Assignment

On
Analysis of National Budget for FY2013-14
Course Title: Public Finance
Course Code: F-301

Submitted To
Soma Rani Sutradhar

Lecturer

Dept. of Economics

Submitted By
ID: 11132603
11132614
11132617
11132618
11132629
11132631
11132656
11132660

Session: 2010-2011
Finance & Banking

Jatiya Kabi Kazi Nazrul Islam University

Trishal, Mymensingh.

Submission Date: 5thDecember 2013

Name of group Members

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Serial Name ID Number
No.
01 Pankaze Pada Bhoumik 11132603
02 Niger Sultana Nipa 11132614
03 Sabbir Ahamed 11132617
04 Sultan Mahmud 11132618
05 Md. Abdur Rouf Miah 11132629
06 Md. Anisur Rahman 11132631
07 Shakibul Alam 11132656
08 Kamrunnahar Eva 11132660

Table of Contents
Table of contents...03
Definition of Budget..04

Overview of the Budget of Bangladesh 04

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Types of Budget05
Idea of Budget in Bangladesh..06
Some Characteristics of Budget in Bangladesh.07
Budget of Fiscal Year 2013-14 at a Glance.08
National Budget Highlights..09

Receipts in Bangladesh Budget11

Expenditure and Deficit Analysis14

Sectoral Implications16

Comments of 2013-14 Budget......18

Concluding Observations.19
References..19

Definition of Budget
A budget is a financial document used to project future revenue and expenditure. The budgeting
process may be carried out by individuals or by companies or by government to estimate whether
the person/company/state can continue to operate with its projected revenue and expenses.
A government budget is a legal document that is often passed by the legislature, and approved by
the chief executive or president. For example, only certain types of revenue may be imposed and
collected. Property tax is frequently the basis for municipal and county revenues, while sales tax
and income tax are the basis for state revenues, and income tax and corporate tax are the basis for
national revenues.

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 Overview of the Budget of Bangladesh

Government 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. Constitutionally, Bangladesh uses the term
'Annual Financial Statement', which shows the estimated receipts and expenditures of the
government for a particular financial year. In accordance with the Constitutional provisions in the
country, the budget is divided into Consolidated Fund (CF) and Public Account (PA) of the
Republic.
Consolidated Fund includes all receipts of the government, all loans and grants received from
domestic and foreign sources and the recoveries of loans and interest thereon. All disbursements
for both revenue and development heads are made from the CF. On the other hand, receipts in PA
represent that part of the exchequer, which do not constitute the Consolidated Fund. These relate
mostly to transactions, in which the government acts as custodian or banker in trust. These
receipts include provident funds of government employees, post office savings deposits, various
deposit accounts (local funds, judicial deposits, foreign aid deposits etc.),and adjusting heads like
suspense and remittances.
The Consolidated Funds and the Public Accounts are not in practicality separate entities but are
distinguished by differences in receipts and disbursements. The transactions in both heads
represent inflows and outflows of funds from a single corpus known as the 'exchequer'. The
overall balance of the budget, its surplus or deficit, is represented by the difference between total
receipts and expenditures of the CF and the PA together.

Types of Budget
B
S
u
d
r
g
p
e
l
t
u
s
Surplus Budget:Surplus budget refers to situation where the government revenue is
greater than the government expenditure. This type of budget is not found in Bangladesh.
Surplus budget can be calculated with the following method-

BS = (TR TE) > 0

Where,
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 BS = Surplus budget
TR = Total revenue
TE = Total expenditure

Balanced Budget:Balanced budget refers to situation where the government revenue is

equal to government expenditure.
Balanced budget can be calculated with the following method-
BB = (TR TE) = 0
Where,
BB = Balanced Budget

Deficit Budget:Deficit refers to situation where the government revenue is lower than
government expenditure. Generally deficit budget can be balanced with the help of
creating new finance, attributing excess tax, taking loan from World Bank or internally
financing.
Deficit budget can be calculated with the following method-
BD = (TR TE) <0
Where,
BD = Deficit budget

Idea of Budget in Bangladesh

The government budget of Bangladesh is based on the deficit budgeting process. The budget is
prepared for a fiscal year. The budget is implemented yearly by the government of Bangladesh.
As a developing country Bangladesh always faces on resource scarcity since its developing
sector is greater than that of its resource. The people of Bangladesh are not financially well off
because their lower income level. The tax revenue is collected from the people not sufficient to
afford government expenditure. As a result Bangladesh has to depend on the foreign loan with a
certain rate of interest. The government wants to perform the optimal utilization of required
resource. The revenue is under the budget should be increased in proportion to required
expenditure. That is why Bangladesh is on the way of deficit budget to maintain the fiscal year.

