Higher bank borrowing target set to finance budget deficit
Adverse economic impact feared
Kazi Zahidul Hasan :
The government has planned to set a higher borrowing target from banks for next fiscal year to finance the budget deficit.
In the upcoming fiscal year (2019-20), the total expenditure has been estimated at Tk 5,24,950 crore while the revenue income projected at Tk 3,80,000 crore.
So, the overall budget deficit will be nearly Tk 1,45,000 crore, which is 5.0 per cent of the GDP.
Of this, an amount of Tk 81,300 crore will be financed from domestic sources while an amount of Tk 60,580 crore will be financed from external sources.
Of the domestic sources, Tk54,800 crore will be borrowed from banking system, Tk 26,500 crore from National Saving Schemes and Tk 3,100 crore from non-bank sources, according to a draft budgetary outline.
In the current fiscal year (2018-19), the government budgeted Tk 42,092 crore borrowing target from the banks.
Besides, borrowing target from foreign sources was set at Tk 54,067 crore in fiscal year 2018-19.
Economists and businessmen expressed concern over the government's higher borrowing from banks saying that it will deepen the liquidity crisis at banks and thereby push up interest rate on lending.
They also urged the government to explore the possibilities of raising revenue from niche areas to reduce dependency on bank borrowing.
"Revenue shortfall usually force the government to resort to both domestic and external borrowing to finance the budget deficit," Dr Ahsan H Mansur, Executive Director of Policy Research Institute (PRI) told The New Nation.
"But, a higher borrowing will lead to rise in public debt and push up the government spending on interest payment putting an additional burden on the national exchequer," he said.
Dr Ahsan H Mansur expressed concern over such borrowing of the government saying that it would leave an adverse impact on money market by tightening liquidity supply.
He also suggested the government for adopting prudent fiscal measures to avert economic risk associated with soaring domestic and external borrowings.
"Government's increased reliance on domestic borrowing, especially from banking system, will shrink the private sector credit growth," Dr Salehuddin Ahmed, a former central bank governor, told The New Nation, adding that this will have a negative impact on economic growth and fuel inflation. Expressing concern over the swelling budget deficit, he said, it is the red line of the budget and deficit financing would be a key challenge for the government in the next fiscal year.
"Steps should be taken to cut the government's unnecessary administrative expenditure and expand tax net in order to contain budget deficit. Otherwise, it will have huge negative impact on economy," he noted.
"A higher bank borrowing by government will squeeze liquidity of banks and it will affect the private sector credit growth," M Shafiul Islam Mohiuddin, former FBCCI President, told The New Nation.
He said interest rates on bank loans will also go up as a consequence of unbridled public borrowing from banking system.
"The government should look for alternative financing sources to meet the budget deficit in order to keep the private sector unhurt," suggested Mohiuddin.