ECO315: Public Finance

Course Instructor: Mir Tanzim Nur Angkur(MTNA)

Senior Lecturer, Dept. of Economics
East West University

Why Study Public Finance?

In the context of Bangladesh Economy

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What makes Public Finance so compelling?

• The dominant role that governments play in

our daily lives.

• It is devoted to the study of how government

policy especially tax and expenditure policy
affects the economy as a whole and the
welfare to its citizens.

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 Motivation behind study Public Finance

• As a student of economics we are interested

to figure out the role that government plays
through analyzing the keys facts about
government.

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 Key facts about government
• The Size and Growth of Government
• Distribution of Government Spending
• Distribution of Revenue Sources
• Spending, Taxes, Deficits and Debt Service
• Major Policy Issues facing the Bangladesh
Economy.

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 The size and Growth of Government
Government Expenditure(% of GDP) in Selected South Asian countries

30
Government Expenditure(% of GDP)

25
Bangladesh

20 India

Pakistan
15

Sri Lanka
10

South Asian Average

0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Years
Source: WDI, World Bank

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 Distribution of Government spending
Distribution of Government
Distribution of Government
Expenditure by Broad Sectors, Expenditure by Broad Sectors,
2016-17(3406.05 Billion BDT) 2007-08 (796.13 Billion BDT)
Allocation(%) Allocation(%)

Subsidies Subsidies Others

5% 5% 10%
Public order & Safety Local Govt. & Rural Development
Others Public order & Safety Local Govt. & Rural Development
5%
5% 7% 7% 9%
Transport & communication Pension Transport & communication
Pension 4%
5% 11% 9%
Education and Information Technology Public Administartion Education and Information Technology
Public Administartion 2%
10% 15% 15%
Interest Payment Defence Interest Payment
DefenceSocial Security & Welfare 12% 6% 14%
6% 5% Energy and power Health
Agriculture Health 6% 7%
Energy and power 4% 5%
4% Social Security & Welfare
5%
Agriculture
6%

Source: Budget FY 2016-17 and FY 2007-08,

03/30/2021 Ministry of Finance, GOB
Fall_2017 6
 Broad Sectors of Allocation
Broad Sectors in FY 2016-17 Broad Sectors in FY 2007-08
Interest Payment Interest Payment
Education and Information Technology Education and Information Technology
Defense Defense
Public Order & Security
Public Order & Security
Pension
Pension
Transport & Communication
Transport & communication
Social Security & Welfare
Social Security & Welfare
Health
Health
Agriculture
Agriculture
Subsidies
Subsidies
Local govt. & rural development
Local govt. & rural development
Public Administration
Housing Miscellaneous Non development Investment

Recreation , Culture & Religious Affairs Public Administration

Industrial and Economic Services Housing

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Source: Ministry of Finance, GOB
 Distribution of Revenue Sources
80000

70000

60000

50000
Direct Tax Indirect Tax
Crores Taka

40000

30000

20000

10000

0
3 4 5 6 7 8 9 0 1 2 3 4
2 -0 3 -0 4 -0 5 -0 6 -0 7 -0 8 -0 9 -1 0 -1 1 -1 2 -1 3 -1
2 00 2 00 2 00 2 00 2 00 2 00 2 00 2 00 2 01 2 01 2 01 2 01

Fiscal Years

Source: National Board of Revenue(NBR), GOB

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 Share of Revenue Sources
Bangladesh: Share of Revenue Sources, FY2002-03 - FY2013-14
Share of Indirect Tax Share of Direct Tax

2013-14 63.86 36.14

2012-13 65.45 34.55

2011-12 69.67 30.33

2010-11 70.51 29.49

2009-10 71.91 28.09

2008-09 72.83 27.17

2007-08 74.54 25.46

2006-07 75.68 24.32

2005-06 60.38 39.62

2004-05 60.18 39.82

2003-04 61.59 38.41

2002-03 61.45 38.55

Source: National Board of Revenue(NBR), GOB

9
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 Expenditure & Total Revenue
Bangladesh: Total Revenue and Expenditure,2001-2012
Total Revenue Expenditure

20
18
16
14
(% of GDP)

12
10
8
6
4
2
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: M/O Planning and Finance Division, M/O Finance. Years

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 Budget Deficits
Bangladesh Budget Defi cits ,2001-2012
Deficit(% of GDP)

