There is no denying the fact that the economic development of Bangladesh is constrained by the saving gap and the trade gap. The former relates to the inadequacy of domestic saving in relation to the required volume of investment and the latter refers to the shortage of export earning in relation to import cost resulting in the current account deficit of balance of payment. Budget management or fiscal policy in its broader sense, has been recognized as a vital instrument of economic policy of a country or its government. Fiscal policy, which was traditionally concerned with the provision of services by government and the mobilization of resources needed for financing them, has undergone a transformation during last few decades. The fiscal machinery, in particular the techniques and procedures of budgeting, is being adjusted to meet the changing requirements of fiscal policy.
Since our economy is trapped in the ‘vicious circle’ of poverty and stagnation, the government can play a positive role through its budgetary measures in breaking this vicious circle. A conscious effort can be made by the government in framing the budget for providing investment capital in the public sector. The government of Bangladesh has a pervasive role in controlling the economy and finance, safeguarding its course and the composition of economic and development activities through a host of discretionary policies. These controls are exercised in an increasing number of fiscal and monetary instruments and these policies have very serious ramifications for both resource allocation and distribution and composition of the economy. The government can raise more resources by taxation, pricing of public goods and services or by borrowing. In addition the government can also finance budget deficit by creating new money which is generally considered to be inflationary.
Prior to the ‘Great Depression’ of the 1930’s in the age of ‘Laissez Faire’ when the involvement of government in economic activities was considered undesirable, the popular slogan was that the most successful Finance Minister is one who keeps government expenditure and taxes low. Government borrowing or deficit financing was considered to be a sign of weakness.