Debt increases moderate because of smaller fiscal deficits and relatively strong GDP growth rates
The fiscal deficit in Bangladesh is likely to deteriorate slightly in the current fiscal year (FY), according to a new report.
"The increase in the deficit reflects the delay in the VAT (Value Added Tax) rollout and higher wage bill and transfers," it said.
The International Monetary Fund (IMF) projected the fiscal position in its publication "Fiscal Monitor - April 2017" released Wednesday, couple of days before the IMF and the World Bank Spring Meetings that begins in Washington DC tomorrow (Friday).
Fiscal policy has a greater role to play in fostering sustainable and inclusive growth, said the report.
The projections were based on the same database used for the April 2017 World Economic Outlook and Global Financial Stability Report the global lender released Tuesday and Wednesday respectively.
The Fiscal Monitor estimated that Bangladesh's fiscal deficit would stand at 4.7 per cent of GDP (Gross Domestic Product) in the current fiscal year, which is just similar with the Bangladesh government's estimate (including grants).
In the budget for the current fiscal year, the government estimated the deficit to be 5.0 per cent of GDP excluding the grants.
The Fiscal Monitor report also projected that the fiscal deficit of Bangladesh would come down to 4.2 per cent in the next fiscal year - an estimate that runs counter to Finance Minister AMA Muhith's projection.
At a recent pre-budget meeting, Muhith said the deficit would rise to even 5.4 per cent of GDP. Bangladesh refers to the deficit estimate excluding grants.
According to the report, the government revenue of Bangladesh would stand at 10.8 per cent of GDP, which would increase to 11.9 per cent in the next fiscal year while the government expenditure would be 15.6 per cent in FY 2016-17 and it is projected to be 16.1 per cent in the next fiscal year.
The gross debt of the government would be 33.7 per cent of GDP in the current fiscal year, slightly up from 33.1 per cent in the last fiscal year. It would increase to 33.9 per cent in the next fiscal year, according to the report.
For the third consecutive year, the average fiscal deficit increased in the low-income developing countries, reaching 4.4 per cent of GDP, which is above the level observed at the onset of the global financial crisis, said the report.
It said advanced economies eased their fiscal stance by one-fifth of 1.0 per cent of GDP in 2016, breaking a five-year trend of gradual fiscal consolidation. Their aggregate fiscal stance is expected to remain broadly neutral in 2017 as well as in the following years.
As a result, public debt in advanced economies should stabilise in the medium term, averaging more than 100 per cent of GDP, rather than decline as previously expected.
In emerging market and developing economies, the report said, the deterioration in fiscal positions seemed to have come to an end, although the expected improvement depends crucially on developments in commodity markets.
Oil exporters were implementing large consolidation plans to realign spending with revenues, and their fiscal deficits are expected to fall by about $150 billion between 2016 and 2018 (with the improvement next year coming mainly from the non-oil balance).
In oil importers, like Bangladesh, the fiscal deficit should remain broadly stable as a share of GDP in 2017, followed by a gradual consolidation over the medium term, according to the report.
The deficit increase in the low income developing countries was larger for commodity exporters than for the rest of the group. The factors driving this deterioration in commodity exporters include declining commodity revenues as a result of lower commodity prices, falling demand from major export markets, and oil supply disruptions in key exporters.
In countries where the share of public debt denominated in foreign currency was above 50 per cent, the currencies depreciated by about 5.0 per cent in 2016, on an average. Debt increases were highest among commodity exporters.
Outside commodity exporters, debt increases were more moderate-for instance, in Bangladesh-because of smaller fiscal deficits and relatively strong GDP growth rates.
The fiscal scenario for 2017 is forecast to be very sensitive to assumptions about developments in commodity markets. Under the current projections, fiscal deficits are forecast to stabilise as per cent of GDP, halting the trend of the past few years, said the report.