The current Bangladesh Economic Update reveals that fall in growth in collection of revenue, rising per capita debt burden and shrinking public sector investment may contract expansion of gross domestic product (GDP).

1. Growth trENDS aND FiScal Policy oF
BaNGlaDESh
Nashid Reza

2. INTRODUCTION
The current Bangladesh Economic Update reveals that fall in
growth in collection of revenue, rising per capita debt burden and
shrinking public sector investment may contract expansion of gross
domestic product (GDP). the Update probes into the matter of
increased deficit in the budget of the government leading to
slimming down of private investment on the one hand and
retrenchment of development expenditure on the other hand,
since the government borrows from abroad to finance deficit and
has to repay the loan with large amount of interest payment that
increases non-development expenditure and causes government
to reduce its development expenditure.
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3. Salient Features of Bangladesh’s CurrentSalient Features of Bangladesh’s Current
Fiscal ScenarioFiscal Scenario
Salient Features of Tax System
Notwithstanding the various fiscal reforms of the recent past, Bangladesh
fiscal system continues to suffer from a number of major weaknesses:
 Low Level of Revenue Mobilisation
 Regressive Nature of Taxation
 High Tax Incidence
 Low Tax Base
 High Degree of Tax Evasion
 Limited Administrative Capacity
 Resource Constraints (Human and Logistics)
 Centralised Taxation System
 Cumbersome Legal Procedures
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4. Growth Trends and Revenue Structure ofGrowth Trends and Revenue Structure of
BangladeshBangladesh
 Over the past years total revenue and tax receipts as % of Bangladesh GDP have
increased – from 6.5% and 5.5% respectively in FY1982 to 11.2% and 9.4%
respectively in FY2010
 Tax receipts roughly generate four-fifth of total revenue
 National Board of Revenue (NBR) is the apex tax authority of the government
which is entrusted to mobilise tax revenue
 Average annual growth of total tax revenue for FY1982-1991 period was 13.77%; it
came down to 11.8% during FY1992-2001. However, average annual growth picked
up between FY2002-2010 and was 14.21%
Revenue and Tax Revenue as % of GDP
However, tax-GDP ratio is still significantly low when compared to other
countries (average tax revenue as % of GDP in South Asian countries is
about 12%)
4
Fiscal Year Revenue as % of GDP Tax Revenue as % of GDP Fiscal Year
1982 6.48 5.47 1982
1992 8.21 6.61 1992
2002 9.48 7.80 2002
2010 11.22 9.37 2010

5. What is Fiscal Policy?
 Fiscal Policy is the decision of
the government about:
How to earn revenue and gather
resources from various sources
For what to spend those earnings and
resources
How much to spend and
When to spend
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6. There are two sides of fiscal
policy
6

7. Earnings:
Revenue and Resources
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8. Why does the government need
revenue?
 To maintain its daily activities, i.e. to run the government
 To ensure protection for the helpless
 To provide necessary services to people that otherwise
nobody would provide (Market failure)
 To ensure development of the country
 To build buffer against risk!
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9. Where does the revenue come
from?
Tax revenue
Direct: income tax, wealth tax etc.
Indirect: VAT, tariff, excise duty etc.
Non-Tax revenue
Fees & charges: registration, sales of
forms, stamps etc.
Fines: mobile court fines, police fines
etc.
Printing of money
9

10. Where does the government keep its
revenue?
 The government’s account is maintained by the
Treasury which is located at Bangladesh Bank
 The “account” in which all these revenues are
deposited is called the “Consolidated Fund”
 Consolidated Fund was created under Article 84
of our constitution
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11. Resources from other sources
Grants
Loans from
Domestic sources
Treasury bills/bonds
savings schemes
borrowing from the banks
Foreign sources
Bilateral
Multilateral
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12. Revenue trend in
Bangladesh
 Revenue as percent of GDP is increasing
 Around 80 percent of public revenue in Bangladesh
is derived from tax sources.
12

