Budget trends of Bangladesh

Fiscal Year 2016-2020

Submitted to:
Muhammad Abdul Aziz
Lecturer, Department of Organizational Strategy and Leadership

Submitted by:
Fatematuzzhora OSL-SK-29
Marwa Kazi Mohammed OSL-SN-41
Tasfia Tasnim Revu OSL-FM-43
Ishrat Jahan Holy OSL-KM-45
Sumaya Tahmeed Zafreen OSL-RK-65

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 Table of contents

Introduction………………………………………………………………………….….....3
Methodology……………………………………………………………………………….3
Budget highlights………………………………………………………………………….4
Development Budget
Breakdown………………………………………………………..6Structure of national
budget of Bangladesh…………………………………………….8Major economic
challenges and the impact of national budget……………………....10 Qualitative
Analysis……………………………………………………………………...17
Conclusion………………………………………………………………………………..18
References………………………………………………………………………………..19

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Introduction:
The national budget of a country plays a vital role in terms of determining the
country’s overall economic development. National budgets contain the
strategies for mobilization, allocation and disbursement of public money by
means of fiscal and monetary operations with due consideration of political,
economic, and bureaucratic decision-making process. In countries with deep
cultural, economic and religious diversity and consistently growing economy,
such as our country it is very important for the government to allocate resource
wisely. There are various factors such as uplifting underprivileged sections of
the society, facilitating financial inclusion, mitigating regional disparity,
upgrading defense capabilities, providing proper educational facilities, and
much more need to be focused on in order to ensure sustainable economic
growth. The government has already taken various measures in order to
implement the SDG Agenda: 2030 and in order to do that, some changes on the
national budget can be observed over the years. Budget impacts our lives
directly and indirectly. Therefore, a well-planned budget is of utmost
importance for any government to ensure economic stability and growth.

Methodology:
This paper explores the budget trend of Bangladesh over the years. It also
investigates the core components of national budget and how those components
are affecting overall economic situation of our country.
All data used in this report are secondary information from various articles and
online sources. The report makes an effort to use an explorative approach to be
a combination of qualitative and quantitative analysis. Lastly some policies are
suggested for devising a proper budget indicating sectors which are in need for
rapid development and growth. Aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa

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Budget Highlights:
As the GDP growth rate kept increasing, the budget size of the country also
increased over the last five years. In 2016, the assessments of Millennium
Development Goals (MDGs) showed that Bangladesh had made significant
performance in achieving MDGs which were supposed to be accomplished
within 2015. In most socio-economic indicators, Bangladesh performed
satisfactorily.

Bangladesh also set the targets of seventh five years’ plan in 2016 to reduce
poverty, achieve food security and ensure nutrition, promote sustainable
agriculture, develop education sector, establish gender equality and empower
women and girls, build improved water management and sanitation,
sustainable economic growth and many more. On top of that, the journey of
achieving Sustainable Development Goals also started since 2016 with a view
to ensure sustainability in every sphere of development taking place in the
country. Usually, every year new proposed budget aims to obtain higher
economic growth through expansionary monetary and fiscal policy than
previous years. The budget size of last five years of Bangladesh shows a similar
trend. As the country’s economic growth remained on increase, the Government
declared higher amount of budget each year to give a boost to the current phase
of economic development Bangladesh is going through. The following chart
shows the increasing trend of revised budget size of Bangladesh form FY 2015-
16 to FY 2019-20.

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 Revised Budget Size (In BDT Billion)
5231

4425
3715
3172
2645

FY 16 FY 17 FY 18 FY 19 FY 20

Figure: Revised budget size from FY 16 to FY 20

The budget size was 2645 billion BDT in FY 2015-16 which reached 5231
billion BDT in 2019-20. The budget size became double only within a time span
of five years indicating strong commitment of Government to develop the
overall scenario of the country.

