The estimated budget deficit for the forthcoming fiscal year (FY) at 5.0 per cent of the country's gross domestic product (GDP) is otherwise within a manageable limit. However, there is no a priori reason to consider it a propitious one. What matters here more is how the budget deficit is met and at what cost. How such an amount of money through borrowings is spent is yet another important matter of consequence. Whether the estimated level of the overall budget deficit for the forthcoming fiscal can be maintained without overshooting in its usual year-end revised version, is difficult to foretell at this stage. However, the possibility about this happening in the next fiscal, like the cases with the previous ones, can not be ruled out. This is particularly so, in view of the fears expressed by various concerned quarters about aggregate tax revenue receipts falling short of the estimated level for the next fiscal, because of the 'ambitious' target that has been projected in the proposed budget. However, the ministry of finance can cut back the expenditure under the Annual Development Programme (ADP) at the last quarter of the coming fiscal to limit the revised budget deficit at about the same level.
But slashing ADP expenditures that largely represent public investments for different categories of development activities within a set of priorities, adversely impact efforts for realising the potential of the national economy by enhancing its capacity, productivity and efficiency, all of which facilitate accelerated growth. The country needs public investments certainly at more than 6.0 per cent of its GDP, along with improvement in quality of such expenditures, to facilitate and synergise private investments.
So far so good. The overall budgetary deficit, however, does not give a true picture of the gap between government's total expenditure (including its contingent liabilities on account of state-owned enterprises and entities) and its aggregate revenue collections. Here comes the issue of quasi-fiscal deficit. If that is taken into consideration, the real fiscal deficit will exceed the level that has been mentioned in the budget. The government has been issuing bonds and other alike instruments, for capitalising or recapitalising the parastatals and autonomous bodies. These do not entail cash transfers. Such bodies, in most cases, are not in a position to provide any worth-mentioning amounts of returns or profits to the government. Even most of them are not able to service their debts properly. There is a large amount of shortfall in servicing their debts. Furthermore, non-tax revenue earnings of the government have remained almost stagnant, if not declining, over the years. Had such revenues increased, the overall budget deficit could have been lowered to a substantial extent.
Under such circumstances, the government's borrowings, particularly from domestic banking and non-banking sources, have been swelling. As a result, interest payments on such borrowings that are in the nature of charged expenditures -- that are not subject to voting or approval by parliament -- out of revenue budget, are on the rise. Furthermore, the delays in implementation of priority development projects and the inability of the government to utilise low-cost external aid in time from the pipeline have been making it increasingly difficult to reap the dividends or intended benefits out of development projects, for reasons of their non-completion in time. This is no healthy sign because the government has to borrow more funds from domestic resources to foot its rising interest bill. This has also other implications for maintenance of price stability and making domestic resources adequately available to fund private sector investment and other related economic activities.