13. Revenue trend in Bangladesh
(crore Bangladeshi taka)
13
FY
98-99
FY
99-00
FY
00-01
FY
01-02
FY
02-03
FY
03-04
FY
04-05
FY
05-06
FY
06-07
FY
07-08
FY
08-09
Total Revenue 19767 20074 24342 24893 31120 35400 39200 44868 49472 60539 69382
Tax Revenue 16167 16079 19778 21332 24950 28300 31950 36175 39247 48012 56789
Non-Tax
Revenue
3600 3995 4564 3561 6170 7100 7250 8693 10225 12527 12593
As percentage of GDP
Total Revenue 9.00 8.47 9.60 10.21 10.35 10.63 10.58 10.79 10.59 11.17 11.31
Tax Revenue 7.36 6.78 7.80 7.81 8.30 8.50 8.62 8.70 8.40 8.86 9.25
Non-Tax
Revenue
1.64 1.69 1.80 2.40 2.05 2.13 1.96 2.09 2.19 2.31 2.05

14. Spending
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15. How does spending help? Theoretical
framework
 How much spending will affect depends on two
factors-
 The multiplier effect and
 The crowding-out effect
 The multiplier effect denotes that a certain amount of
spending will have bigger impact than the size of the
spending.
 The crowding-out effect arises out of a mechanism
that offsets the increase in AD.
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16. How does spending help?
If the government wants to increase GDP…
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17. How does spending help?
If the government wants to check
inflation…
17

18. For what to spend?
Through spending the government tries to affect:
 Macroeconomic stabilization
 Equity: horizontal and vertical
 Efficiency in resource allocation:
 Provision of public goods
 Check market failure
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19. Macroeconomic
Stabilization
 To stabilize price
 To raise growth rate
 To raise employment level
 To reduce deficit
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20. Equity
 Inequality prevails in all societies.
 Government tries to reduce the gap between the
rich and the poor
 For this, the government collects taxes from the rich
and spends it for the poor
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21. Efficiency of resource
allocation
 Private entrepreneurs may not be interested in
investments where return of investment is not good for
him but good for the country
 In this case, the government may step ahead and supply
resources for such investments
 Example: building roads and highways, Public-Private
Partnership (PPP)
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22. Is government spending always
good?
 Government spending is necessary to keep the
economy on track.
 However, if the spending is not in line with the
economic objective then it may be detrimental
 Example: Suppose a country is facing high inflation.
Price is increasing very rapidly. But as the national
election is close the government decides to spend
more on social safety net programs and development
activities to win popularity. What will be its impact on
the economy?
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23. Public Expenditure: Types
 Government spending may be broadly classified into two
categories-
Revenue expenditure
Development expenditure
 Revenue expenditure mainly includes government employees
salary, benefits and establishment costs.
 Development expenditure mainly includes money spent on
development activities.
 Is revenue expenditure good or bad?
23

24. In which way public expenditure
of Bangladesh moving?
 The government spends huge amounts of money on
 building socio-economic and
physical infrastructure
 human resource development and
 poverty alleviation.
 Besides, the government has to incur expenditure for:
 Administrative
 welfare and
 other service oriented activities.
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25. Recent trend of public
expenditure in Bangladesh
25
FY
98-99
FY
99-00
FY
00-01
FY
01-02
FY
02-03
FY
03-04
FY
04-05
FY
05-06
FY
06-07
FY
07-08
FY 08-09
(up to
February)
Public Exp (a+b) 29779 34464 37399 40757 42075 47184 53903 59030 66836 93608 99962
a) Rev Exp 17454 19243 21498 25707 26804 30367 35132 39557 48920 71108 74362
b) Dev Exp 12325 15221 15901 15050 15271 16817 18771 19473 17916 22500 25600
Percentage of GDP
Public Exp (a+b) 13.55 14.54 14.75 14.92 14 14.17 14.54 14.2 14.3 17.27 16.29
a) Rev Exp 7.94 8.12 8.48 9.41 8.92 9.12 9.48 9.52 10.47 13.12 12.12
b) Dev Exp 5.61 6.42 6.27 5.51 5.08 5.05 5.06 4.68 3.83 4.15 4.17