Description FY’20 FY’19 FY’18 FY’17 FY’16

Budget Size 5231.90 4425.41 3715.00 3172.00 2645.45

Total Revenue 3778.10 3392.80 2594.54 2185.00 1774.22

Budget Deficit 1412.12 1259.28 1075.84 939.80 871.43

Domestic 773.63 712.26 660.17 699.03 507.30

Borrowing

Non-Bank 300.00 478.50 461.00 460.00 305.00

Borrowing
External 638.48 500.16 415.67 240.77 249.90
Borrowing
Total 5231.90 4425.41 3714.95 3171.74 2384.33
Expenditure
Figure: Budget Overview of from FY 16 to FY 20.

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The figure gives a brief overview of the budget of last five years including
budget deficit and different sources of borrowing. In FY 2019-20 the country
announced its largest amount of budget in the history which is 5231.90 billion
BDT. The revenue target was higher than every previous year. Over the last five
years, the total revenue kept on increasing with the rising budget size. The total
revenue was 1774.22 billion BDT in FY 16 and it became 3778.10 billion BDT
in FY 20. The amount of budget deficit increased over the years maintaining a
stable percentage of GDP. All of the components in the figure show a rising
trend except non-bank borrowing.
The budget deficit is supposed to be met through borrowings from both
domestic and external sources. The domestic borrowing was 507.30 billion in
BDT and reached 773.63 billion in FY 20. The domestic borrowing shows an
increasing trend whereas the non-bank borrowing fell in the current fiscal year.
The non-banking borrowing was 478.50 billion BDT in FY 19 which dropped
to 300.00 billion BDT in FY 20. Over the period, development and non-
development expenditure have been increasing significantly.

Development Budget Breakdown

Total amount of 2116.83 billion BDT has been allocated as development budget
in FY 2019-20. The following figure shows sector-wise allocation of the
development budget in the respective fiscal year.

Development Budget Breakdown FY 20

Transport & Communication

Education & Technology

5%3% Local Government & Rural

6% 26% Development
6%
Energy & Power
7%
Others

13% 18% Public Adminstration

15% Health

Agriculture

Social Security & Welfare

Figure: Development budget breakdown of FY 2019-20

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The current development budget has the highest portion of 26% for the transport
and communication sector. Education and technology sector stand at second
position with 18% of the budget. The next highest budget is allocated for local
government and rural development with 16%. Public administration, health and
agriculture sector have budget allocation of around 6%, 6% and 5%
respectively. 7% of the development budget is allocated for other small sectors.

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Structure of national budget of
Bangladesh: Figure 1.0
The national budget of Bangladesh has two parts:

1.Revenue

2.Development

The revenue part of the budget is concerned with current revenues and
expenditures i.e., maintenance of normal priority and essential services, while
the development part is prepared for development activities. Formulation of the
two budgets follows different procedures since both of them are different in
nature. Their financing pattern and the delegated authorities of incurring
expenditure in different tiers in them are also different. Revenue budget is
prepared by the Finance Division while the Development budget is prepared by
the Planning Commission. Development budget of the government of
Bangladesh is a result of a continuous process of identifying new projects,
review of project concept papers (PCPs), and vetting of the projects in
ministries and in the Executive Committee of the National Economic Council
(ECNEC). Usually by December, the Economic Relations Division (ERD)
prepares aid memorandum, promulgate it to the ministries for their comments,
and based on domestic resource projections by National Board of Revenue
(NBR) and the Internal Resources Division, the ERD revises the aid
memorandum. After that, the document is sent to the Cabinet for approval.
Resource position for revenue expenditure and budget is then estimated and the

