The interim government is set to reduce the budget deficit for the next fiscal year of 2025–26 to lower dependency on borrowings and check the double-digit inflation prevailed over the past three years pushing many below the poverty line.
It is likely to bring the deficit down by 4.2 per cent in the FY2025–26 budget, lowest in a decade, said finance ministry officials, highlighting the main aim of the budget deficit reduction, which is to squeeze unnecessary expenditures.
But economists observe that the provisional budget deficit was still high against a backdrop of a less-than-expected revenue regeneration trend over the last one and half a decades.
The planned deficit management would not make any major contribution in checking inflation, said former World Bank Dhaka office chief economist Zahid Hussain.
‘Inflation may drop for other reasons, but not for cutting the budget deficit,’ he added.
The rate of the overall inflation eased in February, but is still 9.34 per cent in the second month of the calendar year.
The country has seen a persistent inflationary pressure over the past three years along with the natural and human-made factors leading to the rise of poverty.
The proportion of poor households increased to 26.43 per cent in 2024 compared with that of 24.73 per cent in 2022, according to a report released by the Bangladesh Institute of Development Studies in the capital on March 24.
The BIDS report also said that the exposure to at least one shock due to natural and human-made factors increased by more than 3 percentage points to 28.63 per cent in 2024 from 25.17 per cent in 2022.
Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development, hoped that a good part of the deficit financing would be utilised for the vulnerable groups.
The social safety net programme should be strengthened to help the vulnerable people to absorb natural and man-made shocks, he said.
Finance ministry officials said that the provisional deficit in the budget for the new financial year of 2025–26 was likely to be four percentage points less than the 4.6 per cent deficit as projected by former finance minister Abul Hassan Mahmood Ali, while announcing the last budget of the Awami League regime in June 2024.
But within the next two months, the AL regime faltered like ninepins in the wake of a student-mass uprising leading to its fall and overthrow of Sheikh Hasina who fled to India on August 5.
The current government, assuming power on August 8, have instructed the Finance Division to maintain a neutral budget deficit for FY2025–26, by which the finance division will maintain the revised budget deficit of the outgoing FY2024–25.
Zahid Hussain observes that the current interim government had the scope to streamline the deficit management by reducing it below 4 per cent of the GDP since it is said to be a non-political government.
But not doing so, the policymakers of the interim government also seem to compromise with the bureaucrats, he notes.
According to finance division officials, the overall budget deficit will be around Tk 2.63 lakh crore against the projected gross domestic product of Tk 63.15 lakh crore for the next fiscal of FY26.
Of the deficit financing, the finance division is likely to take a net loan of Tk 1.53 lakh crore from the local sources and Tk 1.10 lakh crore from the external sources.
The officials said that the net domestic borrowing for the new financial year was likely to be less than the projection of Tk 1.6 lakh crore in the outgoing financial year.
Finance adviser Salehuddin Ahmed who is going to announce the national budget on June 5 in a televised programme in absence of a parliament has already stated that the new budget will be a realistic one.
He also hoped that when an elected government would take over would follow the footprint left by them.
