THE Federation of Bangladesh Chambers of Commerce and Industry on Saturday observed that the government’s over dependence on bank borrowing might put a negative impact on credit flow to the private sector. The newly-elected President of the country’s apex trade body made the observation at a press conference on proposed National Budget for the Financial Year 2015-16 that was placed before the Parliament on June 4.
In the proposed budget Finance Minister AMA Muhith made a proposal for bank borrowing of Tk 38,523 crore to manage deficit financing. The FBCCI President said that with a view to achieving the estimated 7 percent gross development products the government would have to encourage private sector, the highest contributor to the GDP.
The FBCCI President thinks that the development in infrastructure and cutting down the interest rate of bank loan are needed to encourage the private sector. He opposed the proposal for tax hike at source to one percent on export price and demanded continuation of the existing tax at 0.30 percent.
The FBCCI President said that the exporters would have to pay tax but it was not the right time to increase the rate.
FBCCI President demanded withdrawal of proposed 10 percent value added tax on private medical colleges and private engineering colleges and said the imposition would increase the cost of education. He said the Finance Minister’s proposal to withdraw the current exemption of VAT from indenting farms; concrete ready-mix and copra waste would be harmful for some sectors.
40,000 crore takas represent almost 6 percent of the 7.2 trillion takas which form part of the total amount given as credit by banks – as such it is a significant number. However the banking sector is burdened with surplus money of over Tk 1 lakh crore after fulfilling the requirement of minimum liquid asset as of December last year, according to the central bank data. The overall credit in the private sector stood at Tk 5,45,500 crore while public sector credit was at Tk 1,21,500 crore in February 2015, as per data from the Bangladesh Bank. So in other words, public sector credit represents nearly twenty percent of the total available credit of the economy.
Moreover, the government recently cut interest rates on National Savings Bonds. Interests on all types of savings certificates had been cut by 1-2 percent on an average. For example, the five-year Bangladesh Savings Certificate interest rate has been reduced from 13.26 percent to 11.19. This will further spurt an increase in deposits in banks as low interest rates will force people to increase the amount of bank deposits in the banks – which will in turn increase more idle money in the banks.