0.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-1.0

-2.0
-2.2

-3.0
-3.5 -3.4
-3.7
-4.0 -4.1
-4.4
-4.7 -4.8
-5.0
-5.2
-5.5 -5.4
-6.0 -6.1

-7.0

Source: IMED, M/O Planning and Finance Division, M/O Finance

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 Debt Service

Bangladesh Debt Services,2001-2012

1.30
(% of GDP)

1.25 1.24

1.201.20 1.19

1.15 1.15

1.12
1.10
1.08

1.05 1.05

1.00
0.96
0.95 0.94
0.95
0.92
0.90 0.89

0.85
0.80
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Years
Source: WDI, World Bank
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 Major Policy Issues facing the Bangladesh
Economy.

Expenditure on Education

 Expenditure on Health

Social Safety Net Programs

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 Expenditure on Education:
South Asian Perspective,2000 & 2004

Government Expenditure on Educati on(% Government Expenditure on Educati on(% of

of GDP),2000 GDP), 2004

Nepal 2.98

Nepal
3.17

Pakistan 1.84
Pakistan
1.95

India 4.25
India
3.29

Bangladesh 2.13 Bangladesh

1.94

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50

Source: WDI, World Bank

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 Expenditure on Education:
South Asian Perspective,2009 & 2012

Government Expenditure on Educati on(% Government Expenditure on

of GDP),2009 Educati on(% of GDP),2012

Sri Lanka 2.06

Sri Lanka 1.50

Nepal 4.66
Pakistan 2.14

Pakistan 2.59

India 3.83
India 3.21

Bangladesh 1.94 Bangladesh 2.05

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00

Source:
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 Expenditure on Health:
South Asian Perspective,2000 & 2004

Health expenditure Health expenditure

(% of GDP),2000 (% of GDP),2004

South Asian Average

3.72 South Asian Average 3.90

Sri Lanka 3.77 Sri Lanka 4.28

Nepal
5.43 Nepal 5.82

Pakistan 2.79 Pakistan 2.56

India
4.26 India 4.22

Bangladesh 2.33 Bangladesh 2.62

0.00 1.00 2.00 3.00 4.00 5.00 6.00 0.00 1.00 2.00 3.00 4.00 5.00 6.00

Source:
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WDI,World Bank Fall_2017 16
 Expenditure on Health:
South Asian Perspective,2008 & 2012

Health expenditure Health expenditure

(% of GDP),2008 (% of GDP),2012

South Asian Average 4.07 South Asian Average 3.87

Sri Lanka 3.44 Sri Lanka 3.21

Nepal 6.44 Nepal 5.89

Pakistan 3.26 Pakistan 2.76

India 4.34 India 4.39

Bangladesh 2.85 Bangladesh 3.08

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 0.00 1.00 2.00 3.00 4.00 5.00 6.00

Source:
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 (% o f t o t a l w e la fr e o f b e n e fi c ia r y h o u se h o ld s)

(% o f t o t a l w e fa r e o f b e n e fi c ia r y h o u se h o ld s)
Social Safety Net Programs:
South Asian Perspective,2006 & 2009

Adequacy of Social Safety Net

A dequacy of Social Saf e ty Net
Programs,2 0 06 Program s ,2009

17.92
19.71
12.00
20.00
18.00 14.00
16.00 12.00 3.40
14.00 10.00
12.00 8.00 Sri Lanka
4.01
10.00 6.00 4.00
Pakistan
8.00 4.00
Sri Lanka
6.00 2.00 Bangladesh
4.00 Pakistan 0.00
2.00
Bangladesh
0.00
Bangladesh Pakistan Sri Lanka Bangladesh Pakistan Sri Lanka

Source:
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 Adequacy of social safety net programs
(% of total welfare of beneficiary households)
Definition: Adequacy of social safety net programs is measured by
the total transfer amount received by the population participating
in social safety net programs as a share of their total welfare.
Welfare is defined as the total income or total expenditure of
beneficiary households.
Common examples of Social safety net programs may includes:
• child, family and orphan allowances, birth and death grants,
disability benefits, and other allowances;
• food stamps and vouchers, food rations, supplementary
feeding, and emergency food distribution;
• housing allowances, scholarships, fee waivers, health subsidies,
and other social assistance;
• cash for work and food for work
Estimates include both direct and indirect beneficiaries.
(World Development Indicators, World Bank) 19
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