Govt's cost of debt to double
Government borrowing through savings instruments in fiscal 2015-16 is most likely to be nearly double the budgetary target, an exercise that will push up debt servicing cost or interest payment.
Net borrowing from savings instruments stood at Tk 30,093 crore during the July-May period of last fiscal year, whereas the initial budgetary target was Tk 15,000 crore, according to central bank statistics.
In the revised budget, the amount was increased to Tk 28,000 crore.
The full-year net borrowing from savings instruments may cross Tk 35,000 crore, said a finance ministry official.
“The government is in a tricky situation with domestic debt management because of an increase in high-cost borrowing from savings instruments.”
On the other hand, bank borrowing by the government as per Bangladesh Bank's preliminary estimate was Tk 4,807 crore against the target of Tk 31,675 crore in the revised budget.
In the revised budget, the target for bank borrowing was cut from the original budget, but the government was not required to borrow even that amount in the end as sales of savings instruments shot up.
“When the actual counting will be made, the government's borrowing from the savings instruments will go up and bank borrowing will go down.”
For example, in fiscal 2014-15, the target for borrowing from the banking system was Tk 31,714 crore, but the eventual lending was only Tk 514 crore.
On the other hand, the borrowing target for savings instruments was Tk 21,000 crore, which at final count was Tk 28,705 crore.
Since the government does not have direct control on savings instruments, borrowing from this source have increased by the day, according to the finance ministry's Medium Term Macroeconomic Policy Statement released last month.
In recent times, the rate of interest on savings instrument saw cuts but it is still higher than on bank borrowing, said the finance ministry official.
The rate of interest on the government's bank borrowing is within 3.89 percent to 5.17 percent, while that on savings instrument is from 11 percent to 12 percent.
The government has been considering making the rate of interest on savings instrument market-based.
Finance Minister AMA Muhith on several occasions had said steps will be taken to make the rate market-based.
But the official said there has been opposition from ministers and top bureaucrats over this.
They put forward the argument that the rate of interest on deposits in banks has drastically fallen and the share market is not performing well either, so the small savers do not have many opportunities to make investment.
Agriculture Minister Matia Chowdhury is also opposed to the idea of lowering the rate of interest on savings instruments.
“A huge sale of savings scheme with administratively determined high rate of interest is obstacle to reduction to the cost of borrowing,” said the Medium Term policy statement. “Due to the increase in sales of national savings scheme, the share of domestic interest cost has been increasing in recent years as a proportion of total interest payment compared to external interest cost.” The cost of interest payment in fiscal 2015-16 was estimated at Tk 31,670 crore, compared to Tk 39,950 crore in the current fiscal year.