Government should walk away from excessive borrowing

Published: 00:00, May 18,2021


HIGH government borrowing from domestic and foreign sources to make up for budget deficit has been a concern in Bangladesh’s macroeconomic policy. When government borrowing from domestic and foreign sources has soared in the past few years pushing up the budget deficit to GDP ratio, the government appears to go for another high deficit budget in the coming financial year. The finance minister is expected to announce the 2021–22 national budget worth around Tk 6 lakh crore on June 3, with the projected income to be Tk 3.89 lakh crore, including Tk 3.30 lakh crore targeted to be mobilised by the National Board of Revenue. This suggests that the government will have to borrow heavily from domestic and foreign sources to make up for the deficit, which, in turn, will add up to the swelling government debt. The Finance Division is going, as New Age earlier reported, to allocate around Tk 69,000 crore in the upcoming budget for paying the interest on government borrowing. The amount is more than double the amount paid eight years ago and the payment for interest would hold the fourth biggest head in the overall expenditure after public administration, education and technology, and transport and communication.

The steep rise in government borrowing sends, as economists say, a bad signal for the economy. The government borrowed, as official data show, Tk 1,04,436 crore in the 2017–18, Tk 1,38,134 crore in 2018–19 and Tk 1,50,054 crore in 2019–20. About 80–90 per cent of the borrowed amount came from domestic sources. The situation is not much different in the ongoing financial year, even though the government has tried to reduce borrowing from the country’s banking sector, which is already plagued with high non-performing loans. While the government has reduced borrowing from the banking sector in the past few months, it has increased borrowing from national savings schemes. The government also plans, as New Age reported on Monday, to borrow around Tk 32,000 crore — about 60 per cent higher than the target in the ongoing financial year — through national savings schemes in the upcoming financial year. Moreover, the government has already begun borrowing from the foreign exchange reserve. The government in March this year inaugurated a window named the Bangladesh Infrastructure Development Fund to facilitate borrowing from the foreign exchange reserve to implement development projects. All this goes against the government’s declaration to reduce dependency on domestic borrowing.

Excessive domestic borrowing is likely to cause credit crunch in the private sector and upset the financial discipline. The government, which is expected to not go for a business-as-usual budget and to enhance its social safety net programmes to help the poor amidst the Covid outbreak, must reduce domestic borrowing, set its macroeconomic policy right and must prioritise projects that are of utmost necessity now. The government must also strengthen revenue mobilisation by expanding the tax base and improving tax administration so as to reduce budget deficit.

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