Logo

Wednesday, June 12, 2019

Interest payment set to go high Public borrowing too big

Kazi Zahidul Hasan :
The government's expenditure on interest payment is set to rise in the upcoming fiscal year, as it relies heavily on domestic borrowing to finance the budget deficit.
Interest expenditure on government's borrowing has been estimated at Tk 57,070 crore for the fiscal year 2019-20, according to a rough budgetary outline.
Out of the total interest expenditure, Tk 52,797 crore will be paid as interest against domestic borrowings and Tk 4,273 crore for external borrowing.
Officials said, the interest payment would make up nearly 11 per cent of the upcoming budget, surpassing spending on transport sector, which got the highest allocation in the next fiscal's Annual Development Programme (ADP).
The transport sector got Tk 52,806 crore allocation in the next fiscal's ADP.
"The government will have to spend a big amount for interest payment in the upcoming fiscal year, as the public debt is getting too big to finance the budget deficit," an anonymous Finance Ministry official told The New Nation yesterday.
In the upcoming fiscal year, the total expenditure has been estimated at Tk 5,24,950 crore, while the revenue income has been projected at Tk 3,80,000 crore.
The overall budget deficit will be reached Tk 1,45,000 crore (excluding grants), which is 5.0 per cent of the GDP.
To finance the deficit budget, the government is likely to set a borrowing target of Tk 77,363 crore from domestic sources (banks, savings tools, others) and Tk 63,850 crore from external sources.
"In the recent years, the government has become more dependent on domestic borrowing than foreign ones in efforts to mitigate exchange rate risk and reduced vulnerabilities associated with external debt," said the Finance Ministry official.
As on June 30 last year, the country's foreign borrowing stood at US$51.83 billion. The government repaid $21.98 billion and the outstanding external debt stood at $39.58 billion till April this year, according to the Economic Relations Division (ERD).
The ERD data also shows that the government has paid $1.34 billion to external lenders in the first 10 months of the outgoing fiscal year.
The weighted average rate of interest on these external loans is 1.23 per cent.
"We have not worried about the external borrowing because it still remains in comfort zone," said the Finance Ministry official, adding, "Despite the fact, the government opts for internal borrowing to utilize the local resources."   
When asked, he said, the soaring interest payment against the public debt may put additional pressure on the national exchequer, but it could be eased through prudent fiscal management.    
The government has allocated Tk 51,340 crore for interest payment in the current fiscal year (2018-19) which is 11.1 per cent of total proposed budget of Tk 4,64,573 crore.
The interest expenditure for the outgoing fiscal year is 24 per cent higher from that of the previous fiscal year.
The government earmarked Tk 41,457 crore for interest payment against its borrowings in the fiscal year 2017-18, which was 10.4 per cent of that fiscal's proposed budget of Tk 400,266 crore.