Govt plans smaller rise in next ADP

The government plans to increase its development spending slightly in the upcoming fiscal year due to the narrow fiscal space, the dollar crisis, the conditions attached to the IMF's loan programme, and higher expenses on subsidies and interest payments. 

The government is going to unveil a Tk 263,000 crore annual development programme (ADP) for 2023-24, beginning on July 1, an increase of 6.8 per cent from the original allocation in the current fiscal year of 2022-23.

If the funds to be set aside for the state-owned enterprises are included, the size of the development budget will be Tk 274,000 crore, which is 7 per cent bigger than the current ADP.

Last week, the planning commission, at a meeting chaired by state minister for planning Prof Shamsul Alam, finalised the proposed ADP. It may be placed at the next meeting of the National Economic Council on May 11 for final approval.

Prime Minister Sheikh Hasina is expected to chair the meeting, said a top official of the planning commission.

Except for the pandemic-hit 2020-21, the ADP size has seen an increase of at least 9 per cent in every financial year from the preceding year.

In FY21, the size of the ADP rose 1.19 per cent to Tk 205,145 crore. But if the development budget for the SoEs was taken into account, the ADP stood at Tk 214,611 crore in FY21, down from Tk 215,113 crore in FY20, the first decline in terms of allocation in the country's history. 

Although the general election is due early next year, the government has refrained from setting a higher spending goal mainly for lower-than-expected revenue generation, the dollar crisis, and the condition of keeping the primary deficit at 3 per cent of GDP attached to the loan programme of the International Monetary Fund and initiating expenditure-control measures, among other factors.

Yesterday, Prof Shamsul Alam said the government will focus on ensuring production and increasing jobs in the next fiscal year.

"If we can keep production smooth, the prices of products would be lower and it will not stoke inflationary pressures."

He said the government would take up projects on improving road networks and infrastructures at ports with a view to strengthening the supply chain.

"Nobody will be able to describe the upcoming budget as an ambitious budget."

Prof Alam said if the government increases its expenditure, borrowing will also increase. "As a result, it may increase inflation."

Amid the persisting dollar crunch, the government has taken a go-slow policy on self-funded projects. This is because many of these projects require imported materials, which put pressure on the country's foreign currency reserves.

The reserves have fallen by about 30 per cent in the past one year amid higher import bills and lower-than-expected export and remittance earnings.

Lower revenue collection is another factor holding the government from raising the size of the ADP by a large margin.

Tax collection grew 8.29 per cent year-on-year to Tk 225,509 crore in the first nine months of FY23. The National Revenue Board will have to collect another Tk 144,491 crore in the fourth and final quarter of the financial year to attain its target. 

"The government has no scope to enlarge the ADP size as the revenue collection is not growing at an expected level," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

"Whatever revenue is being collected is almost being used to finance the operating budget."

He said usually, the government can borrow 50 to 70 per cent of the development budget. But the volume of borrowing is more than 100 per cent of the ADP.

"It's an area of discomfort for the government as the budget deficit is more than the ADP's size. This is happening as the government has not been able to raise revenue generation."

In Bangladesh, tax revenue remained among the lowest in the world at an estimated 7.6 per cent of GDP in FY22.

The ultimate solution is to increase revenue generation, said Mansur.

"Otherwise, the government will have to borrow or cut its development spending."

Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue, said the lower increase in the ADP size has reflected the government's cost-cutting measures.

"This will affect the growth of the gross domestic product. It will negatively affect the private sector's growth and investment."

Real GDP growth is expected to decelerate to 5.2 per cent in FY23 due to rising inflation, a revenue shortfall, energy shortages and slower global growth, said the World Bank in April.

In the proposed ADP, Tk 169,000 crore will come from the government exchequer, up from 13 per cent from the current fiscal year.

For FY23, the government had set a foreign fund utilisation target of Tk 93,000 crore to ease the dollar crunch. But the utilisation rate is not satisfactory, so it plans to increase the size by Tk 1,000 crore to Tk 94,000 crore.