Budget Should Be Supportive Despite Challenges

The newly elected BNP government is going to present the national budget for the fiscal year 2026-27 very soon.

But, what would be the size of their first budget? This year’s budget may be a bit different as is expected that there will be discussion and debate in the parliament over passing the budget.

Preparing this year’s budget must be a challenging one because of some domestic and international political and economic uncertainty. So, several issues related to domestic and international situations should be taken into consideration while preparing the budget.

The first challenge will come from the economic mess created during one and a half years of interim government rule, when the country’s GDP has dropped from above six per cent to nearly three per cent. Whether the country has previously experienced such a drastic fall in GDP is not known to us.

Providing fiscal support in the budget to push the country’s GDP is a hard job as GDP slides sharply but rises very slowly.

During the interim government’s rule, the public sector has experienced serious stagnation, while the private sector has suffered substantially in business and investment. Reviving both sectors through fiscal support is the most challenging task that the current government will have to face. Revenue collection and mobilising funds for budget allocation are the most crucial part of the budget.

The government will require additional revenue, but there is no scope of increasing taxes, as this measure will inflict extra financial burden on the people and business community, so balancing between providing fiscal support and mobilising additional funds is an almost absurd condition in the present circumstances.

Collecting tax from the business community has taken another bad shape, because most business establishments have been expressing a downturn in business turnover, causing a revenue drop, which has resulted in lower tax collection for the government. A businessman who used to earn two and a half crore profit in a year might have paid tax around one crore to the government. If his business turnover declined, bringing down his annual profit to two crores, then his tax payment will be around eighty lakhs. Similarly, import duty has declined due to lower import volume. In fact, all government sources of revenue have experienced less revenue collection due to volume downturn caused by economic mess and debacle during interim government’s rule. So, its revenue collection will not be restored to the previous level unless the country's business and economic activity are uplifted. 

A budget is the numerical equation of income and expenditure, of which the former is very limited while the latter is unlimited in nature. So, mobilising funds is the most challenging part of the budget. Our country has historically undertaken deficit budgets, which are not a problem provided the deficit can be funded in effective means. It is mentionable that a deficit budget is the most common and popular form of fiscal measures followed in most countries, regardless of the developed and developing world, because a balanced or surplus budget is an unlikely situation. However, a deficit in the revenue budget is not a good sign at all, but the proposed budget may face this type of unwanted situation if the government does not resort to a tax hike policy. Considering the present complex situation, the government may have to consider a deficit in the revenue budget without raising the tax burden on the people and, at the same time, keeping the budget expansionary outlay. For doing so, the government may consider issuing a tax / revenue bond to mobilise the deficit instead of bank borrowing. This bond will bear the special feature of repayment through additional tax collection after two / three years when normalcy is restored.

The government should assess and determine the actual fund position, including the foreign currency reserve, which was not properly revealed during the interim government, and then the total budgetary outlay should be determined. The foreign currency reserve has risen, but this does not represent the true situation, as stringent import control is still in place and the economy is not at full scale. So, the estimate should be calculated taking the regular situation and full-scale economy into consideration; otherwise, miscalculation may occur, posing a big threat to the budget implementation. Because of international politics, especially Middle East chaos, there is a likely possibility that foreign currency earnings through both export and remittance may shrink. This should be taken into consideration while preparing the budget.

There are challenges, but some special aspects should be taken into consideration. For an overall budget deficit, the government should consider mobilising funds through the issuance of sovereign bonds instead of bank borrowing. This measure has dual benefits, as the government’s borrowing cost is less than the bank's borrowing and, at the same time, investment opportunities for the private sector should not be impacted. 

BNP as a government is going to present a budget after two decades. They last presented a budget almost two decades ago, when the country's economy size was between $80 billion and $100 billion, which has now turned into a half-trillion-dollar economy. Even the government is going to present the budget at such a time when the nation is aspiring to reach a size of trillion-dollar economy. So, transforming this economic reality, meeting people’s aspirations, addressing the challenges and uplifting the economy should be reflected in the proposed budget.