The move aims to manage economic challenges in the run-up to upcoming polls.
In a move to optimise spending amid financial stress and keep the budget deficit in check, the government has chosen not to spend from the block allocation for development works in the current fiscal year.
The decision comes on top of the belt-tightening measures, such as restriction on motor vehicle purchases and fuel bills for public offices, foreign trips by officials, and land acquisition, right from the beginning from the fiscal year in July.
Effective from 31 October, the Finance Division issued a directive, making prior consultation with it mandatory for any expenditure from the block allocation designated for “special needs” of the Planning Commission and for development projects under the ministries and departments.
Block allocations are reserved funds set aside to address urgent needs in addition to the budgetary allocations. In the current fiscal year’s budget, Tk35,208 crore has been kept aside as block allocation, of which Tk23,414 crore is for development projects – Tk4,697 crore allocated to the Planning Commission and Tk19,097 crore reserved for various ministries.
“The decision aligns with the current economic realities. Amid low revenue collection, borrowing to fund additional expenditures could exacerbate inflationary pressures.”
By Towfiqul Islam Khan, senior research fellow, CPD
A senior Finance Division official, speaking on condition of anonymity, attributed the decision to a revenue shortfall coupled with a surge in demand for funds for development works ahead of the general election, requiring the finance ministry to prioritise spending and save funds.
Data from the National Board of Revenue (NBR) reveals that revenue collection for the first three months (July-September) of FY24 reached Tk76,751 crore, representing a 14.34% increase compared to the corresponding period of last fiscal year. But, this figure falls short of the targeted revenue for the period.
Analysts welcomed the decision, saying that curbing additional expenses will help the government reduce debt burden and cope with revenue shortfall.
Austerity for fiscal prudence
Since the start of the fiscal year, the government has implemented austerity measures to reduce expenditures.
In a circular issued on 2 July, the Finance Division mandated a 20% to 25% reduction in power and energy expenses across both development and operational budgets. Also, the purchase of motor vehicles, aircraft, and watercraft has been suspended, along with all government-funded foreign travel, workshops, and seminars.
Furthermore, land acquisition has been temporarily halted, although the current fiscal year’s budget allocated Tk13,206 crore for land acquisition under various projects.
The Finance Division’s circular states that prior approval from the finance division is required for any expenditure of allocated funds for land acquisition.
Finance Division officials acknowledged a stalemate at the field level regarding land acquisition for development projects. To resolve this deadlock and clarify land acquisition procedures, an additional circular will be issued.
An official from the Finance Division clarified that block allocations are generally not utilised in the development budget until the revised budget is approved mostly in February every year. However, due to the upcoming elections, the budget revision work will extend into March, meaning that block allocation in the development budget is not going to be used until then.
A prudent decision: Experts
Former senior finance secretary Mahbub Ahmed said block allocations are generally discouraged due to their inherent potential for misuse and lack of transparency. “If the government can manage its affairs without relying on block allocations, it would be a positive development,” he said.
Towfiqul Islam Khan, a senior research fellow at the Centre for Policy Dialogue (CPD), also advised against drawing money from block allocations prior to elections.
He told TBS that the government’s decision aligns with the current economic realities and resource constraints.
Emphasising that the government’s revenue projections are falling short of targets, the expert urged a cautious approach to spending, stating that borrowing to fund additional expenditures could exacerbate inflationary pressures.
Block Allocations: Usage and criticisms
Block allocations play a crucial role in ensuring that the government can respond to unexpected circumstances and maintain operational continuity.
In addition to these general purposes, block allocations are also provided to members of parliament (MPs) to support their constituency development initiatives. These funds are intended to empower MPs to directly address local needs and priorities.
However, the use of block allocations has been criticised for a lack of transparency. Concerns have been raised about the absence of clear guidelines and accountability mechanisms surrounding the expenditure of these funds.
A notable example of a large block allocation was made during the pandemic. Recognising the unprecedented health crisis, the government allocated a substantial amount of funds to address the unexpected expenditures associated with the pandemic response.
The block allocation for the development sector was Tk18,515 crore in the original budget for FY23, which was reduced to Tk13,250 crore in the revised budget.
