Huge interest payments a concern

The government has to pay Tk 27,811 crore or 12.5 percent of the total budget outlay for interest payments, which is more than half of the deficit financing figure proposed at Tk 55,032 crore in the new budget.
This interest payment figure is also higher by Tk 4,626 crore than the estimated cost of the Padma Bridge project.
Budget documents show most of these payments will go for meeting domestic borrowing costs as foreign debt is declining over the years. Interest payments on foreign debt for fiscal 2013-14 have been projected at around Tk 1,800 crore.
“Interest payments are rising as the government cannot avail low-cost foreign funds,” said Zaid Bakht, research director of Bangladesh Institute of Development Studies (BIDS).
He said borrowing from domestic sources, both banking and non-banking sources, was costly and pushing the interest burden up.
“This was the reason why interest payments figure went up to Tk 28,000 crore for the outgoing year instead of a budgetary target of Tk 23,392 crore,” said Zaid.
He advised the government to go for utilising $12 billion [Tk 90,000 crore] foreign aid that was in the pipeline for years.
Of the Tk 55,032 crore budget deficit proposed for the new fiscal, Tk 21,068 crore will be financed from external sources and Tk 33,964 crore from domestic sources, mostly bank borrowing.
The budget for fiscal 2013-14 proposed Tk 15,352 crore for subsidies excluding the allocation for farm sector. Separately, Tk 9,000 crore has been allocated as agriculture subsidy, down by Tk 3,000 crore from the outgoing fiscal year.
Subsidy allocation for the outgoing year was Tk 38,808 crore, which includes subsidies for agriculture, power and energy sectors. The finance minister attributed this increase to payment of arrears accumulated over the last few years.
The minister also hinted for adjustment in the administered prices of electricity and fuel to harmonise these with international prices.
“May be the government has a plan to adjust energy prices in the coming year to reduce subsidy burden,” Zaid observed.