Corona-induced funding cushions public finance, contingency expenditure still cut by 50pc

The public finance went through a difficult phase between the months of April and September this year because of the Covid-19 consequences.

Government’s revenue earnings suffered, but its expenditures were also less than projected during the period under review.

The fiscal deficit was also lower than estimated, leading to lower deficit financing from domestic sources.

The inflow of the corona-related external funding worth around $2.0 billion provided the much-needed cushion to the public finance.

The net sale of the government-sponsored borrowing instruments has surged significantly which many believe due to its high returns coupled with higher remittance inflows.

However, the total public expenditure was recorded at Tk 233 billion in March, Tk 243 billion in April and Tk 302 billion in May.

However, it increased to more than Tk 800 billion in June 2020. The July-September public spending averaged Tk 300 billion per month. Officials at finance division said the government is still disbursing funds to the projects cautiously keeping in mind the possibility of the second wave of Covid-19.

Besides, the contingency expenditure under different ministries and divisions has been cut by 50 per cent.

The officials said they are yet to close accounts of October last. So, there is no available data relating to the spending and resource collection for the October-December period.

On the other hand, the total revenue collection was recorded at Tk 242 billion in March. It dropped to Tk 161 billion in April and Tk 162 billion in May.

But the revenue mobilisation went up significantly to Tk 363 billion last June.

During the July-September quarter, the average monthly collection was Tk 217 billion.

The implementation rate of the annual development programme (ADP) was also impacted by Covid-19.

The ADP execution was recorded at Tk 63 billion in March. It went up to Tk 74 billion in April and to Tk 95 billion in May.

The June figure for the ADP was much bigger at Tk 565 billion. The increase is nothing unusual since in the final month funds against projects are released in larger volume.

During the July-September quarter, the release of funds against development projects was recorded at Tk 126 billion, representing a poor rate of implementation.

Although the total deficit from the July-June period of fiscal year 2020 was recorded at Tk 1.3 trillion.

The deficit was around Tk 446 billion in June, Tk 141 billion in May, Tk 81 billion in April while it was less than Tk 100 million in March.

The overall deficit during the July-September quarter was Tk 243 billion, mostly funded by national saving certificates and external sources.

However, government debt as a share of gross domestic product (GDP) rose to 39.6 per cent in 2020, which many believe is due to external Covid-related fund inflows.

Looking back, the public-sector debt stood at 35.8 per cent of GDP in 2019.

Many economists say Bangladesh’s public finance has been hit by Covid-19 like other parts of the world.

They said avoidance of unnecessary allocation is quite normal during the ongoing pandemic.

People familiar with the development told the FE that the government is disbursing its resources to only top-priority development projects while others remain shut.

Policy Research Institute of Bangladesh (PRI) executive director Dr Ahsan H Mansur said the fall in the yield of government bills and bonds is good for the government.

But he said higher sales of saving certificates would impose a burden on it.

Dr Zahid Hussain, an independent economist who is well conversant with public finance, said, ” Non- disbursement of funds to low-priority projects is alright.”

The measures relating to halting funding on contingency affairs are also good, he told the FE.

The economist said proper targeting of social safety net programmes as well as other public welfare-oriented projects should continue.

About the spike in non-bank financing, Dr Hussain, who had served as lead economist at the World Bank, said higher remittance inflow may be the reason for it.

He said this is the investment area where people get confidence as it gives the highest return among all investment tools in Bangladesh.

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