Kazi Zahidul Hasan :
Government relies heavily on domestic borrowing to meet its expenditure requirement amid a massive revenue deficit.
According to the latest data, the National Board of Revenue (NBR) fetched Tk 1,32,000 crore revenue during the first seven months (July-January) of the current fiscal year against the envisaged target of Tk 1,69,000 crore, witnessing mammoth collection shortfall of Tk 36,841 crore during the period under review.
“NBR is facing massive revenue shortfall in the ongoing fiscal year (FY) 2020-21 amid economic slowdown caused by novel coronavirus pandemic. The dismal revenue collection has prompted the government to scale up domestic borrowing specially from non-banking sources to partly finance the budget deficit,” a senior Finance Division official told The New Nation.
He said a higher borrowing from internal sources, mostly from national saving tools in turn will create interest payment burden on the government.
The government is offering 11.3 per cent interest against the national saving tools.
It (gov’t) has set a target of borrowing Tk 20,000 crore against National Saving Certificates (NSCs) for fiscal 2020-21
But the net sales of NSCs have already crossed this fiscal year’s target in just six months amid shrinking bank interest rate on deposits.
Target of Govt domestic borrowing for FY21
The target of total domestic borrowing has been set at Tk 1,09,983 crore for the current fiscal’s budget,
of which Tk 84,980 crore from banking system and Tk 25,003 crore from other than banks. (Other than bank includes net sale of NSD instruments and T- bills & bonds held by Non-Bank Financial Institutions (NBFIs), insurance companies, individuals etc.)
Borrowing from banking system
According to an official data prepared by the central bank showed that government borrowed (net) Tk 42,475.2 crore from scheduled banks (SBs) during July-January 2021. On the other hand, government repaid Tk.46,622.7 crore from the outstanding balance of its borrowing from Bangladesh Bank (BB) of end June 2020. Thus, govt. borrowing (net) from the banking system (BB+SBs) declined by Tk 4,147.5 crore during the period under review.
Borrowing from other than banks
During July-January 2021, Government borrowed (net) Tk 27,895.9 crore from other than banks, of which Tk 25,702.2 crore from net sale of NSD instruments and Tk 2193.7 crore from govt. t-bills & t-bonds, according to the central bank.
Government borrowed Tk 11791.1 crore from other than banks during July-January of the previous fiscal year (2019-20).
Policy Research Institute executive director Dr Ahsan H Mansur said the government has to rely heavily on domestic borrowing as its finances are in poor condition because of a massive shortfall in revenue receipts.
“The government is basically stuck between the devil and the deep sea due to the sorry state of revenue collection. In this complex situation, the idea of more internal borrowing is rational though it has some downside risks,” he observed.
Dr Mansur, a former Senior Executive of International Monetary Fund (IMF), further said the government’s domestic borrowing mostly is covered from the sales of savings certificates which is highly expensive in terms of their interest. “It would push up national debt and the government’s expenditure to the head of interest payment,” he added.
The current fiscal’s budget earmarked an allocation of Tk 63,801 crore for paying interest, which stands at 11.23 per cent of the total budget.
When asked, Dr Mansur said the revenue collection deficit did not result only from the pandemic driven economic slowdown but also the NBR’s capacity constraints and the government’s ambitious target.
He also noted that the fiscal deficit this time would touch historic high due to falling tax revenue. “The government needs to look at innovative ways to shore up tax revenues. Also, it needs to prioritize its expenditure in line with current economic conditions.”
The total outlay of the current fiscal’s budget is Tk 5,68,000 crore. The estimated revenue collection for FY21 is Tk 3,78,000 crore leaving a budget deficit of Tk 1,90,000 crore or 6 per cent of the GDP.
