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Bank borrowing in last four years leaves fiscal discipline in tatters

  • Published at 05:03 am June 6th, 2013
Bank borrowing in last four years leaves fiscal discipline in tatters

The Awami League-led government has challenged fiscal discipline when it comes to borrowing from the banking system, as each fiscal year has seen a rise between 20%-45% percent in the amount mentioned in the revised budget, than that projected in the original budget.

In every new budget, the government’s bank borrowing target is kept lower than the revised budget of the previous year, and every time it crosses the budgetary limit and is adjusted to the revised outlay.

This practice has common throughout the four-and-half year tenure of the government.

In monetary terms, the amount borrowed from banking system exceeds the budgetary projection by Tk50bn to Tk100bn, according to finance ministry and Bangladesh Bank officials.

In the next fiscal year it is likely to rise by 65% or Tk150bn over the proposed budget borrowing outlay because of political compulsion in election year, an official of the finance division said, requesting anonymity.

The bank borrowing target for the upcoming fiscal year is set to be Tk259.93bn, which represents a decline of Tk25.07bn, or 8.8%, from the revised budget outlay.

The revised budget outlay, for the ongoing fiscal year is Tk285bn, which represents a 24% increase from the original, due to decreasing collection from saving instruments and borrowing from non-banking financial institutions.

The trend is likely to continue into the upcoming fiscal year.

Of Tk259.93bn to be projected by Finance Minister AMA Muhith today, in his fifth budget, Tk 116.38bn will be in the form of a short-term loan, up by Tk38.63bn, or 49.68%, from the outgoing fiscal year’s Tk77.75bn. However, the projected long-term loan of Tk143.55bn will be 31% lower than that in the outgoing fiscal year.

To keep balance, the government has cut its non-bank borrowing target by 164% to Tk39.73bn for the outgoing fiscal year from the original outlay of Tk104.84bn.

Again, the amount will see more than a 100% rise in the next fiscal year to Tk79.71bn, according to the proposed budget document.

In the revised budget of the current fiscal year, projection for borrowing from the public, by selling savings instruments, has been lowered to Tk19.73bn from actual budgetary expectation of Tk74bn due to a poor response from the public.

But the projection for the next fiscal year is Tk49.71bn, much lower from the current year’s original but more than twice as much the revised projection.

To make this possible, the finance minister has already hinted at raising rates of interest to entice people into different savings certificates, that have remained largely unsold despite some incentives in the current year’s budget.

“It will comfortably cross the target by the end of the election year,” said Rashed Al Mahmud Titumir, chairman of research organization Unnayan Onneshan.

He said nobody, even from the main opposition BNP, raised any questions over the increase in bank borrowing. The main opposition should question this matter in parliament because it fuels consumer price indices and affects people’s lives, he said.

Dr AB Mirza Azizul Islam, former adviser to the caretaker government, said economists usually oppose bank borrowing on the grounds that it increases government fiscal costs, crowds out private sector investment and raises the cost of borrowing by influencing bank interest rates.

Local businessmen will be hard hit by escalated government borrowing from banks in the election year, when inflation rates will go up compared to a normal year, he pointed out.

Although the government’s borrowing from the banking system was Tk83.77bn during the first half of current fiscal year, it peaked drastically in the latter half reaching Tk204.5bn in the 11 months leading up to May 26. The amount was Tk124bn during the same period last year.

Slow growth in domestic revenue collection forced the government to borrow heavily from banks in the later half of the year to meet budgetary expenditures, officials explained.

As per Bangladesh Bank data released last week, the government’s borrowing from scheduled banks was Tk173.93bn on May 5, which rose to Tk204.5bn on May 26, meaning the government borrowed Tk30.6bn in 21 days in the last month.