NEWS report published in The New Nation on Saturday said that the government is heavily borrowing from the public by selling high interest bearing saving instruments and using the money to repay past bank loans. The fact that the government is using this money borrowed at 12 to 14 percent interest to retire existing bank loans normally borrowed at 7 to 8 percent interest, appears quite confusing as it is refocusing the source of government domestic borrowing.
Question may arise as to why the authorities are switching to high cost loans with ballooning domestic debt service cost on the future budgets. Another question may be that whether such high interest bearing loans would be productive to add more to the socio-economic benefits or only add to more burdens on future taxpayers and mismatch to public finance. Why we are borrowing at twice as much of the cost of bank loans needs to be cleared. Because we know there are many countries with corrupt and inefficient governments running repressive regimes while relying on more public borrowing and passing its load on the future generation. The fact is that if the money so borrowed will go to creating more income and opportunities to accelerate the economic growth, it is good. But if it is done only to shift today’s liability on future, it is not a good fiscal policy and can’t be acceptable.
The report said in eight months from July last year to February this year sales of saving instruments have shot up by 77.41 percent to Tk 26,533 crore while the government was rather set to borrow Tk 31,221 crore from banks under the entire current fiscal 0f 2014-15, but did not much. Figures also showed the government has already crossed its target of borrowing Tk 9,056 crore three times higher from sales of saving instruments during this budget year. Meanwhile, it has also repaid to banks Tk 6,436 crore in eight months while it had borrowed Tk 7,483 crore in the corresponding period last year. This is a total turn around in domestic borrowing.
It is clear that banks are not getting big borrowers for investments during this period of political turmoil and since lending has plunged, banks’ ability to pay high interest to depositors has also eroded. It partly explains why interest rates on deposits have plunged to induce savers to buying high interest bearing government saving bonds. The government is luring the deposits to that. But in terms of its burden on future debt servicing, the matter is turning out to be alarming. It is visible from the fact that the government had to increase the allocation for interest payment in the revised budget last year as it had shot up above initial estimates and it is set to be repeated this year too for the phenomenal rise in sales of savings instruments. The point is that we must not cross the prudent limit.
