Excessive bank borrowing to shrink private credit flow

The country's apex trade body has termed the proposed budget industry-friendly, but expressed fear that the government's excessive borrowing from the banking system may shrink credit flow to the private sector.

To plug budget deficit, the government plans to borrow Tk 56,523 crore from domestic sources next fiscal year, of which Tk 38,523 crore may come from banks.

“This dependence on the banking system may put a negative impact on the private sector credit flow,” said Abdul Matlub Ahmad, president of the Federation of Bangladesh Chambers of Commerce and Industry.

On the other hand, he said, if the government fails to address deficit financing properly, development activities will be hampered.

“We think the government will have to deal with the issue competently,” Ahmad told a post-budget press conference at the FBCCI office in Dhaka yesterday.

He said the country's economic growth has been hovering around 6 percent for the last few years. “Investment should be increased to raise the economic growth rate to 7 percent,” he said.

Given the private sector's huge contribution to gross domestic product, bank interest rate for them should be lowered, he said.

“Industrialisation will accelerate only if loans are given at a single-digit interest rate,” he said.

The FBCCI president said the government revises the budget every year due to a mismatch between funding and expenditure.

The government should strengthen its monitoring so it can start implementing the budget from the very beginning of the fiscal year, he said.

Referring to the proposed hike in tax-at-source on exports to 1 percent, he said it is true that the export-oriented industries, especially the apparel sector, have been enjoying various tax benefits for years.

“But still it's too early to increase the tax rate and I think the government can continue the existing facility for another 2-3 years,” he said.

It will be difficult for garment makers to achieve the $50-billion export target by 2021 due to the hike in tax, he said.

He also said there should not be any supplementary duty on the services such as mobile phone that the masses use.

Matlub said the government proposed to reduce taxes and duties in many cases to encourage the local industries. But there are some proposals for increasing taxes and duties in other cases too that may hurt the related industries, he said.

“We will work with our associations and chambers on the issues for the next 10 days and submit a set of recommendations to the government to incorporate those in the budget,” he said.

FBCCI First Vice-president Shafiul Islam Mohiuddin said the implementation of the new pay scale for government employees from this July may stoke inflation.