26. Recent trend of public
expenditure
% of GDP
26

27. Economic structure of revenue
expenditure
% share of major economic categories
27
Particulars FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 FY 08-09 (up to February)
Pay and allowances 27.87 26.29 27.64 29.39 26.88 26.68
Pay of officers 2.69 2.58 2.87 2.62 2.38 2.32
Pay of staff 11.33 10.91 13.52 12.57 11.48 10.41
Allowances 13.85 12.80 11.25 14.20 13.02 13.94
Goods and services 17.19 17.39 16.93 14.35 14.84 9.69
Supply and services 11.66 10.64 10.46 9.84 9.71 7.92
Repair and maintenance 5.53 6.75 6.47 4.51 5.13 1.77
Payment of interest 20.58 19.51 20.61 20.89 21.46 27.63
Domestic 17.05 15.91 17.06 17.92 18.83 24.89
Foreign 3.53 3.60 3.55 2.97 2.63 2.74
Subsidies and current transfers 28.83 31.32 30.24 32.59 33.17 34.26
Subsidies 4.75 6.47 4.72 7.24 8.35 8.99
Grants-in-aid 17.25 18.45 19.40 18.59 18.59 18.51
Subscription to the international
organizations
0.08 0.08 0.08 0.08 0.08 0.03
Write-off of loan advances 0.00 0.00 0.00 0.00 0.01 0.001
Pension and gratuity 6.75 6.32 6.04 6.68 6.14 6.72
Block 1.55 1.90 1.70 1.39 2.83 0.54
Unexpected 0.70 0.51 0.14 0.57 1.59 0.03
Other 0.85 1.39 1.56 0.82 1.24 0.51
Procurement of assets & public works 5.58 5.20 4.95 3.82 3.73 1.2
Procurement of assets 4.36 4.03 3.93 3.15 3.18 0.66
Purchase of land 0.03 0.14 0.07 0.12 0.08 0.25
Construction and works 1.19 1.03 0.95 0.55 0.47 0.25
Gross total 101.60 101.61 102.07 102.43 102.91 100.00
Deduction recovery 1.60 1.61 2.07 2.43 2.91 0.001
Total- Non-development revenue
expenditure
100.00 100.00 100.00 100.00 100.00 100.00

28. Is the government fulfilling its
welfare commitment?
 Public Expenditure By Social Sectors:
The Social Sectors are getting increasing
prominence day by day
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29. Annual Development Program
expenditure for social sectors
(crore taka)
29
Sector FY
98-99
FY
99-00
FY
00-01
FY
01-02
FY
02-03
FY
03-04
FY
04-05
FY
05-06
FY
06-07
FY
07-08
FY
08-09
Education & Religion 1776 2014 2274 2171 2591 2342 2110 2865 2930 3030 3519
Sports and Culture 52 85 113 79 91 117 110 167 96 97 132
Health & Family
Welfare
1256 1469 1616 1443 1542 1948 1468 2151 2403 2442 2585
Labor & Manpower 9 14 18 18 27 42 72 88 70 105 113
Social Welfare,
Women & Youth Dev
169 180 189 173 220 183 186 196 160 140 334
Sub-total (1+2+3+4+5) 3262 3762 4210 3884 4471 4632 3946 5467 5659 5814 6683
As % of Total ADP Exp
(6/8*100)
23.30 22.80 23.13 24.28 26.15 24.38 19.25 25.43 26.20 25.84 26.11
Total ADP Allocation 14000 16500 18200 16000 17100 19000 20500 21500 21600 22500 25600

30. Revenue expenditure for
social sector
(crore taka)
30
Sector FY 98-99 FY
99-00
FY
00-01
FY
01-02
FY
02-03
FY
03-04
FY
04-05
FY
05-06
FY
06-07
FY
07-08
FY
08-09
Education & Religion 2988 3279 3700 3842 4086 4628 5245 6508 8085 8717 9664
Health & Family
Planning
887 972 1099 1286 1334 1497 1803 2065 2682 2898 3441
Youth, Sports & Cultural
Affairs
55 73 67 71 84 140 140 184 205 185 195
Labor & Manpower 28 31 35 36 42 41 45 46 58 70 70
Social Welfare &
Women Affairs
141 177 203 229 283 455 895 1067 1250 1778 2134
Sub-total
(9+10+11+12+13)
4099 4532 5104 5464 5829 6761 8128 9870 12280 13648 15504
As % of Total Rev Exp
(14/19*100)
24.45 24.57 24.70 24.08 23.03 23.81 23.45 25.93 27.04 23.56 24.31
Total (ADP+Rev) (6+14) 7361 8294 9314 9348 10300 11393 12074 15337 17939 19462 22187
As % of total Pub Exp
(16/(8+19)*100)
23.93 23.74 23.97 24.16 24.29 24.04 21.89 25.75 26.77 24.20 24.83
As % of GDP
(16/20*100)
3.35 3.50 3.67 3.42 3.43 3.42 3.26 3.69 3.80 3.59 3.62
Total Revenue Allocation 16765 18444 20662 22692 25307 28390 34664 38070 45412 57922 63764
GDP at Market Prices 219697 237086 253546 273201 300580 332973 370707 415728 472477 541919 613640

