Bangladesh government budget deficit

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Bangladesh government budget deficit

Fiscal policy in Bangladesh basically comprises activities, which the country carries out to obtain and use resources to provide services while ensuring optimum efficiency of the economic units. The policy influences the behaviour of economic forces through public finance. Major objectives of the fiscal policy of Bangladesh are to ensure macroeconomic stability of the country, promote economic growth, and develop a mechanism for equitable distribution of income.

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In the initial years of independence, the government of Bangladesh had to spend a large amount of its resources in reconstruction and rehabilitation work. It had negative public savings and limited private investment. Despite large inflows of foreign aid, the increasingly large financing gap became the main concern of the government.

The situation was further aggravated by frequent internal and external shocks. Under the circumstances, government fiscal policies during s and s were largely oriented at rehabilitating the war-torn economy as well as stabilising it from various shocks.

This had gradually lead to weak fiscal structure and poor fiscal management. The tax structure was such that any increase in taxes due to built-in consequences of economic growth was virtually not possible.

This was because of the fact that despite a moderate growth of the economy, income distribution was skewed, and had been pushing more and more people below the poverty line each year.

As such, the proportion of population with taxable surplus went down overtime. Since most imports were in the government sector and basic need-oriented, it was hardly possible to increase import duty. Despite higher production costs, prices of most public goods could not be rationalised due to socio-economic reasons.

As such, these were kept lower, which resulted in inadequate cost recovery. Current expenditure had always been underestimated in the country, while current surplus as well as foreign loans and grants were overestimated.

Therefore, the overall fiscal deficit experienced a large variability all the time.

Bangladesh government budget deficit

Regular deficit financing, normally undertaken through borrowings from abroad, from bangladesh bank, and from scheduled banks, has become a basic feature of the fiscal policy of the country. Opportunity of borrowing from the public by the government for financing budget deficit is very limited in the country as savings capability of the people is very low.

Therefore, the opportunity of non-inflationary financing of budget deficit does not exist here.

Fiscal Policy generally refers to the use of taxation and government expenditure to regulate the aggregate level of economic activity in a country. The post-independence AL government faced daunting challenges and in was overthrown by the military, triggering a series of military coups that resulted in a military-backed government and subsequent creation of the Bangladesh Nationalist Party (BNP) in . It describes fiscal policy of Bangladesh. Enregistrer. Fiscal Policy of Bangladesh.

Availability of foreign borrowing depends on the international liquidity situation and the prevailing circumstances in the international capital market, which is always uncertain and volatile for a country like Bangladesh.

The commercial banks, because of their potential for central bank refinancing, are also not effective sources of non-inflationary finance. Given the circumstances, whatever is the size of the fiscal deficit in any particular year, a part of it cannot be financed by external borrowing and, therefore, must be financed out of central bank borrowing.

As a result, the essential element of fiscal deficit in Bangladesh has become such that once a deficit is incurred, government borrowing from the Bangladesh Bank became inevitable. The major objective of the government fiscal policy was to restrict the growth of current expenditure to a level below the growth of the nominal GDP, thereby making more resources available to support annual development programme ADP undertaken in each year.

Together with protection-neutral supplementary duties, this system largely replaced the earlier structure of differentiated sales tax on import and excise duties on domestic goods.

In case of personal income tax, the major reforms involved the inclusion of entertainment allowances in the personal income tax base, deduction of investment in approved assets from the tax base, and an introduction of a withholding tax on dividend with limitation of special expenditure within a reasonable limit.

Steps were taken to reduce interest rates on government savings instruments and subsidies for food and jute. A good number of public sector enterprises were denationalised through sales to the private sector. These reform measures resulted in a remarkable improvement in the fiscal situation of Bangladesh after The growth of current expenditures was contained below the rate of GDP growth.

This trend is continuing, although with minor fluctuations. Moreover, this was accompanied by changes in the tax structure of the country, reflected in the decline of the shares of customs duties and increase in the share of income and profit taxes in the total tax revenues in the subsequent period.

The overall budget deficit was 8. But this could not be maintained in the following year due to the devastating and prolonged floods that occurred in the first half of There was a considerable slippage in the expenditure programme of the government due to floods while revenue collection lagged far behind the target.

Bangladesh government budget deficit

As a result, the overall budget deficit shot up to 7.The estimated budget deficit is BDT billion ($ billion) or percent of GDP; 62 percent of this deficit is proposed to be financed from domestic sources and the rest from external sources.

Government expenditure (% of GDP) Government expenditure (Total) Highest and Lowest Point. Imports. or deficit (-) of Bangladesh is (% of GDP) with a global rank of Bangladesh compared to other Countries The Budget surplus (+) or deficit (-) of Bangladesh is similar to that of The Gambia, Samoa, Malaysia, Czech Republic, Costa.

In this regard, there are three major ways the government can finance a deficit, raising taxes, borrowing money or printing money. Best way to draw this distinction is again by example. The overall budget deficit was 8.

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4% of GDP during the s and came down to 5. 9% in and thus provided a breathing ground for the government. Up to , the budget deficit could be successfully contained to less than 6%, helping to stabilise the economy to a great extent. 1 Impact of Budget Deficit on Growth: An Empirical Case Study on Bangladesh ASM Shakil Haider Texas Tech University, USA Sabrina Fatema Shaon.

Dhaka, Bangladesh (BBN)– Bangladesh’s overall budget deficit is set to widen by nearly 15 per cent in the next fiscal year (FY) from this fiscal due to meet higher expenditures for both development and revenue of the government.

The budget deficit is estimated to BDT trillion for the upcoming FY 18 from BDT billion of the original budget .

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