The government is going to depend on banks again to meet a major portion of the budget deficit for the 2021-22 fiscal year, but economists said that it would not be wise to depend more on banks for deficit financing.
The overall budget deficit for the fiscal year 2021-22 will be Tk214,681 crore, 35.5% of total budget.
Of the amount, Tk76,452 crore would come from the banking system and Tk37,001 crore would be financed by selling savings certificates and other non-bank internal sources.
On the other hand, Tk101,228 crore will be financed from external sources, as per the proposed budget for 2021-22 fiscal year.
The target for government bank borrowing should be reduced because high bank dependency to meet budget deficit may impact on private sector credit growth, said Bangladesh Bank former governor Salehuddin Ahmed.
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The lenders consider investing in government treasury bills and bonds safer than lending to individuals and the private sector, which reflected on the private sector credit growth, he added.
The private sector credit growth has been hovering around the 8% mark for a few months as banks are lending as slow and steady owing to the ongoing Covid-19 pandemic.
In March, private sector credit growth stood at 8.79%, down from 8.93% in February, according to data from Bangladesh Bank.
In the current fiscal year, the government decided to take a loan of Tk84,980 crore from the banking sector but net borrowing of the government stood at Tk4,630 crore till May last month, as the government borrowed from scheduled banks and repaid to the central bank.
However, experts estimated that the govt. bank borrowing will increase at the end of June.
Echoing him, Centre for Policy Dialogue Executive Director Fahmida Khatun said that now there is no problem for the country’s lenders to invest in the government treasury bills and bonds, but it would be challenging in the upcoming days when the credit demand to the private sector will increase.
The economist said that the government should focus more on external sources than internal sources like Asian Development Bank (ADB) and the World Bank to meet the budget deficit.
Fahmida Khatun said that depending on internal sources- bank borrowing, borrowing from saving tools and non-bank sources to meet the budget deficit will increase the interest burden of the government.
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In the proposed budget for the upcoming 2021-2022 fiscal year, expenditure based on interest payments has been fixed at Tk68,589 crore, 11.36% of the total expenditure in the budget.
Generally, ADB and the World Bank impose the highest 2% interest on lending, on the other hand, local banks are investing in the government treasury bills and bonds at the interest range of 2%-7%.
Besides, the government is offering about 11.3% interest on an average on the savings tools.
Bangladesh Bank former governor Salehuddin Ahmed further said that there are some unnecessary projects in the government annual development program (ADP) for the 2021-22 fiscal year.
If these projects would be cut then the budget deficit will be reduced a lot, he added.
The government has set at Tk2,25,324 crore for Annual Development Program (ADP) for the next fiscal year, which is 6.5% of the country’s GDP.
