Government looks for funds as expenditure shoots up

Shawkat Hossain . Dhaka | Update:

The government is facing a crisis of funds, with limited income unable to meet spiraling costs.

Costs for running the government have shot up along with the salaries and allowances of government officers and employees. Huge loans have been taken from domestic sources to meet the budget deficit and interest payment is crossing the limits.

Development expenditure is expanding too. And the government continues to eye mega projects.

The government’s expenditure list is steadily growing longer, but outside of revenue, its only source of income is loans. These loans are extremely costly and so the government is looking for different means of arranging funds.

It is looking to use the idle funds of certain autonomous corporations to implement its projects, collect toll from the highways, put pressure on the telecom companies to extract funds, etc. Experts see all these efforts as a desperate bid of the government to arrange funds at by any means.

Again, questions have been raised about the transparency of the government’s increased expenditure. There are allegations of corruption in the implementation of mega projects. There is criticism about the unilateral increase in the cost of these projects, the lack of accountability, the use of taxpayers’ money to run various inefficient institutions, the increase in tax burden, and so on.

Big expenditure, small income

The net shortfall in the government’s revenue for the 2018-19 financial year was Tk 720 billion. The 2019-20 fiscal began with the burden of this huge deficit. In his budget speech, finance minister AHM Mustafa Kamal said that even though 40 million people of the country are within the mid-income bracket, only 2.1 to 2.2 million pay income tax.

In order to step up its earnings, the government imposed a new VAT law on 1 July, but under pressure of the business community, that remains much the same as before. This apparently has not made much difference to the revenue income.

On the other hand, the government collects more revenue from service holders as their income tax is deducted at source.

Tax evaders continue to remain out of reach. The government remains in a dilemma over ways and means to increase its income.

Despite all this, the government’s projected expenditure in the current fiscal remains massive, totalling around Tk 5250 billion. This includes around Tk 1116.83 billion for development and the rest for running the government. The gap between income and expenditure is about Tk 1500 billion.

Speaking to Prothom Alo, executive director of the South Asian Network on Economic Modelling (SANEM), Selim Raihan, said that the government had a huge demand for expenditure funds, but is trying for easy ways of income. The government should focus on expanding its scope of revenue collection. Instead, it is reaching for funds from the autonomous corporations.

Selim Raihan went on to say, “We want to become a higher mid-income country, but that is not possible with such a poor revenue-GDP ratio. So rather than opt for the easy way out, the government must take up the difficult task of tax reforms.”

In the debt trap

In the meantime, the government is steadily sinking deeper in the quagmire of debt. Its loans from domestic sources total 17 percent of the GDP.

Over the past 10 years the government has made unprecedented increase in the salaries and allowances of government employees. This has not served to lessen corruption, but has simply pushed up expenditure. A total of 28 percent of the budget is spent on public employees’ salaries, allowances and pension.

Another chunk of the expenditure is for interest on loans, around 18.5 percent. These loans are from the banking sector, savings certificates and similar domestic sources. The government is struggling in this debt trap.

Govt searches for funds

There is about Tk 2500 billion taka with various autonomous, semi-autonomous and other such authorities under the government and the government is now turning its attention in that direction. The cabinet will shortly be approving a new law to use 75 percent of these funds on project implementation.

Member of the general economic division of the government’s planning commission Shamsul Alam, speaking to Prothom Alo, said that the decision to take funds from the autonomous bodies is positive for the economy. After all, these corporations belong to the government. Around Tk 2000 billion can be availed from these sources, equaling the Annual Development Programme. The government is implementing mega projects and needs these funds.

However, there are mixed reactions towards this decision of the government. This has created discomfort within the banking sector which is suffering from liquidity crisis.

Chairman of the Association of Bankers Bangladesh, Syed Mahbubur Rahman, told Prothom Alo that it will create a serious problem if these funds are withdrawn from the banks. It is important how the government handles this. After all, the private banks, particularly the new ones, depend on these funds.

In the meantime, the Bangladesh Telecommunications Regulatory Commission (BRTC) is putting pressure on two large companies of the telecommunications sector, Grameenphone and Robi to extract Tk 134.47 billion from them in dues. This has not yielded any results so far.

At the 3 September meeting of the Executive Committee of the National Economic Council (ECNEC), the prime minister Sheikh Hasina issued a directive to collect toll on the national highways. Speaking to newsmen at the secretariat on Wednesday, road transport and bridges minister Obaidul Quader said, “There is no scope to move away from the prime minister’s directives to collect toll from the national highways. There can be no question after the prime minister herself has issued the directive.” He said the process is on to collect toll from four highways of the country.

Experts believe that toll on the highways will push up the cost of living for the common people. President of the Consumers Association of Bangladesh (CAB) Golam Rahman has said, there are alternative toll roads in many countries, but this does not create any pressure as the condition of the roads are good and the vehicles can travel uninterruptedly. But if the roads remain as they are in Bangladesh and the speed of the vehicles remain interrupted, then people’s expenditure will go up.

More expenditure, less accountability

The government is presently implementing 11 mega projects at the cost of Tk 4756.07 billion. Time and expenditure has been increased in most of these large projects. This has curtailed the economic benefits.

The government is turning more to domestic sources than foreign assistance for project implementation. Questions of accountability have arisen concerning this expenditure. Experts say that there is a lack of good governance in fund management. Corruption has increased. The tax burden on the common people has increased too.

Former governor of Bangladesh Bank Salahuddin Ahmed, speaking to Prothom Alo, said that the government is making a lot of unnecessary expenditure. Work that costs one taka is being done for five taka. If public resources were used transparently, this would not be so. This is a serious weakness in revenue management.

Salahuddin Ahmed went on to say, borrowing from domestic sources means less accountability. Foreign loans come with a lot of conditionalities and so the government prefers to borrow from domestic sources. However, this shrinks the scope for the local businessmen to avail loans and the tax burden ultimately falls upon the shoulders of the people. This is not a good sign.

* This report appeared in the print edition of Prothom Alo and has been rewritten in English by Ayesha Kabir

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