Wednesday, January 17, 2018 | ePaper

Meeting budget deficits through bank loans is gross deficiency

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NOT that this is the first time that the government has planned to obtain bank loans for covering deficits in its national budget notwithstanding of putting unwarranted pressure on the private sector. In fact the repetition for tackling year-to-year budget deficits have now become an accepted trait in this country, particularly under this government.
And once again, the government has announced to balance this year's Tk 20,000 crore budget deficit from  taking loans from private and public banks and also reportedly from 'other sources'. Be that as it may, the government of other countries usually depends on other sources to meet budget deficits since its overspending has some powerful impacts on the economy.  It's not the size or extent of the government budget expenditure which causes worry but the methodology for how it is supposed to be funded. In the face of a budget deficit, the government is open to the options to finance it through domestic or foreign sources, or by borrowing from financial markets. Subsequently, the government's withdrawing of money from the domestic financial market trims down national savings that eventually shrinks the supply of loanable funds. Moreover, financing of development projects too are impeded and slowed-down.
We fail to comprehend why our financial policy makers don't consider these useful options other than just relying heavily on private and public commercial banks. The government is intelligent enough to understand the fact when it borrows money to meet these shortfalls it automatically creates an unintended consequence known as crowding-out. Accordingly, this results in increasing of  interest rate, which crowds out private investment and reduces economic growth while aggregate supply. Most importantly, the government's financing of major part of the deficit through the banking sector will squeeze the access of the private sector in the banking system. And in Bangladesh it is largely the booming of the private sector that has contributed hugely in the 6 plus percent consistent GDP growth over a number of years. We don't expect the growth of the private sector to be hampered because of the heavy borrowing by the government for materialising its fiscal years' budget, mostly on projects taken on political consideration.
The long term repercussion for obtaining such loans is that it keeps the interest rate growing. By now almost all interest rates for financing business in this country are in the double digits unlike many developed nations in the world. We must break-free from this unhealthy culture of higher interest rates. Now that the scheme for charging excessive VAT has been nullified, so now it may well end up in eating up the depositors' money in the country.        
Needs be reminded that, a series of manmade vice and fraud have already hit our banking sector very hard in recent times. In the series of scams which took place between 2011 and 2013, three of the state-run banks - Sonali Bank, Janata Bank and BASIC Bank - had lost Tk 12,000 crore. Moreover, according to a recent Finance Ministry investigation report, the former Chairman of BASIC Bank was involved in a loan scam involving as much as a massive sum of Tk 2,200 crore alone. Coupled with scams - now it's the extra pressure of government's budget deficits which is pushing our banks to their limits.  
Lastly, we clearly mark more deficiency in the planning and policy making for meeting budget deficiencies than in the budget itself. Our country is home to a number of globally renowned finance experts, bankers, economists and Think-tanks. We feel, they should be incorporated in the overall budget making procedure so to avoid creating unnecessary extra loads on our banking system.

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