The Government Budget in the country has two parts: Revenue and Development. The former is
concerned with current revenues and expenditures i.e., maintenance of normal priority and
essential services, while the latter is prepared for development activities. Formulation of the two
budgets follows different procedures. 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 and the agency to prepare the Development budget is the Planning
Commission.

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 Some Characteristics of Budget in Bangladesh

It is effective during a financial year starting from July 1 and ending on June 30, next year
Budget is divided into Revenue Budget, Capital Budget and Development Budget;
The government budgeting is done on a cash basis. Both receipts and expenditures are shown
in cash terms;
Foreign loans are reflected on a gross receipt basis showing total disbursement;
Budget is prepared on incremental basis, on the basis of upward adjustment of expenditure as
against performance budgeting.

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 Budget of Fiscal Year 2013-14 at a Glance

The projected national budget expenditure for FY 2013-14 stands at USD 28.61 billion,17.49%
more than the revised budget for last the fiscal year. The total revenue target, forthe coming fiscal
year is set at USD 21.53 billion, which is 19.87 per cent -- higher than whatwas projected in the
original budget for the outgoing fiscal. Of the total projected revenuereceipts, USD 17.50 billion
will be collected by National Board of Revenue (NBR), USD 3.37billion will come as non-tax
revenues and the rest USD .66 billion, from non-NBR portion ofduties. In 2009, the revenue-
GDP ratio was 10.78 percent and the tax-GDP ratio was 8.98percent. At present, the revenue-
GDP has grown to 12.84 percent and the tax-GDP ratio to10.80 percent. In FY 2013-14 the
revenue GDP ratio will be 13.5 percent. During four yeartenure of this govt., revenue has been
doubled and average annual growth of revenue is24.94 percent.
In this budget, the Gross Domestic Product (GDP) is projected to grow at 7.20% and thetargeted
Inflation is expected at 7.0 %. The total ADP size is USD 8.47 billion, which is 25.66%higher
than that of previous year (According to revised budget-2012- 13). In the ADP, 23.0%allocated to
human resource sector, 25.4% to agriculture & rural development sector, 17.2%power and energy
sector and 23.1% to communication sector.
The government in its budget proposal for the 2014 financial year recommended settingaside
USD 2,887.46 million in subsidy in the energy, power and agriculture sectors, and 30.7 percent
less than the figure of subsidy on the sectors in the outgoing financial year. However, inthis
budget proposed an increase by 6.38 per cent in the subsidy allocation for the powersector. The
government spent USD 4,167.20 mn on subsidy in the three sectors in outgoing2013 financial
year.
We hope govt. will give more focus on improved power and energy situation as well
asinfrastructure, which will boost growth. A total power generation of over 14,500 MW by
2015is welcome news. Setting up of over 54 new power plants is installed during 4 years
timeperiod. At the same time, per capita electricity production has increased from 220 kwh to
292kwh which is quite impressive.
The budget appears to be comparatively pragmatic. For the first time in Bangladesh, despitemany
odds, it seems that Bangladesh is going to find improved power and energy situation.If
corruption could be contained, Bangladesh would definitely go ahead with this budget.

