Non-bank borrowing escalates
The government's non-bank borrowing soared in the first quarter of the current fiscal year because of the country's utter failure to make the most of the availability of cheap foreign funds due to its poor record in project implementation.
As a result, the government's debt servicing cost would rise in fiscal 2014-15, warned the fiscal coordination council and the resource committee, both chaired by Finance Minister AMA Muhith, during respective meetings early this month.
To plug the holes in deficit financing, the government, during the July-September period, depended heavily on non-bank borrowing, as there was a huge sale of savings instruments.
Savings instruments worth Tk 6,820 crore were sold in the first quarter, a figure which has already achieved about 75 percent of the target for the whole year, a finance ministry official said.
If the current trend continues, the sales of the savings certificates would total 301 percent of the original target at the end of the fiscal year. The council thinks this will increase the government's debt servicing cost, according to the official.
Savers have rushed to government' savings certificates as they offer much higher interest rates than banks.
The government could not utilise the foreign financing due to its perennial poor record in project implementation, although more than $19 billion are available for the country. Most of these funds in the pipeline are the cheapest loans in the world.
In monetary terms, the net foreign financing declined Tk 1,699 crore and the bank financing by Tk 34 crore in the first quarter. On the other hand, non-bank financing rose Tk 3,371 crore.
The slow progress in expenditure could be viewed in positive light as it normally keeps the deficit in check.
But owing to poor revenue earning, the deficit stood at Tk 1,738 crore in the first quarter, a stark contrast from the same period last fiscal year, when the amount was Tk 4,031 crore in the surplus.
In the first quarter, expenditure increased 13.4 percent year-on-year despite the slow pace of development spending.
During the July-September period of fiscal 2014-15, the total expenditure stood at Tk 36,523 crore, which was Tk 32,200 crore in the same period last fiscal year.
During the three months, non-development expenditure increased 14.50 percent over the same period a year ago. Development expenditure rose only 8.95 percent.
Of the non-development expenditure, the highest allocation went to service interest payments and pay staff salaries, said the finance ministry official.
Total non-development spending was Tk 29,695 crore in the first quarter. Of the amount, around Tk 4,078 crore was spent on interest payment in the first two months.
The government's overall revenue earning was very poor in the first quarter. In July-September, the total revenue declined 0.04 percent year-on-year. During the period, the total revenue collection was Tk 34,785 crore, which was Tk 36,231 crore in the same quarter last fiscal year. The non-NBR revenue collection performed the worst, slumping 45 percent year-on-year to Tk 6,543 crore.
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