TOPIC: BUDGET COURSE : MANAGERIAL ECONOMICS
M. Nasiruddin Honorary Professor Department of Finance University of Dhaka
A budget may include planned sales volumes and revenues. business. budget makers are happy to operate at a deficit. organizations. ry terms. Budget helps to aid the planning of actual operations by forcing managers to consider how the conditions might change and what steps should be taken now and by encouraging managers to consider problems before they arise. country. A budget is an important concept in microeconomics. activities.
. while a BALANCED BUDGET means that revenues are expected to equal expenses. assets. It also helps coordinate the activities of the organization by compelling managers to examine relationships between their own operation and those of other departments. resource quantities. liabilities and cash flows. which uses a budget line to illustrate the trade-offs between two or more goods. A SURPLUS BUDGET means profits are anticipated. A budget is a microeconomic concept that shows the tradeoff made when one good is being exchanged for another. operating at a deficit is seen as financially irresponsible. family. while in other cases. Adjustments can be made to budgets based on the goals of the budgeting organization. group of people. 2013
A BUDGET is a description of a financial plan. costs and expenses.
Ismat Jerin Chetona ID-24065 Sec : B University of Dhaka
Submission Date: 26th August. Other purpose of budget include: To control resources To communicate plans to various responsibility center managers.Prepared by. It is an estimation of the revenue and expenses over a specified future period. A budget can be made for a person. government. A DEFICIT BUDGET means expenses will exceed revenues. It expresses strategic plans of business units. multinational organization or just about anything else that makes and spends money. Budgets are usually compiled and re-evaluated on a periodic basis. or events in measurable terms. In some cases.
construct a model of how a business might perform financially if certain strategies. and income tax and corporate tax are the basis for national revenues. There are three types of government budget: the operating or current budget. establish the cost constraint for a project.
The budget of a government is a summary or plan of the intended revenues and expenditures of that government. and technical basis. For example. a government's budget is designed as a plan for implementing its policy. program. I would like to discuss about Government budget and more precisely about the national budget of our country of the current financial year 2013-2014. In the case of the government. budgets served as a more rigid tool to implement policy in a retrospective setting. The two basic elements of any budget are the revenues and expenses.
In this assignment. revenues are derived primarily from taxes. As a policy document. Traditionally. A government budget is a document that is often passed by the legislature. enable the actual financial operation of the business to be measured against the forecast. or operation. that is. government investment expenditures such as infrastructure investment or research expenditure. which economists call government consumption. the capital or investment budget. and approved by the chief executive-or president. while sales tax and/or income tax are the basis for state revenues. budgeting is a tool that: provide a forecast of revenues and expenditures. Property tax is frequently the basis for municipal and county revenues. Government expenses include spending on current goods and services. and transfer payments like unemployment or retirement benefits. To evaluate the performance of managers To provide visibility into the company's performance For accountability
In summary. events and plans are carried out. Unlike a pure economic budget. and the cash or cash flow budget. They also have a
. political. only certain types of revenue may be imposed and collected. they are not entirely designed to allocate scarce resources for the best economic use. Budgets have an economic.
To motivate managers to strive to achieve budget goals.
Government Budget In Bangladesh is reported by the Bangladesh Bank.56.621 crore. However. The final one of current tenure of the incumbent government has been placed in the Parliament with a profuse expenditure target at Tk2224.165 core. Bangladesh Government Budget averaged -3. The National Budget for the fiscal year 2013-2014 of Bangladesh has been announced by the Honorable Finance Minister on June 6.development and other expenditures has been estimated at Tk. 65. Government Budget is an itemized accounting of the payments received by government (taxes and other fees) and the payments made by government (purchases and transfer payments). In the budget for the year 2013-14.870 crore.52 percent higher than the current fiscal's revised budget of Tk 189. Finance Minister in his post-budget press conference said that the budget may be ambitious but is implementable. reaching an all time high of -1.political basis wherein different interests push and pull in an attempt to obtain benefits and avoid burdens. The technical element is the forecast of the likely levels of revenues and expenses.30 Percent of GDP in December of 2008.60 Percent of GDP in December of 2009 and a record low of -5. The real economic growth target has been fixed at 7.
