Increased domestic borrowing pressing economic shocks

NEWS media, quoting a finance ministry source, on Saturday reported that the government’s borrowing from domestic sources including banking sector has hit a phenomenonal growth of nearly 45 percent in FY 2015-16. Economists considered it an ominous sign for the economy. Conversely, the foreign grants declined remarkably in the last fiscal. However, a marginal growth in external borrowings has been marked meaning the economy is under threat of instability. The government for pursuing its high profile development is taking hard loans at higher interest from the World Bank and domestic banking sector without considering consequent loan repayment burden on the people per capita. In the process of development hype, corruption, nepotism, unaccountability and undue preferences are grasping the entire development budget. This has laid ground for budgetary mismanagement of a sort.

Data revealed that the total borrowing was Tk 40,392 crore in FY, which was Tk 27,932 crore in 2014-15 registering a growth of 44.60 percent year-on-year basis. Of the total debt, bank borrowing was Tk 6,704 crore compared to Tk 1,841 crore a year ago — a 264 percent growth. Non-bank borrowing increased nearly 95 percent. Internal borrowing from savings tools was Tk 33,688 crore in FY 2015-16, up by 29.91 percent from the previous year. Experts opined that costly domestic borrowing is the direct consequence of shortfall in external borrowing, and such ballooning in borrowing from both savings tools and internal banking system has only increased interest liability of the government.

Officials in the finance ministry stressed that a turnaround in the domestic borrowing for the current financial year will be possible if the yields on savings tools could be downwardly revised and spending spree at the final quarter of the fiscal is tightened. The ballooning of domestic borrowing in FY 2015-16 could not be tightened due largely to huge investment in savings instruments amid limited investment areas as stock business and return from bank deposits has frustratingly been discouraging for investors and savers. Lower returns from bank deposits and unavailability of suitable investment areas forced savers and depositors to invest in the lucrative savings instruments that offered as high as 12 percent interest.

The government should opt for low cost external borrowing to meet the budget deficit and shun the excessive domestic borrowing to avert bleeding in the economy. Initiatives to establish a vibrant capital market has also been recommended to divert investment from savings instruments to stocks.