Govt's Twin Challenges

The budget deficit and revenue shortfall Create future tax burden for all.

Attaining the revenue target has become so important for the govt. Till April, govt managed to collect Tk 2.89 trillion against a target of Tk 3.58 trillion. National Board of Revenue (NBR) has yet to furnish the data on May. The IMF set the revised target to be Tk 4.35 trillion for the current fiscal year. The shortfall reached Tk 1.46 trillion. It would be a spectacle to watch how the NBR will meet this gap in the next 28 days of this fiscal year. Meeting this target is vital for getting the next IMF credit package. Revenue generation is also crucial for bridging the budget deficit, which is 4% of GDP this year, and the target is set to be 3.65% for the next fiscal year.

Tk 2.26 trillion could be more than halved if NBR bags the shortfall of Tk 1.46 trillion. Missing the credit means we will lose vital source of financing the budget deficit, resulting in a wider budget deficit that nobody wants.

Govt's deficit financing plan consists of Tk 1.26 trillion internal borrowing and Tk 1.35 trillion foreign borrowing. This Tk 1.35 trillion of foreign borrowing will become extremely costly if the negotiations between the govt and the IMF fall apart. Moreover, govt's dependence on internal borrowing, mostly from banks (Tk 1.04 trillion), rises in this scenario. Govt is also relaxing conditions for investment on National Savings Certificate (NSC). This will definitely increase govt's spending on interest payment, eating away vital spending on other social security program.

Lowering the budget deficit is crucial for maintaining long term macroeconomic stability. Bigger deficits mean govt needs to borrow more from home and abroad, piling up the debt. Failure to lower the deficit puts pressure on subsequent future govt's. Since this govt has less political affiliation, it does not have any obligation to run a huge annual development program. Implementation of ADP is fraught with corruption and resource missallocation. ADP creates jobs,investment in rural areas is a banal political rhetoric. Look what happened to the govt that had implemented inflated ADP for all these years!

The govt has two ways to lower the budget deficit : increasing the revenue and cutting the ADP expenditure. There will be overwhelming effort for revenue generation next year to meet the target of Tk 5.18 trillion, there is no doubt. But for the remaining days of this year, govt can boost revenue by depreciating Taka through foreign exchange market intervention. The central bank can start procuring dollar and weaken Taka by 2/3%. Govt has just lowered the fuel prices and it will offset any resulting inflationary pressure. The move will augment revenue earning from import. This move can be coupled with dramatic cut in the rest of the ADP for this year. Political govt has a tendency to spend ADP money at the last leg of the fiscal year. This govt lacks this tendency, I believe, and so can slash the ADP spending significantly.

Tk 2.26 trillion can be lowered significantly if we lower the ADP spending. This will ease the pressure on revenue collection. And relieve the ordinary people from the heat of direct and indirect taxes.

Tk 2.3 trillion ADP spending can be lowered to Tk 1.5 or Tk 1.7 trillion. Missing the revenue target and failure to lower the deficit will push us towards costly bilateral option. Often bilateral arrangement may lead to sell national flag career or one or two utility companies. It may be OK for some ,but problematic to others. So doubling our effort to revenue generation and to lower further the deficit should be the priority.