. The size of the budget for the fiscal year 2013-14 is Tk 33. according to experts and critics the budget portrays overly optimistic revenue target riding high on spending and bloated development allocations. 1. which is 18.2% while the inflationary pressure is pledged to be curbed within 7%.326 crore. the allocation for non. Expenditure for ADP has been estimated at Tk.7% of the Gross Domestic Product (GDP). The GDP growth rate for FY2013-14 in the budget has been projected at an ambitious 7.34 Percent of GDP from 1994 until 2012. against the backdrop of mixed performance in the preceding year in terms of macroeconomic and fiscal management.91b. It is 17. 2013.2 percent for the new financial year.
4b (2. 1.2b (11..090 crore.23% (21. Revenue from Non-NBR sources has been estimated at Tk. The budget has planned to procure Tk1412.2% of GDP) is aimed to be collected from the non-tax revenues.9% of GDP) from the taxpaying sources. Income tax and Value-Added Tax (VAT) jointly are
.129 crore.36.53% in budget FY13). 5. The government hopes to achieve this by increasing the weight of National Board of Revenue (NBR) tax for yet another year to 21.1% of GDP) in which NBR tax revenue is Tk. The rest Tk262.Revenue goal: In the Budget for the FY 13-14 the government has set a revenue target (excerpt grants) of Tk1674b (14.
and defense. the finance minister expressed his determination to carry out reforms in revenue department and said the government has taken initiatives to affect planned reforms in this sector as a vital part of its strategy of overall economic policy. Interest expense.9%.22%. Moreover.9% of its outlays for capital investment.70-billion-taka (8. the revenue collection target appears to be too ambitious to realize. The collection targets for non-NBR and Non-Tax revenue sections also signified increase of Tk51.5% share in the total expenditure.” which nonetheless is subject to substantial degrees of uncertainties.88% that is currently 11. nevertheless. The government has increased the taxable income slabs and made some major alteration to tax and rebate system that might affect the revenue collection to some extent. the cost of incautious government borrowing from the banking channel. primarily to bailout the troubled state owned banks. The government. large budget outlay could
.88% that is currently 11.expected to provide for the lion share of Tk982.3b and Tk262. The collection targets for non-NBR and Non-Tax revenue sections also signified increase of Tk51.3b and Tk262.9b higher than the previous year’s target. The projected Tax to GDP ratio for FY14 is 11.9% For achieving the revenue-earning target. At this backdrop.3m new taxpayers this year under the tax net and thus drive up the tax revenue.53b. dominates the total budgetary allocation with 12.4% and 14. despite widespread controversy the government made generous allocation for constructing “Padma Bridge.4b by 12.44 billion dollars) with power and communications sectors getting the biggest chunk of money.4b by 12. The target is Tk224. Higher attention to the unproductive sectors is trenching rational requirements of the priority sectors like agriculture. For a developing economy like Bangladesh. believes the new tax slabs and reform measures including expansion of tax offices will eliminate irregularities and include 0. he said the size of Annual Development Program for the next fiscal year will be 658. the budget has set aside nearly 6.22%.4% and 14.
All about spending: The Finance minister said the that on the expenditure side. The projected Tax to GDP ratio for FY14 is 11. health. This is hazardous for economic and social growth. In addition.
07%) would be financed from local sources while the rest Tk245. the financial system is recently going through a hard time.7b (5.98b foreign aid might also not be that challenging if the current pace of utilization is maintained. which is close to the total paid-up capital of the scheduled banks. Allocation for Investment: The budget for the FY13-14 offered a number of tax incentives to augment investments.30%) had been planned to be financed from project aids. The transport sector got the highest allocation (23. That of the
.71b.52b has been allocated solely for Padma Bridge under this sector. Moreover. Considering slump in net borrowing from savings certificates the government has set next year’s target at Tk49. The budget set a target to borrow Tk259. Allocating largest fund for interest payment would confine outlay for productive and emergency purposes. Annual Development Program (ADP) Budget: A gigantic Annual Development Program (ADP) budget of Tk658.5% of the budget outlay will be used to pay off interest. loans & grants.5% of GDP) has been proposed for FY2013-14. Reliance on costlier financing will also increase the interest expense. Of the total ADP allocation. resulted in lesser ADP allocation for other development projects.63b (37.9% of the revenue expenditure or 12. Only 50 new projects are going to be included under this proposed ADP along with 996 carried forward and 130 projects of the autonomous bodies.