National Budget Highlight

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(Figure in USD billion) 2011-2012 2012-2013R 2013-2014P
Size of Total Budget 20.73 24.35 28.61
Total Revenue Earnings 14.77 17.96 21.53
NBR Tax Revenue 11.88 14.43 17.50
Non NBR Tax Revenue 0.50 0.59 0.66
Non Tax Revenue 2.39 2.94 3.37
Public Expenditure 20.73 24.35 28.61
Non Development Program 11.81 13.23 14.59
Development Program 5.87 7.42 9.29
Size of ADP 5.28 6.74 8.74
Other Expenditure 3.05 3.70 4.73
Budget Deficit 5.96 6.39 7.08
Budget Deficit as of GDP 5.1% 4.8% 4.6%
Deficit Financing(Domestic) 4.43 4.17 4.36
Bank Borrowing 3.74 3.66 3.34
Non Bank Borrowing 0.69 0.51 1.02
Deficit Borrowing(Foreign) 1.53 2.22 2.72
GDP Size 117.65 133.50 152.90
Budget as %of GDP 17.62% 18.24% 18.71%

Resource coming from Contribution (%)

Tax Revenue (NBR) 61.20%
Non-Tax Revenue 11.80%
Tax Revenue(Non- NBR) 2.30%
Domestic Financing 15.30%
Foreign Loan 2.90%
Foreign Grants 3.20%

Sources of Deficit Financing Contribution (%)

Bank Borrowing (Net) 47.18%
Foreign Financing (Net) 38.42%
Non Bank Borrowing (Net) 14.41%

Comparison with the Revised Budget Change (%)

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Growth in Budget size 17.49%
Growth in Target Revenue 19.88%
Growth in Budget Deficit 10.80%
Growth in Bank Borrowing -8.74%
Growth in Foreign Borrowing 22.52%

Receipts in Bangladesh Budget

Receipts in revenue budget consists of domestic receipts (tax and non-tax); foreign grants; capital
receipts (foreign loans); domestic capital (net of current receipts and expenditures in public
accounts); extra-budgetary resources (debenture of autonomous bodies, their self-financing and
accumulated balance, and materials at stock); and domestic loans and advances (net).
Receipts in development budget are grouped as public and private receipts. Public receipts are
the revenue surplus from revenue budget (revenue receipts minus revenue expenditures),
incomes through new measures (such as new taxes), net domestic capital, and extra budgetary
resources. A special form of public receipts is the foreign aid (project aid, counterpart fund from
commodity aid and net food aid). Receipts under the private head for development budget are

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generated through direct private investment, borrowing from banking system and foreign private
investment.

Revenue Analysis

Total Revenue Composition (USD 21.53 million)

Foreign Loans; 3%
Foreign Grants; 3%
Domestic Fanacing; 16%

Non Tax Revenue; 2%

Tax Revenue; 63% Tax Revenue (Non-NBR); 12%

Total Tax Revenue Composition (NBR and Non NBR)

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 Others; 1.7 Tax Revenue (Non-NBR); 2.3
Supplementary Duty; 15.3 Non-Tax Revenue; 11.8

Vat; 36.7
Income Tax; 35.5

Import Duty; 10.8

Revenue Estimates

From the pie chart in left side it is evident that, the government has elevated itsrevenue
generation target to USD 21.53 billion, a rise from USD 3.57 billion of the FY 12-13revised
budget. It has been increased by 19.87% from the previous financial yearrevised budget. In FY
2013-14 original budget the target for NBR Tax revenue mobilization was USD17.50 billion
(11.44 percent of GDP). In the revised budget, total revenue target hasbeen scaled up to USD
21.53 billion (14.08 percent of GDP). Therefore, this years21.27% increase of NBR Tax
Revenue target seems to be reasonable and again theestimated 13.5% revenue to GDP ratio is
still very low. Our Tax-GDP ratio (around10.8 percent) still lags behind many developing
countries. Government has beentrying to raise this by bringing reforms in NBR (National Board
of Revenue). In fact,the (NBR) has undertaken extensive actions particularly in two areas,
policy/legalreforms and tax administration. The target is to raise Tax-GDP ratio to 13 percent
by2016.To alleviate the mismatch in income and expenditure, a moderate deficit of USD
7.08billion is expected which is 4.6% of the GDP. Out of which domestic source will finance62%
and external source will finance 38%. Out of domestic source, Govt. will borrow USD 3.34
billion from the banking system, which is an 8.74% lower from the revised budget FY12-13 and
USD 1.02 billion will come from non banking source.
Governments lower borrowing target from local sources and lower bank rate may increase the
credit flow to the private sector. If that happens, it will positively affectthe growth prospect of the
economy.Government will have to mobilize around USD 2.72 billion from external sources,
which isaround 22.52% higher than that of the revised target of FY 12-13. Last year thetarget had
to be revised downward by 34% as the foreign assistance was belowexpectation. So this year it
will be challenging. Finance Minister AMA Muhith has proposed to increase the threshold of tax
freeincome for individual taxpayers from BDT 200,000 to BDT 2,20,000. FM came upwith the

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proposals considering the issues of prevailing inflation, increasing livingexpenses and the
necessity of reducing tax liability of marginal taxpayers.

