The Jatiya Sangsad (JS) on Wednesday passed a bill allowing the autonomous state organisations and agencies to deposit their surplus fund with the public exchequer.
The ‘Deposition of the Surplus Money of Self-Governed Agencies including Autonomous, Semi-Autonomous, Statutory Government Authorities and Public Non-Financial Corporations into the Government Exchequer Bill, 2020,’ was passed in a bid to use the surplus money for funding public projects.
The passage of the law, however, evoked reaction from economists who fear that the mass withdrawal of the deposits may put the country’s banks and financial institutions in further trouble when they are facing liquidity crisis, besides, an improper use of the money would bear no fruit on the economy rather raise the risk on it.
They also observed that the government has no other alternative but to utilize the surplus fund of public agencies as heavy bank borrowing amid big shortfall in revenue collection put its fiscus under severe strain.
As of September last year, 61 autonomous bodies and agencies had a surplus fund to the tune of Tk 2.12 lakh crore.
The amount is more than the annual development budget for fiscal year 2019-20 and it has already put in interest-bearing fixed deposits with various banks and financial institutions.
Bangladesh Petroleum Corporation (BPC) tops the list with Tk 21,580 crore in long-term deposits with banks, followed by the Petrobangla with 18,204 crore, the Power Development Board (PDB) with Tk13,451 crore, and the Chattogram Port Authority with Tk9,913 crore.
Commenting on the issue, Dr Ahsan H Mansur, Executive Director of the Policy Research Institute, Bangladesh, said, the government has already resorted to heavy bank borrowing to finance the ongoing development projects against the backdrop of massive shortfall in revenue collection.
“Exhausted by the bank borrowing, the government now paws on the surplus funds of State-owned Enterprises (SoEs) in a desperate bid to manage the persistent fiscal deficit. But the initiative will finally appear as an ‘accounting gimmick’ hardly creating any fiscal space for the government,” added Dr Ahsan Mansur.
When asked, he said, “No doubt, banks are reeling under the liquidity crisis. But right now it not the major issue. In my mind, the most important issue is to maintain fiscal discipline. But still the government struggles to address the issue and it can invite adverse economic consequences.
The government’s net bank borrowing has already exceeded the full-year target reaching Tk 50,842 crore until January 15, according to Bangladesh Bank.
Besides, revenue collection by the National Board of Revenue fell short by Tk 31,508 crore or 23 per cent of the target in the first half of the current fiscal year 2019-2020 due to gloomy economic activities in the country.
Commenting on the new law, Dr Zahid Hossain, former lead economist at the World Bank Dhaka office, said, “It has both positive and negative sides. The State-owned Enterprises (SoEs) are lack of efficiency in managing idle funds. Besides, there are allegations of misuse of such funds by them.”
He observed, the authorities of SoEs usually put their idle funds as interest bearing deposits with banks and thus do not offer best and productive use of the public money. “If the government uses this money to finance priority projects, which would have otherwise been financed from expensive domestic sources, may have bear fruit and help create fiscal space without trimming development expenditures.”
However, Dr Zahid Hossain said, if this idle money is used properly or it spent for politically motivated projects or vanity projects, it could be wasteful and damaging for the economy.
“So, the government should ensure the best use of the public funds to reap the maximum economic benefit,” he added.
Economist Dr AB Mirza Azizul Islam said the surplus funds of SoEs remains in banks as idle money. It is not used for productive purpose. If the government makes sure that the money to be used to productive sectors to help economy to flourish.
“On the other hand, the liquidity crisis may be wide deepen in banks if government pulls away the fixed deposits of different public organisations,” opined Dr Mirza Aziz.
He said, it may also leave an adverse impact on private sector lending, which already hit record low in the wake of liquidity crisis in banks and eroding business and investment climate.
“A further fall in private sector lending would lower the economic growth and limit the opportunity to create necessary jobs,” he added.
Ali Reza Iftekhar, Chairman of the Association of Bankers, a platform of the managing directors of private banks, said, “The banks may face trouble if the government transfers the deposits from them to the state coffer overnight. “But this is not the government purpose so far we know. As per my knowledge, the government may distribute the idle funds among the banks with a new arrangement. But still we do not know how the funds would be distributed afresh among private banks.”
He, however, dismissed the claim of the liquidity crisis in banks saying, if there is a crisis ‘call money’ rate should go up exorbitantly. But a persistent low call money rate contests the so-called ‘theory’ of liquidity crisis.
“I do not see any problem depositing idle fund of state and autonomous agencies in the national exchequer when the government wants to use the money in productive sectors,” former Bangladesh Bank Deputy Governor Dr Ibrahim Khaled told The New Nation.
He also said that the government might not withdraw the entire deposits of SoEs all of a sudden and it will remain in the banks until they get matured. So, we may not worry about a possible and persistent liquidity crisis.