The private sector investment rate was upwardly mobile until FY11. The economy is already bearing the air-stream of the previous years’ excessive bank borrowing. Since FY12.have been affirming if the revenue-expenditure balance and the quality of expenditure are ensured. Realizing Tk143.43b which is 17. initially the uncongenial fiscal and monetary stances and later the intensified political tension and financial sector instability impaired the private sector investment growth.76% higher than the original ADP of FY2012-13 of Tk550b. the side effects associated with the financing options are irreversible. In addition.93b from the banking system. the financial system (other than banks) might have to contribute in the Tk30b non-bank borrowing requirement.34%) as Tk68. The customs duties on capital machineries import has been reduced to 2% from 3%. Furthermore. The enigma actually lies with the net borrowing target from the banking system. In FY14 an amount of Tk277. next year’s target will make the condition more perplexing. Tk413.07b (62. which is 19.
032 crore and of this amount. Tk.993 crore will come from the banking system. Tk. 21. Tax holiday for 17 industrial and 17 infrastructure facilities was been extended for two more years until June 30.
The overall budget deficit is Tk. However. 33. 25.intermediate raw materials was also proposed to be trimmed down to 10% from 12%.964 crore will be mobilized from domestic sources. The budget has also relaxed the regulatory duty imposed on some important raw materials for the textiles sector.068 crore will be financed from external sources and Tk. 2015. The budget has also proposed to increase investment tax rebate by 5 percentage points to 15% and raise the investment ceiling to Tk15m from existing Tk10m. pharmaceutical and shipbuilding sectors have also got a boost. Of the domestic financing. 55. The SME. this time the
Deep deficit proposition: In all the fiscal budgets proposed by the incumbent government deficit were projected at 5% of the Gross Domestic Product (GDP).
000 crore in the upcoming fiscal. the National Board of Revenue’s (NBR) expected revenue earning of Tk 136.300 crore in the last fiscal. breaking the tradition.bd) in its presentation mentioned Tk 222. spending on interest payment will go up further in the next fiscal.4 billion worth of fund has to be spared to meet external debt payment obligations. approximately $1.
Critics’ opinion on the Budget Opposition party leader Begum Khaleda Zia termed the present budget as only aimed for looting purposes only. Policy Research Centre. However there remains a risk of further increase considering the over ambitious revenue collection target. the projected growth of GDP impossible with government’s present track record and the Padma Bridge financing as a challenge.6% of the GDP. As well.bd (PRC. The higher borrowing in 2013-2014 will warrant more money for interest payment. the government estimated the budget deficit for FY14 at 4. and at a period of discernible economic contraction. total internal outstanding credit of the government from banks and savings instruments stood at Tk 162. which is expected to surpass Tk 30.491 crore budget as lavish. though IMF suggested it to be at 4.32b. as the total external debt now stands at about US$24 billion. The deficit target for FY14 is thus projected to be Tk550. the think tank identified a number of prospective issues that need special attention and review for the overall success of the budget.3% of the GDP.791 crore. Center for Policy Dialogue(CPD) termed the budget as surreal. As of March 2013.100 crore during the next fiscal year is unrealistic: the amount being around 21 per cent higher than the bygone fiscal. BNP leader Barrister Moudud said that the ‘budget is a big beautiful balloon’.0 Revenue and internal debt: Foremost. Interest payment alone amounted to around Tk 23. Consuming such costly (both tangible and opportunity costs) fiscal deficit would be worthy only if the fund mobilized for deficit financing are channeled to the productive sectors.
