise expected in income tax, 16 percent growth in import duty collection and 33 percent increase in supplementary tax collection.

However, non-tax revenue is not expected to grow as much as tax revenue with the government expecting only a 10 percent rise to Tk 12,593 crore in FY09 from Tk 11,463 crore in the original FY08 budget.

To mitigate the large deficit, the government also plans on increasing non-bank borrowing to Tk 3,500 crore in addition to the high bank borrowing plans for FY09.

The government also plans on taking Tk 7,236 crore on foreign loans for FY09, a 14 percent rise from FY08, with another Tk 6,346 crore in foreign grants, which is 49 percent higher than FY08.

REVISED BUDGET
Expansion of social safety-net and increased subsidies have inflated the FY08 revised budget to Tk 86,085 crore from the original Tk 79, 614 crore.

But, including government bonds to repay Tk 7, 523 crore debt of Bangladesh Petroleum Corporation, the revised budget for FY08 comes to Tk 93,608 crore against the original Tk 87,137 crore.

The revised budget for non-development expenditure for FY08 is Tk 62,781 crore against the original Tk 52,650 crore.

Development expenditure for FY08 has been revised to Tk 22,500 crore from the original Tk 26,500 crore.

The revenue income has been unusually revised up for FY08 instead of revising it down, going up by Tk 3,238 crore to Tk 6,0539 crore.

“Despite the increase of price of petroleum products in the international market, no corresponding price adjustments were made in the domestic market. This resulted in additional quasi-fiscal costs of Tk 15,991 crore (3 percent of GDP). A sizeable chunk of the quasi-fiscal costs amounting to Tk 11,836 crore (2.2 percent of GDP) could be met from cash resources of the revised budget of FY2007-08 because of the increase in revenue earnings during the year. And this was possible even after meeting the expenditure involved in the Sidr and flood rehabilitation activities,” Mirza Aziz said in his budget speech.