Budget FY21: Deficit financing from banks will hurt the private sector, says BUILD

The massive deficit financing from the banking sector is expected to crowd out private sector credit, which has already been sinking due to the pandemic, says the Business Initiative Leading Development (BUILD).

The research-based platform made the observation in a statement on the proposed budget for FY21 on Friday.

It said that the government needs to spell out a clear vision of how private sector credit and investment can be promoted and facilitated in the wake of both the Covid-19 crisis and the large budget deficit to be financed by the government through the banking channel.

Finance Minister AHM Mustafa Kamal on Thursday tabled a national budget of Tk568,000 crore for the 2020-21 financial year, with deficit financing of Tk190,000 crore, which is equivalent to 6% of the coming fiscal year’s projected GDP.

Out of the total deficit, Tk80,017 crore will be financed from external sources, while Tk109,983 crore from domestic sources. Of the domestic sources, Tk84,983 crore will come from the banking system and Tk25,000 crore from savings certificates and other non-bank sources said the minister.

BUILD says the target of revenue collection of 3.30 trillion, 1.35% higher than the previous year and 9.8% higher than the revised target, is a bit ambitious considering the present situation.

Hassles faced in doing business needs to be reduced, in that respect more automated process as targeted by the NBR needs full implementation, it said.

BUILD recommended for implementation of a Credit Guarantee Scheme for small entrepreneurs.

The country’s apparel exporters are facing sustenance challenges, the continuation of 1% incentives may not be enough for them, said BUILD.