. External debt: Besides. due to recurring deficits and increased public borrowing. Hence. From Opposition.government had to accede to the International Monetary Fund (IMF). about $226 million higher than what was needed in the previous year.
H&M and Zara. The four main planks of the GDP are: Volume of domestic consumption. External trade: In 2013-2014. though realistic and unavoidable. the budget is not growth-friendly. private investment. $964 million will be needed in the next fiscal to make payment towards the principal amount owed on external credit while another about $210 million will be needed for interest payment alone. will further undercut the nation’s competitive edge. import amounted to $24.4 billion of the corresponding period of the previous year. Added to this sullied image and stricter preconditions is the demand by nearly 4 million workers of increased wage. reduced consumer demand will truncate the revenue from the VAT which now constitutes the main chunk of the government’s earning. exacerbate the unemployment crisis. revenue from external trading is likely to fall due to reduced import activities observed in the previous fiscal and an anticipated fall in exports too. which. volume of export and import. who have so far visited and examined just a sixth of the Dhaka region’s 3. export of Readymade Garments (RMG) — which accounts for over 80 percent of the total export earning and earns for the economy about $20 billion annually—is expected to fall dramatically. productivity and job creation. Compliance and competition: No wonder a new set of compliances are now being demanded of the manufacturers from Bangladesh by external buyers while the competition is intensifying further. productivity and job creation. cause both export and import to nosedive. Growth-unfriendly: Finally. While remittance from Non-Resident Bangladeshis (NRB) is likely to remain robust in the upcoming fiscal too. The survey shows most of the factories suffer from the same pitfalls as are being discovered in the Rana Plaza complex. public investment.According to one estimate. RMG shock: The RMG sector is under a tectonic transformation due to the bad publicity it had received lately from the collapse of the Rana Plaza complex in Savar and the consequent deaths of over 1100 people. While excessive public borrowing will choke off private borrowing and investment.who’d used the Rana Plaza factories for their products — have already preconditioned their future trading with Bangladesh on fulfilling new health and safety standards to prevent the recurrence of similar tragedies. and. During the first nine months of the previous fiscal (July –March). This is shown in the results of a survey analyzed by a team of engineers from the Bangladesh University of Engineering and Technology (BUET). High street retailers like Primark.2 billion against $24. and.
. Buyers are also scared by the fact that 60 per cent of Bangladesh garment factories are considered similarly vulnerable and at risk of collapsing.000 RMG factories. due mainly to the obligations of expatriate workers to their family members back home.
employability and revenue earning. It feels that it is a last gasp effort from the government to please and sway voters with the opportunity to blame for any non-implementation to the newly elected government. partially restoring macroeconomic stability and providing import security and stabilization. dithering infrastructural development and low employment generation amid unrelenting political turmoil resulted in slow economic growth for a second consecutive year while the public endured erosion of purchasing power as domestic savings slipped to lowest level in a decade. modest export growth and declining imports boosted foreign exchange reserves. the national budget FY 2012-2013. the lofty budget may be election friendly for a regime hell bent on clinging onto power. In the final analysis. Exposure to malpractices and scams afflicting the financial sector aggravated default loans resulting in high interest rate and subdued private sector credit growth. would have to straggle and therefore undergo adjustments for sure. which seems over optimistic at instances. will divert indispensible allocations from other vulnerable sectors without offering commensurable dividends to growth.
. aided appreciation of the Taka and improved balance of payments. portrays overly optimistic revenue target which is high on spending and bloated development allocations. placed in the election year. The budget is too ambitious yet less visionary and appeared to be a combination of flashy figures to lure voters and compromising policies to accord with International Monetary Fund. Implementation of the budget. Just like the previous budgets.Above all. The national budget FY2013-14 has been rolled out on the back drop of a year that experienced mixed fortunes. about Taka 50 billion. On one hand robust remittance inflows. It thus clearly lacks in coordination between facts and figures. it is economically unsustainable and politically disastrous. While on the other hand adverse domestic factors in the form of restrained private investments. the new one also put much emphasis in the size than the quality in less creative accommodation with emerging challenges. In summary. the huge allocation for the Padma bridge construction project.