Expenditure and Deficit Analysis

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 Industrial Services; 1% Miscellaneous Expense; 8%
Recreation; 1% Education & ICT; 12%
SocialHousing;
Welfare;1%
6% Interest; 13%

Public Order; 5%
Public Administration; 14% Transportation & Communication; 9%
Local Govt.; 7%
Defense; 7% Energy & Power; 5%
Agriculture; 8% Health; 4%

Expenditure Estimates

In the budget of FY 13-14, the total expenditure has been estimated at USD 28.61 bn. This is
18.71% of GDP and 17.49% higher than the revised allocation for FY12-13. Of them, Public
Administration has got the highest preference (14.40%). Besides interest payment also got
12.50% and Education & Information Technology got11.70% respectively.Total development
expenditure of this budget FY 2012-13 is USD 9.29 billion, of which ADP is USD 8.47 bn. It has
been increased by 25% from the revised budget 12-13. Itis the ever biggest ADP in our history.
The allocation of 23.90% in communication sector and 16.80 % on Energy & Power sector
signals governments intention ofinfrastructural development, which helps to achieve investment
to GDP ratio above 30% in upcoming years. The Padma Bridge alone got an allocation of USD
881.28 million,out of USD 900.32 million given to the bridges division, in 2013-14 fiscal years.
The construction of the bridge is expected to begin later this year.But such big a program will be
tough to implement as we observed a very poor ADP implementation rate last year. ADP had to
be cut down by BDT 30 billion
Budget Deficit Estimates

Budget deficit has been estimated to be USD 7.08 billion (4.6% of GDP) in comparison to USD
6.39 billion (4.8% of GDP) revised target for 2012-13.Out of this deficit USD 2.72 billion will be
financed from external sources. In 2012-13 target for borrowing from external sector was USD
2.22 bn. The borrowing target is 23% higher compared to revised budget FY- 2012-13. Domestic
borrowing target is USD 4.36 billion. Out of this USD 3.34 billion will be raised from banking

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sector which was USD 3.66 billion in the revised budget for 2012-13. So thetarget is to reduce
bank borrowing by 8.74% which indicated credit growth.

Sectoral Implications
37.7

Sectors Positively Affected

Telecommunication: Corporate tax rate on publicly traded mobile phone company increased to
40% from existing 35%. This is discouraging for GP, the only listedmobile company in
Bangladesh capital market. This will reduce profitability as pass through to users is not possible
at current situation. Moreover, import tax on SIMcard has been reduced to 20% from 30%, which
may increase the profitability when GP got 3G license.
Positive & Negative Impact: GP

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Pharmaceutical: 5% custom duty has been introduced on Azithromycin, Erythromycin and
Erythromycin Stearate. This will raise COGS for Pharmaceutical companiesusing these APIs. On
the other hand, it is beneficial for domestic API producer as it will increase his product's price
competitiveness. Moreover, Cartridge filter import byVAT registered pharmaceuticals companies
has been reduced to 5% from existing 12%.
Positive Impact: Active Fine

Construction: The govt. proposed to impose 15% VAT instead of the existing specific duty of
BDT 2500 per Ton from imported billets. This will put billet producers infavorable position as it
will increase cost of imported billet. The Finance Bill spells out a special provision for
whitening black money through real estate investment whichthe Finance Minister gave only a
passing mention during his budget presentation meanwhile whitening black money through
invest in capital market also continuedupcoming fiscal year. This decision may have a positive
consequence on cement and engineering sector stocks.
Positive Impact: BSRM Steel, GPH ISPAT & Cement Sector Stocks

Textile Sector: Import Duty on tow is totally waved which was 5% earlier. Some Acrylic Yarn
using producing mills use this tow as raw material. This decisiondecreases their cost of
producing Acrylic Yarn and enhances price competitiveness.
Positive Impact: RN Spinning Mills Ltd.

