Cut dependence on non-bank borrowing

The chief economist of the central bank yesterday urged the government to reduce its excessive reliance on costly non-bank borrowing to finance budget deficit.

“Non-bank borrowing by the government is rising, which is putting pressure on the interest payment burden,” Biru Paksha Paul, chief economist of BB, told a discussion on the proposed budget organised by the Board of Investment (BoI) at its office.

He said if the government does not take any money from banks, it will create problems for the industry. 

In the last few years, the government has been taking loans through its savings schemes, which costs over 11 percent, against 6 percent for bank borrowing. This huge interest gap encouraged people to buy savings certificates, thus putting pressure on the interest payment burden.

The government set a target to raise Tk 15,000 crore from different savings tools for the outgoing year, but it was actually Tk 30,000 crore. On the other hand, it had a target to borrow around Tk 50,000 crore from banks, but the government did not borrow any money from them.

“Hopefully, this year, more money will be taken from the banking system than non-bank sources,” Paul said, making a presentation on the proposed budget and the overall economy. SA Samad, executive chairman of BoI, chaired the discussion while Waliul Islam, a former secretary, was present as chief guest.

The BB chief economist said Bangladesh's debt-GDP ratio is still low at 29 percent, which is 60 percent in India.

“We can afford more debt, if necessary, from foreign sources to use those in productive purposes,” said Paul.

He also said the UK's decision to leave the European Union will not affect Bangladesh. British economic fundamentals are strong and their currency will also recover from the present plunge, he added.

Waliul Islam requested BB to be kind to the capital market. Good companies should come into the capital markets, he added.

On foreign direct investment, Samad said he does not see anything bad in reinvestments by foreign companies, because it shows they have confidence in the Bangladesh business.