Govt borrowing shoots up amid sluggish revenue

The government has continued to borrow heavily both from the central bank and lenders to make up the gap in spending and income thanks to its sluggishness of revenue collection.

In the first 13 days of the year, the government borrowed Tk 3,901 crore from the central bank, according to data from the Bangladesh Bank. Between the months of November and December last year the government borrowed a total of Tk 8,092 crore from commercial banks.

The government has also set a net borrowing target of Tk 2,358 crore from commercial banks this month. In the first four months of fiscal 2018-19, the government borrowed only Tk 1,373 crore from banks.

The implementation of ongoing mega infrastructural projects and adjustment of the post polls expenditures have also forced the government to take loans from banks, said economists.

They went on to urge the government to follow a cautious policy when it comes to lending from the central bank as it can fuel inflation.

The government borrowing both from the central bank and banks was too little in the last few years as savers were parking large amounts in national savings certificates thanks to the higher yield.

But the government has commenced borrowing from banking sources since the beginning of November last year, said a BB official.

In fiscal 2017-18 the government borrowed Tk 5,666 crore from the banking sector; it did not borrow any money the previous fiscal year but repaid Tk 18,029 crore.

The government has set a borrowing target of Tk 42,029 crore from the banking sector this fiscal year.

The new government is determined to wrap up implementation of the mega infrastructural projects as quickly as possible, prompting it to borrow in bulk from banking sources, said Salehuddin Ahmed, a former BB governor.

Revenue collection by the National Board of Revenue has also slowed in the first five months of the fiscal year, forcing the government to take large loans from the banking sector, he said.

In the first five months of the fiscal year tax collection growth stood at 7 percent, in contrast to 16 percent logged in a year earlier.

During the period, the NBR collected Tk 79,732 crore, which is 21.6 percent or Tk 21,973 crore short of the periodic target.

“It is an easy task for the government to mobilise funds from local sources than from abroad,” Ahmed said. The government is borrowing from the central bank as banks had faced a dearth of liquidity throughout last year and the situation is yet to improve, he said.

But the government stance on taking loans both from commercial lenders and the central bank is not a prudential move as it may badly impact the private sector and inflation, he said.

“The private sector is deprived of loans from lenders when the government borrows from there,” he said, while advising the government to bypass the borrowing from the central bank to avoid inflation.

AB Mirza Azizul Islam, a former finance advisor to a caretaker government, echoed the same on revenue collection. The government should rethink its strategy to borrow from the central bank to tackle the inflationary pressure.

He however said inflationary pressure was still low so it would not draw any problems for now.