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Programming Committee finalizes eligible projects for inclusion the Annual
development Program (ADP). In fact, ADP is the development budget, which,
like the revenue budget, requires approval of the parliament. The Annual Plan is
a short-term operational plan within the framework of which the Annual
Development Programs (ADP) is drawn. Thus Annual Plan provides the
necessary link between the Five-Year Plan and the objective situation obtaining
in the economy of the country. The ADP is an integral part of the annual
budget. It provides the linkages between the ‘annual plan’ prepared by the
planning commission and the ‘annual budget’ prepared by the Ministry of
Finance.
Since the government is trying to implement the SDG Agenda: 2030, the budget
allocated in the developmental part has risen significantly. The government
spent 94.32 per cent of Tk 176,620 crore set aside as the development budget in
the just-concluded fiscal year, data from the planning ministry showed. The
spending in 2018-19 is the highest in the last six years, as it expended Tk
166,593 crore. In FY-2019-2020 the government placed a Tk 5,23,190 crore
largest-ever budget with a focus on developing communications infrastructure
and human resources and achieve the 8.2 percent GDP growth. The government
proposed allocating taka 2116.83 billion on the development sector, and from
the annual development program, 27.4 percent for human resource (education,
health and related others), 26 percent for communication (roads, rails, bridges,
and related other communications), 21.5 percent for the overall agriculture
sector (agriculture, rural development, water resources, and related others), 13.8
percent for power and energy sector and 11.3 percent for other sectors are
allocated.
Development Budget 2019-2020 (sector wise allocation)

Major
Others
11% Human Resource
economic
Power and Energy
14%
27% challenges
and the
Agriculture
Communication
impact of
22%
26% national
budget:
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1. GDP Growth: Over the last five years, Bangladesh has seen drastic changes
in GDP growth rate. In FY-2016 the government set target growth rate of 7
percent and was able to achieve 7.1 percent at the end of 2016. This is certainly
an appreciable accomplishment considering the slow pace of recovery in global
economy. The next year the government fixed 7.20 percent GDP growth rate
and was able to hit 7.3 percent. In 2018, the GDP growth rate was 7.9 percent
which is 0.6% higher than the previous year. So, in 2019, the government took
the decision to reach 8.13 percent-the highest ever targeted growth rate in the
country’s economic history. But unfortunately, the growth rate in 2019 was 7.79
percent, which means that the government failed to reach the targeted growth
rate. Moreover, it was 0.11% less than the previous year. In 2020, the GDP
growth rate is forecasted to reach 8 percent. But the recent pandemic will put a
toll on the growth rate. According to a forecast, the GDP growth rate will
decrease about 0.34% than the previous year, which means in 2020 the GDP
growth rate will be around 7.45 percent. Expected export, particularly to the US
and the EU, has declined drastically due to the pandemic. This will lead to
economic instability in this year and the following year and there is a high
possibility that the country will face recession, much more horrifying than the
recession of 2008. Considering the current performance of the major indicators
of the economy, it is quite difficult and impossible for the government to
achieve its growth target in the current fiscal year as well as next fiscal year.

0.08 GDP growth rate (FY-2016-2020) 0.08

2.
0.06 0.08

0.08
0.05
0.07
8% 8%
0.03
7% 0.07
7%
0.02 7% 0.07

0 0.07
2020( Forecasted)

Revenue collection: In 2017, the government had set the total revenue target
at Tk.242,752 crore (tax and non-tax revenue) which was around 12.4 percent
of the total GDP. Projected deficit was Tk.97, 853 crores. The revenue
collection rate was 2.42 percent higher than the previous year. The National

