Govt’s debt burden on the rise in comparison to revenue collection

An IMF report on debt management has said that the amount Bangladesh has been spending on domestic and foreign debt and interest payments is equal to 71.8 per cent of total revenue collection and grants. It may increase to 101 per cent in the current financial year

NBR buildingFile photo

The debt burden of the government has been increasing in comparison to the revenue collection. The government has been borrowing from domestic and foreign sources over half of the revenue the National Board of Revenue (NBR) collects almost every year.

The development and non-development expenditure of the government is also increasing every year. But the government has to borrow to meet the additional expenses due to insufficient collection of revenue. This is leading to the increased debt ratio for the government in proportion to revenue collection. This is also increasing the debt repayment pressure.

The tax-GDP ratio in Bangladesh is still below 10 per cent, say the analysts. In fact, the situation has not been in good shape for the last two decades. But the tax collection amount in comparison to the GDP size has worsened in recent times. Revenue collection is not increasing in comparison to the pace the size of GDP. Bangladesh is one of the most backward countries in terms of tax-GDP ratio.

Over the last decade, the amount of domestic and foreign loans has increased by nine percentage points in proportion to the revenue the NBR collects, shows an analysis of the data of NBR and the finance ministry. This means the government’s borrowing is increasing every year. The tendency of borrowing has been higher for the last three to four years.

The Bangladesh government borrows more from institutions and countries like the World Bank and Asian Development Bank (ADB), and Japan, China, Russia and India. Most of the loans are taken to implement various projects under the Annual Development Programme (ADP). And, banks and financial institutions are among the top internal sources of the government’s loan. Besides, the government borrows money by selling savings bonds and issuing bonds to meet its increased demand.

Borrowing from domestic sources will slow down investment. At the same time, more foreign currency will be required to pay debt and interest if more loans are taken from foreign sources. This might have a negative impact on the balance of the economy
Zahid Hussain, former chief economist of the World Bank’s Dhaka office

Sources from the Ministry of Finance said the government took a total of Tk 535.95 billion in loans from local and foreign institutions in the fiscal year 2013-14. The amount of NBR revenue that year was Tk 1.2 trillion. That means the government had to borrow about 44 per cent of the NBR’s income that year to meet the non-development expenditure and fund the development budget. The rate went on increasing over the next decade.

In the last fiscal year 2022-23, the total net debt of the government from domestic and foreign sources was Tk 172,285 crores while the collection of NBR was Tk 325,272 crores. That means, the government had to borrow 53 per cent of the amount of money that NBR was able to collect to meet the expenses.

Speaking about how domestic and foreign debt is increasing the pressure on Bangladesh’s economy, former chief economist of the World Bank’s Dhaka office, Zahid Hussain, told Prothom Alo that the budget is under pressure due to low revenue collection and high borrowing.

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A report of the International Monetary Fund (IMF) on debt management has said that the amount of money Bangladesh has been spending on domestic and foreign debt and interest payments is equal to 71.8 per cent of total revenue collection and grants. It may increase to 101 per cent in the current financial year. If a country spends the same amount of revenue it collects to pay debt and its interest, then it will have to borrow constantly to meet development and other expenses.

Zahid Hussain stated that borrowing from domestic sources will slow down investment. At the same time, more foreign currency will be required to pay debt and interest if more loans are taken from foreign sources. This might have a negative impact on the balance of the economy.

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In this context, there is no alternative to increase revenue collection to resolve this situation, he asserted.

NBR collection increases by 2.5 times

The NBR through its revenue collection provides more than two-thirds of the government expenditure every year through the national budget. Though this organisation serves as the largest source of revenue for the government, it has not been able to collect revenue at the rate the government expenditure increased over a decade.

An analysis of the revenue collection statistics reveals that the NBR could not achieve its target in any of the last 10 years. It could not even achieve the revised target in any other year except the financial year 2013-14.

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The revenue collection of NBR has increased just over 2.5 times in the last decade, say its documents. The amount of duty collected in the 2013-14 fiscal year was more than Tk 1.2 trillion. Later it gradually increased. After five years, the revenue collection exceeded Tk 2 trillion. In the 2022-23FY, the NBR could collect Tk 325,272 crores. But the revenue deficit in that year was Tk 450 billion.

Speaking to Prothom Alo, an NBR official wishing not to be named, said that NBR is given huge targets every year but there is no initiative to increase its capacity. The desired amount of revenue could not be realised in the last few years mainly due to the Covid pandemic and the Ukraine war.

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The official, however, informed Prothom Alo that various reforms are being made in NBR to meet IMF loan conditions. The benefits of the steps will be seen in the coming years.

Foreign loans in projects tripled

Of the government borrowings, loans taken from abroad for development projects are significant. It brings various foreign currencies, including the US dollar, into the country that boosts forex reserves. In many cases, low interest loans are also available. But the major difficulty in this case is debt repayment management.

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Disbursement of foreign loans for projects have more than tripled year-on-year basis over the past decade. The Economic Relations Department (ERD) sources said a total of $3.08 billion was released in 2013-14FY. The amount in local currency was about Tk 240 billion with the dollar exchange rate Tk 78 at that time. The amount of disbursement exceeded $6 billion after five years. In the 2022-23FY, the amount of disbursed loan was $9.27 billion with China, Russia and India at the forefront. At the current exchange rate, the amount is about Tk 1 trillion.

However, many of the loans that have been taken on a bilateral basis have comparatively less grace period and shorter repayment period. The time to repay many such loans has started. As a result, the government’s foreign debt repayment amount has also increased.

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Bangladesh repaid a total of $2.67 billion foreign debt in the last financial year. The foreign debt repayment has increased by 2.5 times in a decade. ERD assumes the repayment amount of foreign loans taken for projects to exceed $3 billion for the first time in the current fiscal year.

GDP increases four times, revenue 2.5 times

Bangladesh’s gross domestic product (GDP) has increased four times in the last decade but the revenue collection has increased only 2.5 times. This resulted in a worse tax-GDP ratio than before. The country ranks at the bottom ranks globally in terms of the tax-GDP ratio in recent years.

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According to the Bangladesh Bureau of Statistics (BBS) data, the size of the GDP in 2013-14FY was Tk 7.74 trillion, which has soared to Tk 32.1 trillion in 2022-23 fiscal year. But NBR could not reap the benefits of the growing economy. The revenue department collected a total of Tk 1.2 trillion in revenue in 2013-14FY. It has increased to only Tk 3.3 trillion in the last 10 years .

Speaking about this, former planning minister MA Mannan told Prothom Alo, “Revenue collection must be increased to reduce debt pressure. The economy is expanding so is the people’s income. This has created an opportunity to increase the revenue collection.”

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MA Mannan , currently the president of the parliamentary standing committee on planning ministry, maintains that the money borrowed from domestic and foreign sources should be invested in the productive sector. Only then the scope of employment will increase and the economy will have a better opportunity to move forward. Otherwise, the debt repayment pressure will increase.

* The report was originally published in the print and online editions of Prothom Alo has been rewritten in English by Shameem Reza