Power & Energy: 14,500 MW of electricity generation has been planned within 2015. Govt. has
withdrawn the ban on gas connections for domesticconsumers. Increased electricity generation
will facilitate industrial development. Also, power distribution and transformation companies like
DESCO, Power Grid mayexperience volume growth due to the increased electricity generation.
Increased supply of natural gas would positively affect top line earnings of value chain
companieslike Titas Gas.
Positive Impact: Power Grid, Desco & Titas

Real Estate: The Finance Bill spells out a special provision for whitening black money through
real estate investment which the Finance Minister gave only a passingmention during his budget
presentation. As government have withdrawn the ban on gas connections for domestic consumers
real estate sector and NBFI who givingloans for housing purpose may come back strongly after
two year slowness of industries.
Positive Impact: EHL, NHFIL, DBH.

Food & Allied: Publicly traded cigarette manufacturing company tax rate has been increased
from 35% to 40%. Meanwhile, it is proposed to enhance the existingvalue slabs of cigarettes
from premium to lower segment 21.21%, 19.32%, 13.13% and 15.70% respectively. It will
increase the VAT expense of cigarettemanufacturing company. As it is a apparent from historical
tredn BATBC, the only listed cigarette manufacturing company in our market will raise its
cigarette price tonullify the tax & vat effect, as cigarette demand seen to inelastic to price it may
have a positive impact on BATBC.
Positive & Negative Impact: BATBC
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 Sectors Negatively Affected

Banking Sector: The target of Government borrowing from the banking system has been set for
the next fiscal USD 3.34 billion. Private sector will be crowded out if thegovernment depends
largely on banks. Also, present calm money market may tight due to government dependency on
the sector.

Comments of 2013-14 Budget

Estimate of deficit as percentage of GDP iscontingent on the level of deficit as well as

GDP.The basis of estimate of the level of GDP is unclear. Preliminary estimates of
Bangladesh Bureau ofStatistics show 6.03 percent real growth in FY13;the budget
statement notes growth rate rangingbetween 6.3 percent and 6.8 percent. Thejustification
cited (expected higher production ofBoro paddy, potato and corn) is less thanconvincing,
given that the share of entire cropagriculture including vegetables in GDP is onlyaround 10
percent. The share of the abovementionedcrops is unlikely to be higher than 6-7percent. It
is not clear what rate of GDP growth has amounting to Tk. 4,971 corer despite some tax
incentives provided in the budget. The actual net sale in the first ten months of the current
fiscal year was only Tk.679 corers. In this context, it may be observed that the saving
capacity of many people has declined due to persistently high inflation over the past few
years. This is also reflected in the slower growth of bank deposits. Inthis situation, mere
provision of tax incentives cannot raise net sale of saving instruments.

Annual Development Programme (ADP) allocation for FY14 excluding Padma Bridge
amounts to Tk. 59,018 corers. Here again, the immediate past experience with respect to
implementation capacity has to be taken into account. For example, the budget provision
for FY12 was Tk. 46,000; the eventual implementation was Tk37, 508 corers. This is very
much consistent with my prediction (see my paper in the The Daily Star dated 14 June
2012) wherein I stated that actual ADP implementation would be in the range of Tk.
36,000 to 37,000 crores in FY12.

In light of the above discussion it can beconcluded that if the expenditure target for FY14
isto be met, there will be a hefty increase ingovernment borrowing from the banking
systemover the budget figure of Tk. 25,993 crores withdeleterious consequences for
already slowingprivate sector investment and GDP growth. Itshould be noted here that for

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 FY13, targeted bankborrowing has been revised to hit Tk.28, 500 croreagainst the budget
figure of Tk. 23,000 crores.

Concluding Observations

As we are the student of finance we understand and sympathize with theGovernments desire to
increase revenue andexpenditure as proportions of GDP. However, thequantitative targets of
FY14 do not seem to beanchored on experiences of the recent past and theupcoming politico-
economic scenario. Sectoralexpenditure allocations do not conform to generallyagreed priorities
and some of the tax proposals areof dubious merit.

References
1.www.cpd.org.bd
2. www.unnayan.com
3. www.thedailystar.net
4. www.fe-bd.com
5. An analysis of national budget of City Brokerage