Bangladesh’s national budget for fiscal year 2024-25 is likely to be reduced by more than Tk 50,000 crore, with the entire cut expected to be made in funds meant for the annual development programme (ADP).
However, this budgetary revision will depend on several factors, including conditions that the International Monetary Fund (IMF) may set for a fresh loan, the availability of budgetary support and the government’s ability to generate revenue through tax collections.
A Fiscal Coordination Council held a meeting chaired by the finance adviser on Monday and discussed the reduction, according to officials from the Ministry of Finance.
In June, the government had passed a national budget of Tk 797,000 crore for fiscal year 2024-25, which included an allocation of Tk 265,000 crore for the ADP.
After the expected revision, the overall size of the budget may be reduced to Tk 747,000 crore, with the ADP allocation likely falling to Tk 216,000 crore, a senior official of the ministry said.
These figures are only preliminary estimates, and the final size of the revised budget will be determined during a meeting set for March or April next year, he said.
A significant portion of the cuts is expected to come from the ADP as the implementation of development projects has slowed due to political instability and the change in government.
Besides, the interim government has also decided to adopt a more cautious approach to spending.
In the first four months of fiscal year 2024-25, ADP implementation fell by 31 percent year-on-year.
Officials of the Implementation Monitoring and Evaluation Division (IMED) point out that many ADP projects were currently on hold due to contractors fleeing following the ousting of the previous government, and few had returned.
Additionally, the government is reevaluating projects that may not be deemed essential or were initiated based on political decisions, further contributing to the delays in project implementation.
As a result, the government has decided to reduce the ADP allocation by a big margin.
However, changes could come about in the revenue as the allocation for interest payments and subsidies is expected to rise.
But this has not been decided yet because a big portion of the revenue budget is spent on interest payments, a financial ministry official said, adding that increasing interest payments were exceeding previous projections.
In the budget for the current fiscal year, Tk 113,500 crore was allocated for interest payments and Tk 42,388 crore had already been spent in the first quarter.
This is a 92 percent increase compared to the same period last year.
That is why the allocation for interest payments may increase further in the revised budget.
Besides, subsidy spending has also been rising in recent years, with the government initially allocating Tk 88,015 crore for it.
By the end of the first three months of the current fiscal year, Tk 4,514 crore had been spent on subsidies, which is nearly half of what was spent during the same period last year.
The finance ministry official said the payments for subsidies have not been cleared due to the political unrest. Besides, there are arears on bills of the fertiliser, energy and power sectors, he said.
Meanwhile, the IMF may impose a condition for the government to settle a substantial portion of these arrears to be eligible for a fresh loan, the finance ministry official said.
This could increase the allocation for subsidies in the revised budget.
As of June, arrears for bills of the power, energy, and fertiliser sectors had accumulated to about Tk 60,000 crore, and these arrears continue to grow.
The interim government, after taking charge, sought budgetary support from multilateral and development partners. The government is expecting to get commitments for $6 billion in loan support by next June.
However, a confirmation on the amount of money will be available by next March or April. And the size of the revenue budget is depending on it.
Selim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM), suggested that the government’s decision to revise the budget could be linked to efforts to control inflation by reducing expenditure.
He noted that government revenues were under pressure, and there were challenges involving the development projects initiated by the previous government.
To stabilise the economy, Raihan recommended that the government prioritise key projects while addressing irregularities and mismanagement from past administrations.
However, he emphasised that there is no room to reduce the operating budget as interest payments on loans continue to rise.
Raihan, also a professor of economics at the University of Dhaka, said the fiscal year would unfold with these constraints in place, but stressed the importance of developing a mid-term plan for the future.
The potential loan from the development partners would provide some relief to the government, but it is crucial to align this funding with the country’s development priorities, he said.