Budget 2021-22: How Will the Deficit Be Filled?

The coronavirus situation is intensifying. In addition to the loss of life, economic losses are also taking shape. Amid the pandemic, a second budget has been put forward in the National Assembly. Even in times of the pandemic, the proposed budget for 2021-22 is the largest budget in the history of the country; but the big weakness of the big-budget is that the deficit is much higher.

The budget has been presented with a deficit of Tk 2 lakh 14 thousand 681 crore in the history of the country. In addition to the amount of money, the budget deficit has also increased in proportion to GDP. In previous years, the deficit was 5 percent of GDP, following global standards; but in a year of crisis, the deficit has exceeded 6 percent of GDP.

If the Corona situation continues or the infection becomes more severe, the deficit is expected to increase further by the end of the year.

On June 3, Finance Minister AHM Mustafa Kamal presented a budget proposal of Tk 6,3,061 crore for the next 2021-22 fiscal year in Parliament. The income against this expenditure will be 3 lakh 89 thousand crore. In other words, as the income is less than the expenditure, there will be a deficit of Tk 2 lakh 14 thousand 681 crore. This deficit is 6.2 percent of the total GDP. To meet this huge deficit, the government has set up accounts to meet borrowings from domestic sources and loans and grants from foreign sources. 1 lakh 13 thousand 453 crore deficit from domestic sources wii be met.

Domestic sources include the sale of bank loans and savings certificates. There are plans to borrow Tk 76,452 crore from banks to meet the deficit in the next financial year. A target has been set to raise another Tk 37,001 crore from savings certificates and non-banking sources. 1 lakh 1 thousand 228 crore will be taken from foreign sources. These include grants from various foreign organizations and foreign exchange loans.

Talking to the concerned, it is learned that the budget for the new year has been proposed keeping in view the Corona situation. Tax collection from the National Board of Revenue (NBR) is a major source of government revenue. It is planned to increase revenue by increasing tax rates in different sectors every year; but the tax rate has not been increased this year due to Corona. On the contrary, tax exemptions have been given in various places in the interest of mobilizing the domestic industries.

As trade-commerce and people's incomes decline, the collection of taxes from individuals may decline. There is a risk that the proposed increase in revenue will not be implemented due to Corona. The rate of budget implementation has been declining in recent years. Due to the corona, this rate may decrease further at the end of the year. So it is natural that the revenue will go down due to the crisis in the economy. Those concerned fear that the budget deficit will increase further as the revenue has decreased.

Policy Research Institute (PRI) Executive Director, Ahsan H Mansoor said the government's revenue from taxes will decrease in the current financial year and the next financial year. In that case, the budget deficit will increase. I think budget deficits are not a problem. In the current situation, the government has to spend more. It is important to spend more on social security, employment, health and education to protect people's lives and livelihoods. Even if it is a loan.

In this regard, the Executive Director of the Center for Policy Dialogue (CPD), Fahmida Khatun said the big question is where the budget deficit money will come from. The budget deficit has been estimated at 6.2 percent of GDP. On the positive side, it is important to address the budget deficit from foreign sources. It is desirable. However, after reviewing the dynamics for 10 months of the fiscal year 2020-21, keeping in mind what the whole fiscal year is going to be like, the dynamic nature of the macro-economy in the fiscal year 2021-22 has not been fixed. We are in a weak position here.

He further said that it has been said in the budget that the revenue collection will increase by 10.7 percent in the next financial year as compared to the current revised budget. It is doubtful how much of the deficit budget will be possible through revenue collection. It is impossible to increase revenue collection by 30.5%. In the budget, the revenue collection of NBR has been increased to 9.6 percent. That being said, the deficit will be filled through revenue collection. The burden of revenue collection is imposed on the NBR from the thought of income by fixing the expenditure. Which is not actually possible to achieve. Budget deficits are not new. The budget deficit for the current fiscal year 2020-21 was 6 percent of GDP. However, the budget deficit was kept below 5 percent for the previous 10 years.

The big crisis in the deficit budget is debt dependence. A deficit budget is being given every year and loans are being taken to meet the deficit. The amount of interest paid on the loan is increasing every year. For this, Tk 67,589 crore has been allocated in the interest sector next year. Banks have a lot of idle liquidity due to corona. Because the banks do not want to disburse loans. In this case, the government can easily take a loan from a bank.

The interest rate on bank loans is about half the interest rate on savings certificates, but the government is focusing more on selling savings certificates instead of bank loans. Due to the activities of the government, the net income from the sale of savings certificates during July-April this year was Tk 34,728 crore, which is almost three and a half times more than the same period of the last financial year. During July-April of the last financial year, the net income from the sale of savings certificates was 10 thousand 560 crore. The government has to pay an average of 11 to 12 percent interest against savings certificates. The pressure to pay interest is increasing with the increase in the sale of savings certificates. Excessive spending is putting pressure on the budget structure.

However, the interest rate is much lower than borrowing from foreign sources compared to domestic sources. It is possible to borrow from foreign sources at less than 1 percent interest. If you borrow more from foreign sources, the pressure of interest expense will be less. Besides, it is possible to bring transparency in spending money by taking loans from foreign sources.