They argue that the country's banking sector is already facing a liquidity crisis and further borrowing by the government from the banks will add to the crisis
Experts fear that a high borrowing target from banks set by the government in order to meet the budget deficit for the fiscal year (FY) 2019-20 will affect the private sector investment.
They argue that the country's banking sector is already facing a liquidity crisis and further borrowing by the government from the banks will add to the crisis.
According to the proposed budget, the government has targeted to borrow Tk77,363 crore — Tk47,363 crore from banks, Tk27,000 crore from national savings schemes, and Tk3,000 crore from non-banking sources.
World Bank Lead Economist Dr Zahid Hussain, while speaking to Dhaka Tribune yesterday, said: “The banking sector is currently facing liquidity crisis due to a number of reasons and one of the reasons is high amount of non-performing loans (NPLs).
“If such situation continues and the government borrows from this sector for the budget deficit, private investments will be hampered and employment opportunities will go down,” he pointed out.
He also said: “The NPL rose by Tk16,962 crore from January-March period of this year from Tk93,911.54 crore in December 2018, taking the amount of stress loans in the banking sector to Tk1,10,873.54 crore.
“This amount of defaulted loans cannot increase further and appropriate steps should be taken to recover them,” he said.
Former chairman of Association of Bankers, Bangladesh (ABB) Mutual Trust Bank Ltd Managing Director Anis A Khan told Dhaka Tribune: “Most banks are under pressure to bring down the advance-deposit ratio (ADR). As a result, the private sector credit growth is very slow. On the other hand, the banking sector is not getting enough deposits from government organizations.
“The private sector will be affected if the government takes such big amount from banks for the budget.”
According to data collected from Bangladesh Bank, the private sector credit growth hit a 53-month low in February due to the ongoing liquidity crisis and the rise in defaulted loans. In February, the credit growth stood at 12.54%, the lowest since October 2014.
In a post-budget press briefing, the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has asked the government to minimize its reliance on the banking sector in order to finance its projected budget deficit in the next FY.
FBCCI President Sheikh Fazle Fahim at the briefing yesterday, said: "Instead of relying on the banking sector, the government should utilize foreign remittances, infrastructure funds, bonds, and other sources to finance its budget deficit.”
Expenditure in the next FY has been estimated at Tk5,23,190 crore, while the projected revenue is Tk3,81,978 crore.
The overall budget deficit (excluding grants) is expected to be Tk1,45,380crore, which about 5% of the gross domestic product (GDP).
The rest of the budget deficit Tk63,848crore will be borrowed from external sources.
In the FY2018-19, the government targeted to borrow Tk42,029 from banks which later stood at Tk30,895crore in the revised budget (2018-2019).