40 percent of revenue budget to be spent on loan interest, salaries in FY 2016-17

More than one third of the proposed revenue expenditure in the new national budget will be spent on salaries and bonuses of civil servants and in paying interest on loans.

Finance Minister AMA Muhith presented a Tk 3.41 trillion budget for the 2016-17 financial year in Parliament on Jun 2.

The size of the revenue budget, which consists of the government’s revenue receipts and its expenditure, is more than Tk 2.28 trillion.

Of that, nearly Tk 400 billion or 17 percent will be spent on loan interest payments and Tk 507.75 billion or 23 percent on salaries and allowances of government employees.

These two segments will take up Tk 907.26 billion or 40 percent of the total revenue budget.

Salaries and allowances of the civil servants nearly doubled in the Eighth National Pay Scale. They started getting the new salaries from December last year.

The new rates of allowances will be added with that from this July, which has led Muhith to allocate more in this sector than the amount in the last budget.

Additionally, sales of national savings certificates, considered as the safest investment instrument, have shot up, as many are investing in it following the slumps in the share market and interest rates in bank deposits.

In the national budget for the outgoing FY 2015-16, allocation for loan interest payments was Tk 351.09 billion. It was later revised down to Tk 316.69 billion.

In the new budget, the finance minister has proposed allocating Tk 399.51 billion for this purpose. Of that, Tk 382.40 billion will be spent on paying domestic loans’ interest and Tk 17.11 billion on foreign loans’ interest.

Reaction: Zaid Bakht

Research Director, Bangladesh Institute of Development Studies (BIDS)

Government spending in paying interest on loans is increasing every year. While it is paying the interest of previous loans from both domestic and foreign sources, interest of new loans are adding into it. If the dependency on loans to meet the deficit is not cut down, this interest payment process will never stop. The government’s earning from taxes has increased, but still we are stuck in the loop of loan dependency. How and where the money from the loans is being spent should be made a transparent and accountable process.

The loaning plan

With a nearly Tk 1 trillion deficit in the new budget, the government plans to take Tk 615.48 billion in loans from domestic sources.

Of that, Tk 399.38 billion will come from the banks and Tk 226.19 billion from other sources including savings certificate sales.

The finance minister has proposed going for Tk 389.47 billion in foreign loans in the new budget.

Though Muhith plans to borrow Tk 196.10 billion from savings certificates in the new fiscal, the target in the current fiscal’s budget was Tk 150 billion. But that was later revised and nearly doubled to Tk 280 billion after savings certificate sales went up.

Net sales are calculated by deducting the liquidated amount of previously sold certificates from the total sales of saving certificates at a given time.

On the other hand, the money that is left after paying off the capital and interest to citizens is considered as government’s debt for which it has to pay interest.

Other expenditures

The finance minister has proposed allocating Tk 152.82 billion for spending in the supply and services sectors and Tk 53.65 billion for repairs and maintenance.

A hike in allocation in subsidy and incentives by Tk 50 billion has also been proposed. In the proposed budget for FY 2016-17, Muhith has set aside Tk 177.29 billion for this sector. The amount was Tk 128.85 billion in the outgoing fiscal.

The allocation in pension and gratuity has also been increased in the new budget, to Tk 169.15 billion from the last fiscal’s Tk 111.45 billion.