Revenue hasn’t increased only debt has increased
Farhad Chowdhury: According to the information of the Ministry of Finance, the government has allocated Tk 80,375 crore for the interest payment in the budget of the current financial year. But Tk 56,222 crores have been spent in this sector in eight months till February. Accordingly, 70 percent of the allocated money has been spent in the interest payment in eight months. According to related sources, the government’s expenditure in this sector will increase during the rest of the financial year.
Those concerned say that in the next two to three years, the pressure of foreign debt repayment will increase a lot. In particular, installment payments of loans taken from China, Russia and India will begin. In this situation, if there is no source of dollars, the government will be under pressure to repay the debt on time. Because in the meantime, there is pressure on the government to repay the foreign debt.
GDP increased, revenue doesn’t
Revenue as a proportion of GDP has not increased over the past decade. However, there has been a huge jump in the government’s debt to GDP ratio at this time. According to International Monetary Fund (IMF) statistics, the country’s government debt-to-GDP ratio was 28.7 percent in 2014. A decade later it rose to 42 percent. Again, the revenue income-GDP ratio decreased during this period.
The government’s revenue (taxes and grants)-GDP ratio was 9.1 percent in 2014. After a decade it has come down to 8.7 percent. And only the tax-GDP ratio fell to 7.8 percent.
Revenue is the main source of debt repayment. Economists fear that this imbalance of government debt and revenue in proportion to GDP is creating a major long-term risk for the country’s economy. Their statement is that the size of the government’s deficit budget is constantly increasing due to failure to collect targeted revenue.
As this deficit grows, the government’s debt burden also increases. Debt interest payment has become one of the biggest expenditure sectors in the budget at the moment. If the current situation continues, the debt burden of the government will continue to increase.
What the statistics saying?
According to CEIC Data, a global economic information service, Bangladesh’s debt currently stands at $167 billion. If the exchange rate is Tk 107 per dollar, the amount of this loan in Bangladeshi currency stands at Tk 17 lakh 86 thousand crore. Out of this huge debt, the government has taken Tk 7 lakh 16 thousand 157 crores from the internal sources of the country. And the amount of government debt from foreign sources stands at $71.93 billion.
The government is taking a loan of $4.7 billion from the IMF to solve the economic crisis including the dollar. Bangladesh will get this loan in seven installments in the next three years. In the meantime, the IMF has given a discount of $470 million for the first installment of the loan. However, the donor agency has set the condition of increasing the revenue every year to get the full loan amount waived.
In order to get the second installment of the loan, there is a condition to raise the tax-GDP ratio to 8.3 percent within the current financial year. And in the fiscal year 2025-26, the target of tax-GDP ratio has been fixed at 9.5 percent. National Board of Revenue (NBR) will have to collect additional revenue of Tk 2 lakh 34 thousand crore in the next three years compared to the current revenue to meet the conditions of IMF.
Opinions of stakeholders
In the existing reality, the stakeholders think that this goal of additional revenue is almost impossible. According to them, if the tax-DGP ratio is raised to 12-13 percent, the government’s existing debt can be repaid. In that case too, the repayment of foreign debt will have to depend on the growth of remittances and export earnings. But the government has already taken steps to take more foreign loans for mega projects. In this situation, timely repayment of foreign debt may become difficult despite increasing revenue.
Ex-governor of Bangladesh Bank Salehuddin Ahmedthinks that it will be very difficult for the government to repay the loans taken indiscriminately. He said, “Government’s debt-GDP ratio is still within the limits if international standards are taken into consideration. But we have to show the issue of debt in the context of Bangladesh. The country’s tax-GDP ratio is still limited to 8 percent.
It is also quite difficult to extend it to the existing reality. If the tax-GDP ratio is 12-13 percent, then the government’s current debt can be repaid. However, no such possibility is seen in the near future.
Salehuddin Ahmed said, “The government is undertaking development projects one after another with foreign loans. All projects that are not economically profitable are also being taken up. There is boundless corruption and wastage in the implementation of the projects. If the loan is not utilized in the individual sector, it becomes a default. If you can’t take advantage of it, the government’s debt will also default.
Every year, the government announces the budget with a huge deficit. In the current fiscal year 2022-23, a budget deficit of Tk 245,64 crore has been shown, which is 36 percent of the total budget. The government is raising loans from domestic and foreign sources to meet the record budget deficit. In the current financial year, the government announced to take a loan of Tk 1 lakh 6 thousand 334 crores from the banking sector of the country.
However, the country’s banking sector does not have the capacity to give such amount of loan to the government. That is why the central bank itself is providing loans to the government without selling treasury bills and bonds to the banks. Because of this, the amount of loan taken by the government from Bangladesh Bank is also increasing at an abnormal rate. In the last five years, there has been a growth of 927 percent in the government’s borrowing from the central bank.
At the end of 2022, the amount of debt taken by the government from internal sources has exceeded Tk 7 lakh 17 thousand 189 crores. Along with Bangladesh Bank, the government has taken this loan from the people using various instruments including bank and financial sector, savings certificates.
At the beginning of the current financial year, the government announced a budget of Tk 6 lakh 78 thousand crore. However, in the first eight months of the fiscal year till February, its implementation has been possible at about 38 percent. At the same time the revenue collection has also fallen far short of the target. The government had set a revenue collection target of Tk 3 lakh 70 thousand crore.
Accordingly, NBR will have to earn Tk 2 lakh 45 thousand 517 crores in the first nine months of the financial year. However, during this period, NBR revenue from import-export, VAT and income tax sectors totaled Tk 2 lakh 25 thousand 485 crores. That is, the amount of revenue deficit in nine months stands at Tk 29,032 crores.
Experts believe that failure in revenue generation is the main reason for the large debt-GDP ratio of the government. They say that the government’s deficit budget is constantly increasing due to failure to collect revenue. The larger the size of the budget deficit, the higher the government’s debt. Debt interest payment has become one of the biggest expenditure sectors in the budget at the moment. If the current situation continues, the debt burden of the government will continue to increase. At the end of the day, the people will have to pay the debt of the government.
Economist Dr. Ahsan H. Mansoor said that the deficit budget is increasing every year due to the government’s failure to generate revenue. No country in the world runs on such low revenue. Bangladesh’s revenue-GDP ratio has come down to 8 percent. If this cannot be increased, the government’s debt from domestic and foreign sources will increase. There will be no solution to the crisis unless the revenue-GDP ratio is raised to at least 20-22 percent.
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