Sunday, October 20, 2019 | ePaper

Idle funds must not be wasteful

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AS per a draft law recently approved by the cabinet, the government now can use "idle funds" of state-owned organisations for development works. Cabinet Secretary Mohammad Shafiul Alam informed that there are 68 state-owned autonomous organisations which have Tk 2,12,100 crore deposited in banks. Among the organisations, Bangladesh Petroleum Corporation (BPC) has the highest Tk 21,580 crore of idle money deposited in banks followed by Petrobangla Tk 18,204 crore, Dhaka Power Distribution Authority Tk 13,454 crore, Chattogram Port Authority Tk 9,913 crore and RAJUK Tk 4,030 crore.
But the ongoing liquidity crisis which is engulfing the banking sector would worsen if the government transferred the money from banks to the national exchequer. State-owned banks would be hit hard as most of the money was with them. They would be unable to continue to lend at their current low rate if they have fund shortages following the withdrawal of so much money.  
The draft law has pros and cons. On the positive side the SOEs (State-owned enterprises) are not known for their efficiency in managing idle funds. There are also allegations of abuse of authority over idle funds as banks compete for getting deposits. If the government used this idle money to finance high-priority development projects, which would have otherwise been financed from expensive domestic sources, such as National Savings Certificates, it will be able to create fiscal space without cutting essential expenditures. This means that the government would be able to reduce its need for borrowing money and thereby reduce its budget deficit.
However this idle money could be wasteful, if it is used for taking up politically motivated low value projects or say vanity projects. Since project implementation is often rushed -- with almost 60 percent of all ADP funds being utilised in the last three months of every fiscal year, there are good reasons to believe that the money will be wasted. Also, the government will have to define clearly what idle money is. After all, the SOEs need to have some cash for their day-to-day operational needs and this balance cannot be the same irrespective of the type of SOEs. Which State-owned enterprise would be allowed to keep how much must also be well defined to ensure transparency.

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