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Board of Revenue (NBR) was assigned to mobilize Tk.203, 152 crores for the
FY17, which is 10.4 percent of the GDP, 83.6 percent of the target revenue and
35.4 percent higher from the revised target of FY16. In the revised budget of
FY16, this target was Tk.1500 billion which was 84.5 percent of total revenue.
In the following next two years, this rate increased to 13 percent in 2018 and
13.5 percent in 2019. The revenue collection rate is expected to reach 14.1% at
the end of 2020. However Bangladesh’s Tax Revenue was reported at 2.239
USD billion in Jan 2020. This records a decrease from the previous number of
2.633 USD billion for Dec 2019. So, the government’s expectation of this
ambitious revenue target of 14.1 percent may not be a realistic one considering
the current global economic situation and the pandemic. Moreover, it will be
quite difficult to generate revenue in future as there is absence of automation in
tax collection, reduction of tax exemption facilities, expansion of the tax base
and significant administrative reformation. Our country would never be able to
collect the revenues required for a middle-income country unless there is the
highest level of political commitment. Analyzing, the economic and political
situation of the present fiscal year, it will be quite impossible to achieve high
ambitious revenue target in next fiscal year.
Indicator FY16 FY17 FY18 FY19 FY20
(forecasted)
Revenue 9.98 12.4 13.0 13.5 14.1

NBR 8.44 10.4 11.2 11.7 12.1

Revenue
Non-NBR 0.33 0.4 0.4 0.5 0.7
Revenue
Non-Tax 1.22 1.6 1.4 1.3 1.3
Revenue

3. Government expenditure: Government expenditure refers to the purchase of

goods and services, which include public consumption and public investment,
and transfer payments consisting of income transfers (pensions, social benefits)
and capital transfer. It is one of the major components of the GDP. In order to
set up budget targets, adjusting taxation, increasing public expenditure and
public works, the pattern of government expenditure plays as a very effective

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tools in influencing economic growth. Government expenditure is often used as
a tool of reducing poverty. But if the expenditures fail to stimulate economic
growth, it will not generate enough income to finance government expenditure
in the future and thus cannot reduce poverty. Since, the government is trying to
implement SDG Agenda: 2030(which clearly states the vision of ending poverty
and hunger), there has been an increase in rate of allocating government
expenditure over the years. The following table shows the statistics of FY2016-
2020, of which the statistics of 2020 is forecasted. I I I I I I I I I I I I I I I I I I I I

Indicator FY-16 FY-17 FY-18 FY19 FY-20

(Forecasted)
Expenditure 13.76 17.4 18.0 18.4 19.1

As of ADP 4.58 5.6 6.9 7.0 7.1

4. Budget Deficit: Budget deficit is another important measure of determining

the economic situation of a nation. A budget deficit happens when current
expenses exceed the amount of income received through standard operations.
Certain unanticipated events and policies may also cause budget deficits. One of
the dangerous aspects of budget deficit is inflation, which is responsible for
continuous increase of price level. Ultimately, a recession may take place,
which represents a decline in economic activity that lasts for at least six months.
Continued budget deficits can lead to inflationary monetary policies, year after
year. The impact of budget deficit on GDP mainly depends on the sources and
how deficit funds are used. Currently the economy of Bangladesh is going
through a phase of continuous budget deficit. The rate of budget deficits in
Bangladesh has drastically increased in last five years. The budget deficit for
the FY17 was Tk.97, 853 crores or 3.34 percent of GDP which was 0.44 percent
higher than the revised budget of FY16. This percentage steadily increased in
the following years. In recent years, government deficit has almost reached 5%
of the country’s GDP. The government's deficit financing grew by 130 percent
in the first four months of the current fiscal year (FY-2020) compared to that of
the same period of last fiscal, driven by a fall in resource mobilization,
according to official documents. The government had also announced the
annual budget for the year to June 30 next involving Tk 5.23 trillion with the
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 Net foreign assistance Size of ADP
Budget Deficit%GDP (FY-2016-2019)
225000

173,000
180000 5% 5%
5% 148,381 overall
crore%GDP
TK

135000 3% deficit
deficit

3% 91,000 projected
84,093
Figures in

90000 to be 5.0
46,024 54,067
percent of
45000
25,000
2016 2017 12,304 2018 2019 2020(Projected) the Gross
Years
0 Domestic
2016 2017 2018 2019 Product
Years
(GDP).To
finance this huge amount of deficit, the government have been borrowing from
domestic and foreign sources. This is fueling inflationary pressure on one hand
and crowding out of private investments on the other.

