IMF advises on keeping the budget small

The International Monetary Fund (IMF) has advised on keeping the next budget smaller in size. In addition to that the agency has also advised to keep the budget deficit low and increase revenue collection. Sources from the finance department of the ministry of finance reported this.

A ten-member delegation of the IMF that came to Dhaka to review to what extent the conditions of the loan given to Bangladesh have been met, had a meeting with the finance department. The recommendations came from IMF at the meeting.

Finance secretary Md Khairuzzaman Mozumder led the Bangladesh delegation while chief of the development macroeconomics division in the research department of IMF Chris Papageorgiou led the delegation from the monetary agency.

The delegation from IMF also held separate meeting with Bangladesh Bank on Wednesday. The delegates would have meetings with different government offices till next 8 May.

While approving a loan proposal of USD 4.7 billion (USD 470 crore) on 30 January 2023, IMF had given various conditions including increasing revenue and reforming the banking sector.

The organisation has already released more than USD 1 billion (USD 100 crore) in two installments. The third installment is supposed to be received towards the end of last month.

According to sources of the finance department, the delegation is trying to understand if the conditions given my IMF would have any reflection in the next budget or not. The IMF has been informed by the finance department that it would.

However the budget would run in its own way. Since it’s the budget from a political government, the election manifesto and the five-year-plan of the ruling party have to be kept in consideration as well. Reportedly, alongside the size of the budget, the budget deficit and the collection of revenue too have been discussed in the meeting.

The size of the main budget from the current 2023-24 fiscal year is Tk 7,617.85 billion (Tk 761,785 crore). The government has already decided to reduce the revised budget to Tk 7,100 billion (Tk 710,000 crore).

The initial decision on the size of the budget for the upcoming fiscal year was taken in a meeting of the coordination council on finance, currency and exchange rate on last 4 April. And the size of that is Tk 7,970 billion (Tk 797,000 crore).

However, sources of the finance department said that the government already had the plan to not expand the size of the next budget that much compared to the current budget even before the IMF came up with the advice.

Usually the size of the actual budget is increased by 12 to 13 per cent every fiscal year. This is the first time the size of the budget will be increased by less than 5 per cent.

When the expenditure of a government is higher than their revenue in a fiscal year it is called budget deficit. Including grants, the budget deficit in the current fiscal year was 5.2 per cent of the gross domestic product (GDP) or Tk 2,578.85 billion (Tk 257,885 crores). This deficit should not exceed 4.6 per cent at the end of the fiscal year, advised IMF in yesterday’s meeting.  

The budget deficit is met by taking loans from home and abroad. The share of loans taken from the country is higher. There are loans taken from the banking system and loans taken from selling saving certificates.

Though there was a target of collecting Tk 180 billion (Tk 18,000 crore) from selling saving certificates in the first eight months of the current year, the government couldn’t collect any fund from this. Therefore, bank loans are government’s main hope this year.

According to sources of the meeting, IMF believes government’s pace of revenue collection to be slow under the current economic situation.

In the current fiscal year, the government had a revenue collection target of Tk 5,000 billion (Tk 500,000 crore) including Tk 39 billion (Tk 3,900 crore) of foreign aid. The lion’s share of this, Tk 4,300 billion (Tk 430,000 crore) is national board of revenue (NBR)-controlled revenue. This target has already been reduced to Tk 4,100 billion (Tk 410,000 crore).

As reported by the sources, IMF has been told that the revenue collection target from last July-December has been met. IMF however wants to see the tendency of meeting the target throughout the year.

IMF has been told that the NBR has collected Tk 2,598.66 billion (Tk 259,866 crore) in between July and March of the current fiscal, which is 15 per cent higher than that from the same time of last fiscal. However, the revenue collection is Tk 220 billion (Tk 22,000 crore) less in consideration of the target set for nine months.

Among the many loan conditions given to Bangladesh, IMF also has the condition of increasing the rate of tax to GDP ratio. That means an action plan has to be fixed so that Bangladesh instead of the usual growth, can increase the revenue collection at the rate of 0.5 per cent in comparison to the GDP from the current fiscal. The finance department has told IMF that the attempt to achieve this growth is on.

Regarding the topic of discussion in IMF’s meeting with the finance department, former IMF official and executive director of research organisation Policy Research Institute (PRI), Ahsan H Mansur told Prothom Alo, “If IMF have spoken of budget reduction, cost saving and paying attention to revenue collection, we too have the same thing to say.”

“If Tk 1,500 billion (Tk 150,000 crore) has to be borrowed from the banking sector at the end of the fiscal year after all, it would also cost interest. Therefore, the necessity of taking loan has to be reduced while there has to be budget cuts,” he added.

Ahsan H Mansur also said, “Even fuel oil and gas are being bought with the loan money. Take a household for example, one can take loans to buy a home or a car but, if they have to take loans to buy even rice that cannot be labeled a very comfortable situation. Our situation is somewhat like that.”