SAM
Published:2019-11-23 23:36:39 BdST
Budget deficit hits 11-yr high in FY ‘19
FT ONLINE
The country's budget deficit widened to over Tk 1.1 trillion in the past fiscal year, highest in more than a decade.
The imbalance stood at 5.1 percent of the gross domestic product, or GDP, in the fiscal year 2019.
The level first exceeded the benchmark 5.0 percent of the GDP and widened to 6.2 percent in 2007-08.
The benchmark was set by the government in the late 1990s.
The revenue shortfall, however, is the key reason for the budget deficit, officials at the ministry of finance said on Thursday.
The total revenue mobilized in the year was Tk 2.5 trillion against the target of Tk 3.4 trillion. This huge gap has drawn mixed reactions among economists.
Some feared it would have severe consequences for the macro-economy, while others argued this is high time the government spent prudently so that it cannot flare inflationary pressure.
They predicted that the deficit would rise further this fiscal year as the government reached nearly 100 percent of its borrowing target from the banking system in the four months to October.
Dr Mirza Azizul Islam, a former caretaker government finance adviser, said the government's increased borrowing would have adverse impacts on the economy, though not immediately.
He said the crowding-out effect may work, forcing the private sector borrowers out of the banking system.
Considering the present situation of the financial sector, he said the growing demand for money from the government side does not bode well for the economy.
He recalled during his tenure as an adviser in charge of the Finance Ministry, the deficit had reached 6.2 percent of the GDP.
"[But] it was due to cyclonic storm Sidr that hit some coastal districts."
"To deal with the natural disaster, we had scaled up our social safety net programme, including 100-day employment generation programme."
Dr. Ahsan H Mansur, executive director at the private think-tank, Policy Research Institute of Bangladesh (PRI) said maintaining the benchmark deficit of 5.0 percent of the GDP is important as it acts as an anchor to the economy.
"If the anchor does not work -- it means -- the macro-economic pillars have weakened," Dr. Mansur said.
He said under such a fiscal health, the government debt shoots up significantly, which again creates debt-servicing liabilities.
Dr. Mansur also said the government space to spend on people's welfare will shrink due to the higher deficit.
But senior finance officials ruled out such possibilities, insisting the government outlays have boosted the GDP, despite a slowdown in business investment.
The government has borrowed mostly from the domestic sources, they said.
It borrowed Tk 844 billion from the domestic sources, including the banking and non-banking sectors.
Unauthorized use or reproduction of The Finance Today content for commercial purposes is strictly prohibited.