31. What is the balance in the government’s
pocket?
 If revenue earning is higher than expenditure, the
government has surplus
 If revenue earning is lower than expenditure, the
government faces deficit
 In Bangladesh the government maintains a deficit
budget
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32. How the deficit is met
 Deficit means that spending is more than earning
 Therefore, additional money is needed for filling out the
gap between spending and earning
 This additional money is called “financing”
 Financing may be either from domestic or foreign sources
 From foreign sources financing may come as bilateral or
multilateral loans
 Financing from domestic sources comes from borrowing
from banks, issuance of savings schemes and bonds… and
if needed from printing money.
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33. Trend of deficit financing
in Bangladesh
33

34. Implications of budget
deficit
 High budget deficit means government is spending more
than its ability
 And in doing so it is borrowing from various sources
 If the borrowing comes from domestic sources it means
less money is available for the private sector. This may
hinder private sector development initiatives.
 If the borrowing comes from foreign sources it means the
country is exposed to foreign currency risk (for example-
speculative attack, current account deficit)
 Increased amount of borrowing increases interest rate
and, therefore, debt liabilities. High interest rate may make
debt unsustainable. In such cases, the country will be
exposed to financial crisis. Recent example is Greece.
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35. To minimize the budget deficit
Reforms of Tax Administration is
must
Reforms aimed at strengthening tax administration and
improving taxpayer services will continue to focus on the
following measures:
 Improve monitoring of tax collection and the
impact of measures to expand the tax net
 De-link tax collection from tax officials by allowing
payment through banks and/or online rather than
through tax offices
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36. Reforms of Tax Administration
(Continue)
 Improve procedures for ensuring timely deposit of tax revenues at the point of
collection
 Establish a special tribunal to prioritise resolution of long-standing tax payment cases
 Improve publicity and information to encourage individuals and firms to register and
pay tax
 Undertake action to fill vacant positions in NBR (currently 8,000), improve on-the-job
training and undertake other capacity building measures
 Develop one-stop service centres to provide information and advice to taxpayers and
create a more positive tax compliant environment
 Further simplify tax forms and improve tax payment procedures such as payment
through mobile phones
 Implement an integrated automation strategy covering taxpayer submissions,
assessment, permissions and approvals, and payments
 Make all rules, regulations, SROs, notices and other orders available on the NBR website
immediately after they had been issued
 Introduce e-governance and online tax payment systems
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37. CONCLUSIONS
The gap between revenue collection and expenditure is getting wide over
the years and also projects that the gap will be wider in the upcoming fiscal
year. Falling revenue has been resulting in rising per capita debt burden,
increasing pressure on the ability of the government to carry out regular as
well as developmental projects, and crowding out of private investment. The
slow growth rate in revenue collection has also been exposing the country to
external terms and conditions in implementing its domestic economic policy.
Additionally, regressive nature of the tax system has diminished the capacity
of the state to raise revenue while putting pressure on the marginalised.
The collection of tax is significantly lower for a number of reasons. The
country has a narrow tax base. There exist wide opportunities of evading and
avoiding tax. Finally, structural weaknesses of the economy, have added
further difficulties to tax collection. For example, more than 69 percent of
total tax comes from indirect sources in Bangladesh. Therefore, strengthening
of regulatory policy along with structural reforms, and innovation in the tax
system is the requirement of time.
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38. Thank you
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