Govt spending on salaries rises, development expenditure falls

Government expenditure on salaries and allowances for public officials and employees, along with other operating costs, has increased compared to last year. In contrast, spending on development projects has declined.

In the first three months of the current fiscal year (July–September), government operating expenditure, including salaries and allowances, interest payments on domestic and foreign loans, and various other heads, rose by Tk 100 billion compared to the same period last year. For the first time, the government’s operating expenses have crossed Tk 1 trillion in just three months.

As operating costs rise, there is less room to allocate sufficient funds for development projects. Development spending in July–September is the lowest in eight years. Meanwhile, one of the government’s key revenue-generating agencies, the National Board of Revenue (NBR), recorded a shortfall of Tk 170 billion in the first four months.

Like the government, ordinary people are also facing higher expenses, but their incomes are not rising proportionately. High inflation has persisted for over three years. In October, overall inflation stood at 8.17 per cent. The interim government has taken various measures to bring inflation down to single digits, though it remains significantly high.

With wage growth failing to keep pace with inflation, real incomes for ordinary people have fallen. Since January 2022, wage growth has remained lower than inflation for three years and 10 months. Prices of essentials have also increased. Poverty has risen instead of declining, further intensifying employment challenges. Unemployment is particularly high among the youth.

High inflation, reduced real income, weak demand, and inadequate investment have created stagnation in business activities.

As a result, despite several initiatives by the interim government, long-standing stagnation in economic growth has not been overcome. Broadly, the expectation that the interim administration would revive the economy has not materialised.

Expectations that economic stagnation and business slowdown will ease in the coming months also remain low. Experts say uncertainty ahead of the national election and political instability have discouraged entrepreneurs from making new investments.

Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), told Prothom Alo that pressure on government expenditure is increasing. Salaries and allowances, interest payments, and subsidies consume the bulk of the budget. Salaries must be raised to ensure a decent standard of living for public officials and employees. But revenue mobilisation from domestic sources is falling short. Business activity is subdued and investment remains stagnant.

He added that due to election-related uncertainty and the political situation, entrepreneurs are not coming forward with new investments and job creation is sluggish. Overall, the economy is under considerable strain.

In the current fiscal year, the government has planned an expenditure of Tk 7.9 trillion. Of this, Tk 5.35 trillion must be allocated for salaries and allowances, interest and principal payments on domestic and foreign loans, and other operating expenditures.

According to the Ministry of Finance’s budget implementation report for the first quarter (July–September), operating expenditure—including salaries, allowances, and interest payments—stood at Tk 1.0 trillion, nearly Tk 100 billion higher than the same period last year.

Each year, spending on salaries and allowances and interest payments on domestic and foreign loans continues to rise. In the July–September quarter, interest payments declined slightly, but spending on salaries and allowances increased.

To maintain operating expenditure, the government often reduces spending on development projects. Implementation of the Annual Development Programme (ADP) is slowed, or project expenditures are curtailed.

Development spending in the first three months of the fiscal year is the lowest in eight years. Spending under the ADP stood at just Tk 121.58 billion, which is around 5 per cent of the full ADP allocation. Even last year, when the July–August movement disrupted ADP activities, spending during the same period exceeded Tk 130 billion.

Reports indicate that after last year’s change of government, many project contractors fled and some project directors went into hiding. Recruitment of new contractors and scrutiny before releasing funds have slowed project implementation.

The last time development spending was this low was in the first three months of the 2017–18 fiscal year, when Tk 167.55 billion was spent. The more ADP projects are implemented, the more jobs are created and incomes rise.

Business activity remains sluggish. According to Bangladesh Bank data, settlement of letters of credit (LCs) for consumer goods, capital machinery, and intermediate goods fell in July–September compared to the same period a year ago.

LC settlement for capital machinery declined 11 per cent, and for intermediate goods nearly 18 per cent, indicating weak investment appetite. Consumer goods imports fell 5 per cent.

When business activity slows, revenue collection suffers. The National Board of Revenue (NBR), which contributes nearly two-thirds of total budget financing, has been tasked with collecting Tk 4.99 trillion in taxes.

But NBR began the fiscal year with a shortfall. In the first four months (July–October), revenue collection fell short by nearly Tk 170 billion. Against the target of Tk 1.36 trillion, actual collection stood at Tk 1.19 trillion.

Officials say sluggish business activity has led to lower revenue collection, though they expect an improvement later in the year.

To meet expenditure, the government is borrowing from domestic sources through bank loans, treasury bills, and bonds. Between July and 29 October, government bank borrowing decreased by Tk 16.13 billion compared to the same period last year. For the full fiscal year, the government aims to borrow Tk 1.04 trillion from the banking system.

Interest rates on bills and bonds have crossed 10 per cent. Meanwhile, maturities on earlier borrowing are higher. In August, the government earned a net Tk 15.72 billion from selling savings certificates. As of end-August, the total outstanding amount in savings instruments stood at Tk 3.4 trillion.

Government investment takes place through ADP. Private investment comes from entrepreneurs, who generate most employment in the country. But private-sector credit growth has been falling steadily.

At the end of August, private-sector credit growth dropped to 6.35 per cent, the lowest in two decades. In August last year, it was 9.86 per cent.

The interim government is investigating allegations of corruption, undue benefits, and tax evasion against several business conglomerates formerly close to the ousted Awami League government, including S. Alam Group, BEXIMCO Group, Nassa Group, Sikder Group, Bashundhara Group, and Aramit Group. Some of their factories are shut or operating at slow pace. The situation has contributed to an atmosphere of anxiety in the business community.

Sluggish business activity has further slowed job creation. According to official data, the country has roughly 2.7 billion unemployed people. Another 10 million are underemployed—people who cannot find work matching their skills or expectations—most of them young.

With declining demand for imports, dollar outflow has decreased. As a result, foreign exchange reserves have stopped falling and instead have risen. On October 30, reserves surpassed USD 32 billion, though the amount has dipped slightly since.

LC settlements for major import categories—consumer goods, capital machinery, intermediate goods, fuel—declined in the past three months, reducing dollar outflow. Meanwhile, remittances crossed USD 2.5 billion for two consecutive months in September and October, boosting supply.

Exports have also grown, though at a slower pace. In the first four months (July–October), export earnings rose 2 per cent to USD 16.14 billion, helping maintain foreign currency supply.

Manzoor Hossain, member of the General Economics Division (GED) of the Planning Commission, told Prothom Alo that macroeconomic stability must be maintained. To achieve this, investment must increase.

Political and economic stability, discipline in the banking sector, and higher private-sector credit flow are essential. He believes that if national elections are held on time and there is a peaceful democratic transition, investment and business activity will improve.