The government is setting a borrowing target of more than Tk1.01 lakh crore from the banks to address the deficit in the coming FY23 budget by increasing it by Tk25,038 crore compared to the original budget of the current fiscal year.
Economists and businessmen believe that if the government itself borrows such a huge amount, the goal of private investment will not be achieved as credit flow to the private sector will be disrupted and push up inflation.
According to data, the government's bank borrowing target for the next fiscal year has been set at Tk101,818 crore, which is 33.2% more than this year's original borrowing budget and 18.6% higher than the revised target for the current fiscal year.
In the FY22 budget, the Ministry of Finance set a target of borrowing Tk76,452 crore from banks. But Finance Division officials have fixed the bank borrowing target at Tk87,288 crore in the revised budget to meet increasing expenses on government subsidies.
Ahsan H Mansur, executive director at Policy Research Institute (PRI) said: “Deposit growth is not good at present. It does not look like it is going to be good in the next fiscal year either. People's savings are declining owing to rising inflation, which may continue next year. In this situation, if the government borrows so much in the new fiscal year, the private sector's credit flow may be disrupted.”
Asked about the recent bank borrowing status and the government's thinking, he added: “Government spending will increase in the last quarter. This is because subsidy spending is rising and there is also pressure to implement the ADP.
“On the other hand, people are saving less due to the inflationary pressure at present. Consequently, savings certificates are being sold less despite higher interest rates. Due to these reasons, the government may be thinking of increasing bank borrowing dependency in the next budget.”
According to Bangladesh Bank’s latest data, in 10 months (July-April) of FY22, the government has borrowed 42.5% of the set target of borrowing.
The government borrowed Tk25,240 crore from banks and Tk7,247 crore from the central bank in the first 10 months of the current FY. Thereby, the government's net debt in the banking sector stands at Tk32,488 crore.
As of April last year, the government had borrowed Tk1,71,420 crore from the banking sector. At the end of April of the current fiscal, the debt has come to stand at Tk2,34,604 crore.
During this one year, the government's cumulative borrowing from the banking sector stood at Tk63,183 crore – implying an increase of the government's debt by 37% till April of the current FY as compared to April last year.
Md Jashim Uddin, president of the Federation of Bangladesh Chambers of Commerce and Industry, also fears that private investment growth and credit flow to the sector will slow down if govt borrowing goes up in the next fiscal year.
Earlier, he told Dhaka Tribune: “Gas rationing has also started in the country, and prices of gas and electricity may go up further in the future. In this situation, no one will be interested in new investments. If the government's bank borrowing surges to such a great extent at this time, SME entrepreneurs will suffer the most.”
“The international market is very volatile. there might not be any new investments because of this too,” he noted.
In March 2022, private sector credit growth stood at 11.29%, the highest in three years. In April, inflation hit an 18-month high of 6.29%.
Dr Zahid Hussain, the former lead economist at the World Bank's Dhaka office, said: “Banks are currently facing a liquidity crisis, and the call money rate has risen to 5%. If the money supply increases to meet a huge demand for loans from the government, it will further stoke inflation.”
"There is not much of a tradition of borrowing by printing money in Bangladesh and it is not good. Zimbabwe has always done this, and so has the Sri Lankan government," he pointed out.
Without so much dependency on internal debt, economists suggest giving more emphasis on foreign debt.
The interest rate on foreign loans is never more than 3% and the repayment period is as lengthy as 30 years. Then there is the bonus of a much-needed infusion of foreign currency to the Bangladesh Bank's vault, which is now at an 18-month low.
But the government is being conservative with foreign borrowing, choosing to bump up its domestic borrowing instead, which comes at a higher interest rate of at least 8% with a shorter repayment period.
The budget deficit in FY2021-22 was Tk214,681 crore, which is 6.2% of the country's GDP.
The next year's budget outlay has been estimated at Tk677,864 crore, while the deficit has been projected at Tk244,864 crore. The revenue collection target has been set at Tk433,000 crore. And the government is planning for much of this deficit to be met by borrowing from the banking sector.
