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Interest payment may eat up 12% of next budget

  • Published at 09:29 pm May 9th, 2014

The allocation of interest payment against government borrowings from local sources is expected to grow by more than 17.23% in the upcoming budget which will add pressure on the fiscal management and widen the budget deficit.

The government will put aside Tk30,809 crore for the fiscal year 2014-15, up  Tk4,806 crore from the outgoing fiscal year, to service domestic debts to be required during the period, a finance ministry official said.

The country’s overall debts have reached around 50% of its gross domestic product (GDP). The official estimated that interest payment will eat up about 12.37 % of the total budget for the new fiscal year which is likely to be Tk249,000 crore.

The allocation of interest payment in the outgoing fiscal year was Tk26,003 crore against domestic borrowings.

Officials concerned pointed out that they had difficulty in keeping the budget deficit of the new fiscal at five of GDP because of a huge pressure for subsidy and interest payment.

According to a primary estimate of the last budget resources committee, the amount of total subsidy is likely to be Tk26,053 crore.

Interest payment and subsidy covered 85.56% or Tk56,862 crore for next year with possible budget deficit of Tk66,458 crore. The total allocation of both interest payment and subsidy would account for almost one-fourth of the total budget outlay.

Successive governments have been maintaining the deficit within the range for a long time. The official said several Padma Bridges are likely to be built from the yearly allocation of subsidy and interest payment outlay.

The budget wing of Finance Division sought suggestions from the policymakers on how to complete the difficult arithmetic relating to the deficit.

The budget management committee, headed by Finance Minister AMA Muhith, is likely to sit this week to resolve the problem.

The higher budget deficit is contrary to prudent fiscal management for an economy like Bangladesh. It would have destabilising impacts on the macro-economy and currency management as the government is forced to expensive borrowings due to shortage of internal resources, said the ministry officials.

“A major part of increased deficit would come from bank borrowing for the next fiscal year which might be created from subsidy and interest payment for the past borrowing,” Planning Commission member Shamsul Alam told the Dhaka Tribune.

He, however, said it would be better to borrow from the banks as a little amount of money had so far been taken from the banking system.