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Dhaka faces burgeoning budget deficit in pandemic aftermath
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Dhaka faces burgeoning budget deficit in pandemic aftermath

Dhaka, April 05 – Amid a nosedive in revenue collection, export earnings and remittance inflow, economists fear a burgeoning budget deficit in the aftermath of the coronavirus pandemic and the massive steps taken to tackle it.
Due to halt in the economic activities with the closure of most business establishments and shops as part of ‘social distancing’, they also fear that the Bangladesh economy could take a significant hit unless a proper plan is undertaken for a quick recovery.Economists said the revenue earnings will fall significantly due to slow business activities and the government should support small and big companies so that they can return to optimal performance smoothly.
According to sources at the National Board of Revenue (NBR), revenue collection was already Tk 45,000 crore short of the target set in the budget during the first eight months of the current fiscal year (till the end of February) at Tk 1,44,925 crore against the target of Tk 1,90,000 crore for the period.
The experts feared that the deficit will go up further in the future due to the stagnation of the overall economic activity with the advent of the pandemic.
Contacted former caretaker government finance adviser Dr AB Mirza Azizul Islam told UNB that there is a deficit every year, which is kept within 5 percent of the budget. In the circumstances of Coronavirus pandemic, the proportion of deficit will swell this year.
“We see around 5 percent deficit in budget every year. The amount of deficit will swell to around 6-6.5 percent this year following the Coronavirus impact. Because, the revenue collection will be less but expenditure will increase vastly due to the impact,” he also said.
Dr Azizul Islam said corporate tax will fall short of the expectation of the government since factories have been shut following the virus. In this situation, huge workers will be laid off as well. Besides, the government has to spend more money in health sector and towards the social safety net for those losing out.
“The government should take such steps so that companies can begin production properly, otherwise there will be a fallout in the economy here. So, we’ve to follow the developed countries to make the next budget to recover from the problems caused by Coronavirus,” the noted economist added.
Dr Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh (PRI), told UNB that it is now very important to reconstruct the country’s real economy and get back to work, rather than worry too much over the budget deficit.
“Bangladesh’s real economy is getting devastated due to the coronavirus outbreak. So, it has to be recovered at first. And workers should get back jobs. At first, we have to survive rather than thinking of deficit. All economic sectors will break down if the real economy can’t stand properly,” he added.
Dr Ahsan said a massive budget shortfall would be seen this year following the coronavirus pandemic.
“The government set a target of 45 percent tax collection but only 7 percent was collected up to December. In the current rough situation, it’ll worsen. The budget shortfall will be enormous due to the weakness of revenue collection,” he added.
The economist said financial intervention is needed now. The developed countries are now doing it as well. “The government should support Small and Medium Enterprises (SMEs) as well as other companies so that these can recover their production capacity within a short time.”
Dr Ahsan added that it is now clear the country’s health sector is very poor. Around 0.7 percent of budget is spent on the health sector, which is lower compared to other Asian countries. “So, the sector should be emphasised more.”
Replying to a question, he said there is no excess liquidity in banks for the government to borrow from financial institutions to meet the shortfall.
Executive Director of South Asian Network on Economic Modeling (SANEM) Dr Selim Raihan told UNB the country will see a big budget deficit due to coronavirus outbreak.
“Bangladesh maintains around 5 percent national budget shortfall every year. It’ll rise to 6-7 percent this year following the coronavirus. Now, the government has to take a proper plan to recover it,” he said.
Dr Raihan, a professor of Economics department at Dhaka University, said the economy of Bangladesh may witness a major fallout due to the long holiday in near future.
“To overcome the existing economic situation, I propose a 2-year Recovery Plan for Bangladesh instead of the 8th Five Year Plan. We can chalk out 8 points such as –The plan will aim at taking the economy back to the December 2019 state, delay the beginning of the 8th Five Year Plan by 2 years to 2022, the 8th Plan needs to be re-written. A large part it seems to be irrelevant at this stage,” he added.
The economist also advised fiscal stimulus packages and monetary policies to support almost all industries, including the RMG, other export-oriented and domestic-market oriented industries and SMEs.
“At this moment, the focus is only on the RMG, which is not helpful at all. Devise and extend social protection programmes for a vast number of marginalised, near-marginalised and a large section of suddenly vulnerable population,” he suggested.
“Undertake some ‘politically feasible’ policy reforms in the areas of trade, tax, banking sectors; explore ways for generating resources (domestic and external) to support the fiscal stimulus and eased monetary policy measures; Suspend the LDC graduation target by at least 3 more years; raise the voice at the global level to push the SDG target year from 2030 to 2035,” he also said.
The government placed a Tk 5,23,190 crore largest-ever budget for the 2019-20 fiscal with a focus on developing communications infrastructure and human resources and achieving 8.2 percent GDP growth last June.
However, the overall budget deficit was kept Tk 1,45,380 crore, which is 5 percent of GDP like the previous year. The government also set a target that Tk 68,016 crore will come from external sources and Tk. 77,363 crore from domestic sources in financing deficit.
In the budget, the total revenue collection has been estimated at Tk 3,77,810 crore where the NBR will contribute a Tk 3,25,660 crore tax revenue while non-NBR sources have been estimated at Tk 14,500 crore. – UNB