Where does the money go?

Posted in economics, macro by jrahman on August 25, 2012

Firstly, programming note – the dastardly microbes, together with nefarious carbon monoxide, continue to wreck havoc with my respiratory system, so posting will continue to be sporadic.

And now to the actual post.

A few weeks ago, I noted that government revenue performance in Bangladesh has been pretty good in recent years.  As if to prove that no good deed goes unpunished in Bangladesh, the NBR chief appears to be in trouble.  Meanwhile, what’s been happening at the other side of the Budget ledger?

This, and possibly a couple of other, posts will cover government expenditure.  In Bangladesh (and a number of developing countries), expenditure is divided into two parts – development and non-development.  This post is about non-development expenditure.  This is basically what the government spends on day-to-day functioning of the state machinery.


The first chart shows how various forms of non-development expenditure has evolved as a share of GDP over the past decade.

The last data point, for financial year 2013, is the budgeted amount, while the previous years are final outcomes.  Compared with 2011-12, total non-development expenditure as a share of GDP is actually budgeted to decline in the current financial year.  So much for all the talk of a big budget that one heard back in June.

Interestingly, non-development expenditure as a share of GDP in FY2013 is 10.8 per cent – exactly the same as what the IMF prescribed.  Coincidence?

Moving from the headline, the chart also shows some interesting compositional changes.  Salaries, supplies and maintenance – the purple area in the chart – accounts for the largest expenditure item.  And relative to GDP, it is slated to shrink slightly, continuing a trend from last year.  To the extent that this is cutting down waste, this is a good thing.  Not sure if the increase (relative to GDP) in subsidies, capital expenditure, and ‘other expenditures’ are a good thing though.

Subsidies used to average less than 0.5 per cent of GDP under the last BNP government.  In FY2013, it’s budgeted to be around 1.4 per cent of GDP.  What is the government – that is, the taxpayers – subsidizing?  Is it worth it?  Is the economy on a fundamentally better trajectory?

Similar points can be made about capital expenditure – that is, investment.

And what are these ‘other expenditures’ that have risen a lot compared with the BNP government?  One category that has ballooned is ‘state trading’.  Even if subsidies and capital expenditure can be justified for some ground or other, state trading seems to me wasteful at best, recipe for corruption at worst.

Now, the government is budgeting for a trimming of non-development expenditure.  What is it likely to deliver?

This chart gives some possible clue.  Here, the actual expenditure is compared with the budgeted one.  A negative value means actual has been lower than the budgeted, while a positive value means expenditure blowout.

If the past two years are any guide, capital expenditure and block expenditure are likely to fall short of the budgeted amount, while the government will probably spend more on salaries/supplies/maintenance and ‘other’ expenditure.


5 Responses

Subscribe to comments with RSS.

  1. kgazi said, on August 25, 2012 at 11:19 pm

    Judging by past record of awami govt 1996-2001, the final year of it’s 5 year term ie, 2013 will be a year of Revenue Looting FRENZY, with the help of state machinery. Skyrocketing grabbing of state money in the guise of “other revenue expenses” will takeover all govt activity entire 2013. Chart 2012 above shows a dramatic spike beginning in that direction. Bottomline will be state-sponsored corruption on a GRAND scale, leading to ZERO forex reserve, and negative revenues all across govt finances, in Dec 2013.

    Why does the govt NOT take any action against such corruption ? My guess is cos thieves & robbers are all govt party folks, so they all celebrate the looting party jointly !

  2. […] but jargons one might find in the Wall Street Journal.  Her basic macroeconomic story about government profligacy and IMF loan are based on facts.  Of course, it being macroeconomics, one can counter her doom and […]

  3. Diganta said, on August 31, 2012 at 3:23 am

    Very good writing, I’ll try to crunch some numbers on India too.

  4. On development expenditure « Mukti said, on September 3, 2012 at 5:56 pm

    […] week I discussed non-development expenditure by Bangladesh government.  This post is going to cover development expenditure.  As usual, I’ll […]

  5. […] in August, I wrote about the government expenditure in Bangladesh.  On subsidies, I […]

Comments are closed.

%d bloggers like this: