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2nd wave of Covid may again widen budget deficit

| Updated: May 29, 2021 19:37:37


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Budget deficit has shrunk to some extent in the first nine months of the current fiscal year to March 2021 mainly due to higher revenue receipts.

Economists, however, foresee a reversal in the trend in the last quarter because of the disruptions being caused by the second wave of the Covid-19 infections.

The deficit reached Tk 664 billion during the July-March period or over 2.4 per cent down from that of the same period a year earlier, according to the provisional data of finance ministry.

The revenue receipt during the period under review was Tk 2.458 trillion, over 26 per cent up from the same period of last fiscal year.

On the other hand, the total expenditure was Tk 3.122 trillion or 19.85 per cent up than the same period a year earlier.

However, the deficit financing was mostly met by non-bank, bank and external sources, the data showed.

Borrowing from non-bank or 'sanchayapatra' was recorded at Tk 389 billion (net), up by more than Tk 264 billion during the same period a year earlier.

The receipt from external sources was also significantly higher during the period standing at approximately Tk 100 billion.

The picture of the government's bank borrowing was reverse during the July-March period of this fiscal as it was only Tk 176 billion (net).

The same source had contributed to Tk 603 billion (net) during the same period a year earlier.

The main head of expenditure during the period was recurrent at Tk 1.831 trillion.

The wages and salaries of more than 1.2-million government employees stood at Tk 465 billion during the period in question.

Other key heads are interest payment to residents at Tk 458 billion and to non-resident at Tk 29.0 billion, social safety net at Tk 215 billion and annual development programme at Tk 657.23 billion.

The economists familiar with the development told the FE that the deficit would widen during the April-June period as the economy was hit hard by the second wave of coronavirus.

They recognised the need for intensifying vaccination, otherwise the economy would continue to suffer in the coming months.

The analysts said non-tax revenue, mostly dividend and profit sharing from profitable organisations, was also strengthening the non-NBR tax source.

Dr Ahsan H Mansur, executive director at the privately-owned think tank Policy Research Institute of Bangladesh, said the deficit picture would worsen at the end of the fiscal year.

"Many transactions, which are stalled now, will be made in May and June, thus, worsening the deficit," he cited.

Dr Mansur, who also chairs the country's SME-focused BRAC Bank, told the FE: "Bank borrowing by the government will increase in May and June."

He predicts that the overall deficit will cross Tk 1.0 trillion at the end of June 2021.

Independent economist Dr Zahid Hussain said the revenue, especially value-added tax mobilisation, started to pick up in March, but the second wave has hit it.

"To my mind, deficit will widen at the end of the fiscal year due to the second wave as economic activity has remained halted…," Dr Hussain who earlier served in one of the Bretton-Wood Institutions, The World Bank Group.

Policy Exchange of Bangladesh chairman Dr Mashrur Reaz said there was no complacency over lower deficit.

"To my mind, the non-tax revenue has contributed much to the national exchequer which should not exist under the government control."

The Bangladesh Petroleum Corporation had contributed Tk 50 billion to the national exchequer, he stated.

"Should it [BPC] be run by the government?" queried Dr Reaz who served as an economist at the private sector arm of the World Bank Group, the International Finance Corporation.

Revenue from VAT, tax and customs duties remained poor on the back of poor growth of the private sector, he told the FE.

"The private sector remained at almost stagnant position. So, there is less scope for enhancing revenue. They contribute around 60 per cent of the total NBR taxes," he cited.

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