National Budget for FY 2021-22: Budget spending falls when it needs to rise
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Budget spending falls when it needs to rise

Budget

Jebun Nesa Alo
03 June, 2021, 09:30 pm
Last modified: 04 June, 2021, 05:16 pm

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Budget spending falls when it needs to rise

Low budget deficit leads to a fall in spending by 16.3 percentage points in FY22

Jebun Nesa Alo
03 June, 2021, 09:30 pm
Last modified: 04 June, 2021, 05:16 pm
budget FY22 at a glance

While the global trend is to run a high budget deficit during the Covid-19 pandemic with the aim to accelerate economic recovery through spending, Bangladesh's Finance Minister AHM Mustafa Kamal seems to have taken a conservative approach as he has proposed a slight increase in deficit in the new budget.

Low budget deficit leads to a fall in spending by 16.3 percentage points in the new fiscal year 2021-22.

The growth of spending in the proposed budget is 12%, which was 28.3% in the current fiscal year.

The finance minister proposed the budget with 6.2% of GDP for the fiscal year 2021-22, slightly higher from 6.1% of the revised budget of the current fiscal year.

The budget deficit was projected to be Tk2.14 lakh crore for the new fiscal year.

Budget deficit is not the concern at this moment, said Dr Ahsan H Mansur, executive director of Policy Research Institute.

The government should run a high deficit to spend more for faster economic recovery, he said.

The US economy saw faster recovery than expected, thanks to high spending with a record budget deficit, according to global media reports. Now the US is figuring out how to manage the boom.

In the budget proposed on Thursday, the government depended mostly on foreign sources to meet the deficit as many commitments of budgetary support from multinational lenders are in the pipeline.

The target of foreign financing was proposed to be Tk97,738 crore in the new budget, 43% higher than the current one.

Foreign financing will meet up to 45.52% of the deficit in the new budget.

Borrowing from the banking system was proposed to be the second highest source of financing.

The government set a Tk76,452 crore bank borrowing target, 4% down from the revised budget target for the current fiscal year.

Earlier, the government had slashed its bank borrowing target in the fiscal year 2017-18 due to high sales of savings certificates.

The government this time set a high borrowing target from foreign sources as foreign loan inflow was already high during the pandemic year.

The inflow of foreign funds already crossed the monetary policy target set by the Bangladesh Bank in February as the government got additional funding support from external sources to manage the pandemic.

The high interest expenditure amid low revenue collection prompted the government to set lower borrowing targets from savings tools.

In the new budget, the government set a Tk32,000 crore borrowing target from savings certificates, 5.6% higher than the ceiling of that in the current fiscal year.

The government's shifting dependency on bank borrowing will keep the banking sector liquid, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

He said it would be good if the government borrowing is low as the banking sector needs to be liquid amid the uncertainty during the crisis caused by the pandemic.

Although demand in the private sector is still low, it may pick up anytime if confidence recovers, he said.

Moreover, if import picks up and remittance inflow slows, liquidity will shrink fast, he pointed out.

The government's low bank borrowing will benefit private sector borrowers as they will continue to get low-cost loans, he added.

Currently, most banks are offering loans at 7%, below the 9% set by the government.

But small depositors who are getting negative returns from their bank deposits will be affected for the time being, Mahbubur said.

The excess liquidity in the banking sector stood at Tk1.98 lakh crore in March as the private sector credit growth remained sluggish at 8.79%, far below the monetary policy target of 14.8% set for the current fiscal year.

Economy / Top News

Budget / Spending

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