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Saturday, May 23, 2020

Budget deficit to swell amid coronavirus fallout

Special Correspondent :
The country's budget deficit is going to set up new record in the upcoming financial year due to the fallout of the Covid-19 pandemic, economists said on Friday.
They said, revenue will come under "heavy pressure" in the next financial year due to the disrupted businesses for lockdown and it may force the government to look towards additional borrowing to fund its expenditure raising.
"Bangladesh's fiscal deficit in 2020-21 fiscal may shoot up to 6.0 per cent of the GDP. It is because of both revenue shortfall and expenditure increases amid economic downturn of coronavirus, said Dr Zahid Hussain, former lead economist of the World Bank's Dhaka office.
The World Bank has recently said Bangladesh's budget deficit might swell to 7.7 per cent of the Gross Domestic Product (GDP) during the current fiscal year, highest in the last one and a half decades.
The deficit in FY2021 will go up to a new height of 9.8 per cent of the GDP, the Washington-based lender forecast.
"To meet the budget deficit, the government may heavily rely on bank borrowing and loan from various domestic sources. But the government should be careful about an approach  in deficit financing to maintain fiscal dicipline and avert risk," said said Dr Zahid Hussain.
The size of the next annual budget has been estimated for Tk 5,60,000 crore with Tk 3,95,000 crore revenue collection target. However, the deficit has been projected Tk 1,75,000 crore.
The government has primarily set Tk 70,000 crore borrowing target from banks, Tk 72,000 crore from foreign sources and Tk 33,000 crore from savings
"The budget deficit would go up in the next fiscal as the government needs investments in new areas alongside the regular expenditure on different sectors in view of coronavirus pandemic," said Dr Ahsan H Mansur, Executive Director of the Policy Research Institute.
He said the government should look for external funds to meet the budget deficit when heavy internal borrowing raise risk of economic imbalances.
"The government's revenue collection will remain weak in the next fiscal year as a result of a sharp virus-driven downturn in economic activity," he added.
The Centre for Policy Dialogue, CPD, predicts a Tk 1.0 trillion revenue collection shortfall this fiscal considering the impact of COVID-19 on the economy.
The CPD predicts revenue loss and increased public expenditure for a virus package would widen fiscal deficit to 5.5 per cent or above of GDP this fiscal.
"Strengthening the social safety should be given the highest priority in the next budget to feed the million victims of the ongoing coronavirus lockdown. Besides, higher allocation for health, agriculture and rural development are necessary to tackle the health emergency as well as to boost the national economy," said Dr Ahsan H Mansur.
The coronavirus pandemic has weakened the country's success in reducing the poverty over the past decade. For this, the government will pay special attention to social safety net and agriculture in the upcoming budget. Allocations in these sectors may be doubled in the upcoming budget, the official further said.