Govt to reduce budget deficit 5.7pc in upcoming FY

Says official document

Staff Correspondent: The government has projected to reduce the budget deficit to 5.7 percent of the GDP in the next FY2022-23 from existing 6.2 per cent, according to an official document. The budget deficit for the FY2023-24 has been projected at 5.5 per cent.
In the FY2020-21 budget the deficit was revised at 6.1 percent from original projection of 6 per cent. The deficit for the FY2019-20 was 5.3 per cent.
The official document says government has been seeking additional funds from the multilateral/ bilateral development partners to implement its declared fiscal stimulus package of TK1.28 trillion – 4.2 percent of the Nominal GDP in FY21) since the pandemic hit the economy in March 2020. The government’s financing requirement has been projected at Tk. 2.1 trillion (6.2 percent of GDP) in FY2021-22.
Government’s request for budgetary / BOP support has received favourable response from the major development partners, including the World Bank, the Asian Development Bank, Asian Infrastructure Investment Bank (AlB), Japan International Cooperation Agency (JICA) and EDCF (of Korea), says the document.

It says that government has already received US$ 1.7 billion in FY2019-20 and is expected to receive US$ 6.2 billion in total by FY2022-23 out of which US$ 1.5 billion would be used for vaccination programme and the rest would be used for budget/BOP support.

With this external support, the government will avoid crowding out the domestic economy as the government’s domestic financing requirement will reduce by 8.5 percent of GDP in running FY2021-22 from the previous fiscal year.

For the FY2022-23 some Tk 990 billion will come from external sources as loan, Tk 40 billion as grants while Tk 105.50 billion will be used for amortisation.

Among the domestic sources, the banking sector would provide the major share as the government has been phasing out its dependence on expensive nonbank borrowing gradually.

As per the official document, in FY2022-23, Tk 1020.10 billion will come from banking sector, Tk 330 billion will be from non-banking sector, Tk 280 billion from National Savings Certificate while Tk 50 billion from other sources.

For FY2023-24 some Tk 1010 billion will come from external sources as loan, Tk 42 billion as grants while Tk 152.5 billion will be used for amortisation.

In FY2022-23 an amount of Tk 1210.30 billion will come from banking sector, Tk 310 billion will be from non-banking sector, Tk 260 billion from National Savings Certificate while Tk 50 billion from other sources.

The document reads that the government projects to reduce its financing requirement with narrowing of the fiscal deficit in the medium term as the economy is expected to recover from the COVID-19 fallout with the implementation of mass vaccination programme and the fiscal stimulus package.

Medium term financing projection shows that government financing requirement would gradually come down to 5.5 percent of GDP in FY2023-24 from the peak of 6.2 percent of GDP in the running FY2021-22.

Domestic financing that remains the major source of government finance in the medium term is projected to come down to 3.5 percent of GDP (bank and non-bank ratio 3.9) while external financing to 2.1 percent of GDP by FY2023-24.

In the absence of a vibrant domestic bond market, the government projects to keep the share of expensive nonbank borrowing (e.g. NSCs) low while the share of bank financing to rise, the document adds.