THE government plan to balance this year’s over taka twenty thousand crore budget deficit taking loans from private and public banks and ‘other sources’ is yet another indication of fiscal mismatch. Banks can’t be easier source of deficit financing making repayment uncertain and those banks sick. It’s not the size or extent of the deficit budget which causes worry but the methodology for how it is supposed to be funded. In the face of a budget deficit, the government is open to finance it from domestic and foreign sources, or even borrowing from financial markets. But such process has its own setback to cause shrinking of supply of loanable funds. Moreover, it delays financing development projects.
We fail to comprehend why our policy makers don’t consider other useful options than just relying heavily on loans from private and public commercial banks. The government is intelligent enough to understand the fact that such borrowing creates unintended consequence known as crowding-out of private borrowers for commercial purposes. It results in increasing rate of interest, which in turn make borrowing costly and investment risky. Most importantly, the government’s financing of major part of the deficit through bank loans risk squeezing the access of private sector to the banking system and slow down economic growth.
The long term repercussion for obtaining such loans is that it keeps the interest rate growing. By now almost all interest rates for financing business in this country are in the double digits unlike many developed nations in the world. We must break-free from this unhealthy culture of higher interest rates. Now that the scheme for charging excessive VAT has been nullified, so now it may well end up in eating up the depositors’ money in the country.
Needs to be reminded that, a series of manmade vice and fraud have already hit our banking sector very hard in recent times. In the series of scams which took place between 2011 and 2013, three of the state-run banks – Sonali Bank, Janata Bank and BASIC Bank – had lost Tk 12,000 crore. Moreover, according to a recent Finance Ministry investigation report, the former Chairman of BASIC Bank was involved in a loan scam involving as much as a massive sum of Tk 2,200 crore alone. Coupled with scams – now it’s the extra pressure of government’s budget deficits which is pushing our banks to their limits.
Lastly, we clearly mark more deficiency in the planning and policy making for meeting budget deficiencies than in the budget itself. Our country is home to a number of globally renowned finance experts, bankers, economists and think-tanks. We feel, they should be incorporated in the overall budget making procedure so to avoid creating unnecessary extra loads on our banking system.