5. Foreign Aid: Foreign aid is money that one country voluntarily transfers to
another, which can take the form of a gift, a grant or a loan. Bangladesh is
highly depended on foreign aid. The nation depends on foreign aid to fill the
gap of budget deficit, to meet the substantially widening balance of payment
deficit for international trade, and to fund the Annual Development Program
(ADP).Net foreign assistance (gross inflows of grants and loans, net of
repayments) have continued to rise gradually over the years, except for an
uncharacteristic dip in utilization in 2016-17, possibly as a result of the terrorist
attack in Dhaka on July1in2016. Dependence on aid is supposed to be decreased
over time. However, aid funds have remained an important instrument of
financing the budget deficit in 2017-18 and 2018-19, 31 percent of the projected
budget deficit is to be met from foreign aid, both significantly higher levels
compared to recent years. Bangladesh is not particularly dependent on aid as an
economy as foreign aid currently constitutes about 2 percent of the country's
GDP. However, taking into account its role in plugging the budget deficit, one
can conclude that its role in financing development projects remains significant.
The following graph shows the amount of net foreign assistance and the size of
ADP between FY-2016-2019.

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 23.75 Remittance inflows (FY-2016-2019)

19
18

14.25 16
6.
$ in billion

14
12
9.5

4.75

0
2016 2017 2018 2019
Year

Remittance: Remittance plays a vital role in Bangladesh’s overall economy.

Remittances from more than 10 million citizens abroad are very important for
Bangladesh and along with garment exports are key source of foreign exchange.
Saudi Arabia has been the largest source of remittances, followed by UAE,
Qatar, Oman, Bahrain, Kuwait, Libya, Iraq, Singapore, Malaysia, the US and
the UK. The amount of remittance steadily increased through the course of last
five years. Remittance inflow posted its all-time high in 2018 amid appreciation
of US dollar against the Bangladeshi currency, prompting expatriates to send
money through legal channel. In 2018, inflow of remittance increased by 14.83
per cent or $2.01 billion, taking the total remittance inflow to $15.53 billion
from $13.53 billion in the previous year. Before 2018, the highest amount of
remittance earnings of the country was in 2015 when the country’s remittance
earnings posted an all-time high at $15.31 billion. Remittance inflow hit a
record $18.32 billion in the just concluded year of 2019 amid devaluation of the
taka and the government move to provide incentives against remittance and thus
broke the previous record of $15.31 billion. However, current fiscal year is
already facing a significant amount of push down in remittance inflow due to
pandemic. Remittances from Bangladeshi nationals working abroad were
estimated at USD$1.29 billion in March 2020, registering a decrease of $171.88
million from the same month a year ago. It was $1.46 billion in March 2019.

7. Export and import: Like many other third-world countries, Bangladesh

relies quite heavily on exports to provide for the needs of its densely populated
nation. Currently Bangladesh’s main export items are garments, jute and jute-

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related goods, leather, frozen fish and seafood. Just three years ago the country
made over $2,000 billion from export trade. The majority of the country’s trade
is conducted with the USA but a small portion of exports also sees its way to
Germany, the UK, France and Italy. Bangladesh is the 54th largest export
economy in the world and the 123rd most complex economy according to the
Economic Complexity Index (ECI). In 2017, Bangladesh exported $39.2Billion
and imported $44Billion, resulting in a negative trade balance of $4.73Billion.In
2017 Bangladesh imported $44Billion, making it the 53rd largest importer in
the world. During the last five years the imports of Bangladesh have increased
at an annualized rate of 9.5%, from $27.9Billion in 2012 to $44Billion in 2017.
The most recent imports are led by Refined Petroleum which represent 5.97%
of the total imports of Bangladesh, followed by Raw Cotton, which account for
3.67%.Others include: iron and steel (7 percent), edible oil (4 percent),
chemicals (4 percent), yarn and plastic and rubber articles (4 percent). However,
in 2013, imports of rice grains decreased substantially mainly due to adequate
domestic supply of rice during the period. Imports in Bangladesh increased to
400.05 BDT Billion in January from 394.52 BDT Billion in December of 2019
and as of January 2020 total export dropped 2.8% compared with an increase of
9.8 % in the previous month.

