Special Correspondent :
As the government’s bank borrowing has picked up amid revenue shortfall, analysts on Sunday expressed their worry over its impacts on the economy.
They are of the view that the borrowing spree could render monetary policy ineffective, lead to a larger debt interest payment and send the country’s deficit scold into a mess.
The government borrowed Tk 43,411 crore from the banking sector until November 17 and the amount is 92 percent of its full-year target of Tk 47,364 crore, according to data from the central bank.
Of the total amount, the government borrowed Tk 37,374 crore from the commercial banks and the rest from the central bank.
“A shortfall in revenue collection flares up the government’s borrowing from banks. The ongoing liquidity crunch in banks will get worse if the government continues to borrow from banks,” Dr AB Mirza Azizul Islam, former finance adviser to the caretaker government, told The New Nation yesterday.
Moreover, excessive bank borrowing will cause interest rate to rise and its impact will be huge on private sector investments, he said, adding that it will also lead to a larger interest payment obligation for the government and send the country’s debt-GDP ratio to unsustainable level.
Dr Islam further said if the debt to GDP rises rapidly, the government might need to increase taxes in future budget. High levels of internal debt might also force the government to print more money and increase in the money supply can cause inflationary pressures on the economy.
When asked, Dr Islam said, “Only a rebound in revenue collection can bring down the government’s bank borrowing. If not, a reverse situation may not be expected.”
Overall, revenue collection by the National Board of Revenue (NBR) grew by 2.62 percent year-on-year to Tk 47,388 crore between the months of July and September against the target of Tk 62,294 crore for the period, showing a short fall by almost Tk 15,000 crore.
“The country’s banking sector is already facing a liquidity crisis and high government borrowing will deepen the crisis further,” Dr Ahsan Mansur, Executive Director, Policy Research Institute of Bangladesh (PRI) said.
He also mentioned that the government’s excessive loans from commercial banks could soak up their available funds and put upward pressure on interest rates making it costlier for companies to borrow. “It can also affect private sector credit growth turning monetary policy ineffective.”
“The government resorted to high bank borrowing amid scarcity in resources created from revenue collection shortfall. The borrowing spree may not be contained unless the government goes for spending cut,” said Dr Ahsan Mansur.
The government has set Tk 5,23,190 crore expenditure plan in this fiscal’s (2019-20) budget, while the revenue collection target fixed at Tk 3,81,987 crore.
The overall budget deficit has been projected at Tk 1,45,380 crore which is about 5 per cent of the GDP.
To meet the budget deficit, the government has targeted to borrow Tk 77,363 crore from domestic and external sources.
Both the analysts suggested the government to mobilize its required fund from alternative sources like the bond market and foreign agencies to keep the economy free of risks associated with the high bank borrowing.
