Assignment

On
Analysis of National Budget

Course Title: Public Finance

Course Code:PFIN-601
Definition of Budget
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.

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

surplus

Balanced Deficit

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,
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 Bangladesh Budget

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.

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.
 National Budget Highlight

(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 (%)

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%
Budget of Fiscal Year 2013-14 at a Glance in Bangladesh

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, for the coming
fiscal year is set at USD 21.53 billion, which is 19.87 per cent -- higher than what was projected
in the original budget for the outgoing fiscal. Of the total projected revenue receipts, 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 of duties. 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 year tenure 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 the targeted
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 setting aside
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, in this
budget proposed an increase by 6.38 per cent in the subsidy allocation for the power sector. 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 as
infrastructure, 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 time period.
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, despite
many 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.

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

Revenue Analysis (2013-14)

Total Revenue Composition (USD 21.53 billion)

Foreign Loans, Foreign Grants,

2.90% 3.20%
Domestic
Fanacing, 15.30%

Non Tax
Revenue,
2.30%
Tax Revenue,
61.20%

Tax Revenue
(Non-NBR),
11.80%
Total Tax Revenue Composition (NBR and Non NBR) (2013-14)

Tax Revenue (Non-

Others, 1.7% Non-Tax Revenue,
Supplementary NBR), 2.3%
Duty, 15.3% 11.8%

Vat, 36.7%
Income Tax,
35.5%

Import Duty,
10.8%
 Revenue Analysis (2012-13)

Total Revenue Composition (USD 17.96 billion)

Foreign Loans, Foreign Grants,

6.50% 3.20%

Domestic
Fanacing,
17.50%

Tax Revenue,
Non Tax Revenue,
58.5%
11.90%

Tax Revenue (Non-

NBR), 2.40%
Total Tax Revenue Composition (NBR and Non NBR) (2012-13)

Tax Revenue (Non-

Others, 1.8% Non-Tax Revenue,
NBR), 2.4%
11.9%

Supplementary
Duty, 17.8%

Income Tax, 31.5% Vat, 36%

Import Duty, 12.9%

 Revenue Analysis (2011-12)

Total Revenue Composition (USD 14.77 billion)

Foreign Loans,
8.00% Foreign Grants,
3.00%

Domestic
Fanacing,
16.60%

Tax Revenue,
56.2% Non Tax Revenue,
13.80%

Tax Revenue (Non-

NBR), 2.40%
Total Tax Revenue Composition (NBR and Non NBR) (2011-12)

Tax Revenue (Non-

NBR), 2.4% Non-Tax Revenue,
13.8%
Supplementary
Duty, 17.7%

Income Tax, 30%

Vat, 37.3%

Import Duty,
113.7%
 Revenue Growth

Revenue Growth
25

20 21.53
Total Revenue(billion)

17.96
15
14.77

10

0
2011-12 2012-13 2013-14
Fiscal Year

The years 2011-12 to 2013-14 also saw the countrys total revenue significantly increase from
14.77 billion in 2011-12 to 21.53 2013-14 representing a 45.77% increase in revenue in 3years.
The growth is largely attributed to significant increases in income tax, equivalent to 50%
increase in collection.

It is however important to observe that although absolute revenue collection increased year on
year, there was a sharp increase in the percentage growth of revenue in FY 2011-12 to FY 2012-
13 21.59% increase. Thereafter there was a reduction of 1.71% in the growth levels to 19.88% in
FY 2013-14. It is also important to highlight that substantial increases in revenue collection have
been observed during periods where tax reform has been effective in enhancing compliance.
 Revenue Portfolio

Revenue Portfolio
100%
13.8 11.9 11.8
90%
80% 60.9 63.5
58.6
70%
Revenue in Billion

60%
50%
Non Tax Revenue
40%
Total Tax Revenue
30%
20%
10%
0%
2011-12 2012-13 2013-14
Fiscal Year

Bangladesh tax contribution to the revenue portfolio between the years 2011/12 2013/14
averaged 61% while non-tax revenue accounted for 13%. The data also indicates an upward
trend in the growth of tax revenue and a declining proportion of contribution to non-tax revenue
between the years 2011/12-2013/14.
 Revenue Estimates

From the pie chart in left side it is evident that, the government has elevated its revenue
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 year revised 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 has-been 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 the estimated 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 been trying 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/legal reforms 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 affect the growth prospect of
the economy. Government will have to mobilize around USD 2.72 billion from external sources,
which is around 22.52% higher than that of the revised target of FY 12-13. Last year the target
had to be revised downward by 34% as the foreign assistance was below expectation

Comments of 2013-14
Budget

Estimate of deficit as percentage of GDP is contingent 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 of Statistics show 6.03 percent real growth in FY13;the budget
statement notes growth rate ranging between 6.3 percent and 6.8 percent. The
justification cited (expected higher production of Boro paddy, potato and corn) is less
than convincing, given that the share of entire crop agriculture including vegetables in
 GDP is only around 10 percent. The share of the above mentioned crops 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. In this situation, mere provision of tax incentives cannot raise net sale of saving
instruments.

Annual Development Programmed (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 be concluded that if the expenditure target for
FY14 Is to be met, there will be a hefty increase in government borrowing from the
banking system over the budget figure of Tk. 25,993 crores with deleterious
consequences for already slowing private sector investment and GDP growth. It should
be noted here that for FY13, targeted bank borrowing has been revised to hit Tk.28, 500
crore against the budget figure of Tk. 23,000 crores.

Conclusion

Revenue performance denotes the relative change in the yield from tax and non-tax sources. It

encompasses changes in rates, bases, and governance of revenue measures. Performance is said

to be satisfactory if the given revenue sources provide increasing revenue year after year.

Although the magnitude of revenue depends on the performance of each source, the structure of

direct and indirect taxes also affects the overall performance. It also depends on how best the

potential revenue bases have been tapped through a countrys effort to raise revenue.