8. Inflation: Bangladesh government has reduced overall inflation rate

significantly over the last five years due to satisfactory agricultural production,
reduction of commodity prices including fuel, prudent macroeconomic
management and the normal flow of supply of goods with political stability. But
this year and in the upcoming fiscal year, it will be quite impossible to maintain
targeted inflation rate because of the corona pandemic, which will inevitably
cause major economic distress all around the world. Decreased amount of
remittance, insufficient export, probable budget deficit and higher revenue
expenditure may lead to inflation. In the current situation, there is a higher
demand for domestic goods. So the prices of daily commodities will go higher
and will lead to inflation. Thus, higher inflation in the domestic economy causes
currency devaluation, and finally, the government would have to bear extra
payments for external debt services. In 2016 inflation rate was 5.68%. This rate
decreased to 5.61% in 2017 and did not change until 2019. In 2019, the inflation

15
rate decreased significantly and became 5.46%. However, this year the rate of

Inflation rate (2016-2020)

0.06
6%
0.06
6% 6%

0.06
6%
5%
0.05

0.05
2016 2017 2018 2019 2020 (Projected)
inflation may increase due to the unavoidable pandemic situation.

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Qualitative Analysis:
The analysis of the last 5 years of budget implies that Bangladesh’s budget is
heavily reliant on tax revenue. The budget has also shown a continuous phase of
deficit, which is reliant of foreign aid to reduce the gap. The economy and
national treasury is also built upon remittance and export income. The
government expenditure depends upon all these aspects to meet annual
development goals. The expenditure occurs most in the fields of education,
technology, transport and communication. The budgets are almost always
presenting very lofty goals, but unfortunately the base for them is fragile.

Tax revenue collection is almost stagnantly flat over the years, causing the
increasing budget deficits. The ongoing budget deficit threatens the economy
with a inflation, which could lead to a damaging recession. Despite that, the
government took bare minimum measures to correct and reform the tax revenue
collection and the taxation policies. Business-as-usual budgets have been
spewed out year after year that keeps fiscal policy unchanged over the years
with no noticeable fiscal measures to strengthen tax mobilization, no policy
measure to reform the banking sector and no visible efforts to strengthen project
implementation.

The budget narrative now progressively resembles what Harvard economist

Lant Pritchett had called “isomorphic mimicry” -- a term coined from the
natural world where animals and plants sport a look that actually camouflages
their truth.

In natural world, an innocent butterfly may look like a vicious animal to gain an
evolutionary upper hand. And when this is applied in economics and
development theories, it represents a “technique of successful failure”; Figures
and facts are exhibited in a way that misleadingly gives a rosy depiction,
denying the reality.

So the growing size of budget, increasing GDP and increasing expenditure for
ADP may paint a glowing picture but it cannot over shadow the deficits, shaky
foundations and the threats of inflation and recession. The budgets are growth
friendly and development centric, but they are unrealistic.

17
Conclusion:
Due to the current pandemic, the forecasted goals will be near impossible to
meet. The pandemic will result in low flow of remittance, low export income,
low foreign aid and higher price of local commodities. This phenomena coupled
with ongoing budget deficit, has a high risk of resulting in inflation that can lead
to recession.

Therefore, the absence of policy measures to reform and regulate the market can
easily crash the economy in a much larger scale than 2008’s global recession.
The government’s strategies and budget goals should reflect the current crisis
and set achievable, people friendly policies to tackle the aftermath of the covid-
19 pandemic.

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