Ballooning bank borrowing estimated

The government plans to secure Tk 1,41,818 crore in loans from different domestic sources to tackle the deficit in the upcoming national budget for the 2022-23 financial year.

It will be Tk 28,365 crore higher than the outgoing fiscal’s Tk 1,13,453 crore target of the outgoing FY2021-22, according to Finance Ministry sources.

Of the Tk 28,365 crore, the government aims to secure Tk 25,366 crore in bank loans and Tk 2,999 crore from other non-banking local sources.

Out of the total Tk 1,41,818 crore domestic source target, Tk 1,01,818 crore will come from bank loans and the rest Tk 40,000 crore from the other sources of loan, including savings certificates.

Finance Minister AHM Mustafa Kamal is set to table a Tk 6,77,864 crore budget for FY2022-23 in parliament on June 9, with a projected GDP size of Tk 44,12,849 crore.

According to the ministry, there will be a Tk 2,44,913 crore deficit in the next budget, which will be 5.5 per cent of the GDP (in line with the updated base year of 2015-16).

To meet the deficit, the government plans to get 58 per cent of that total from domestic sources and manage the rest 42 per cent — Tk 1,03,095 crore — from foreign aid, grants and loans.

The outgoing FY2021-22 budget was Tk 6,03,681 crore, which had a Tk 2,11,191 crore deficit. To meet that deficit, Bangladesh had aimed to secure Tk 97,738 crore from external sources and Tk 1,13,453 crore from internal ones.

Out of the total domestic target, Tk 76,452 crore was supposed to come from bank loans and the rest Tk 37,001 crore from other local sources.

No other way?

Regarding the plan to manage Tk 1,41,818 crore from domestic sources, a Finance Ministry official said there is no way around it to tackle the budget deficit. “We’ll have to take the bank loans since revenue growth will be lower than the overall planned expenditure.

“The government will be under pressure because of the overall loan amount but it will be able to pay them back,” added the official.

Economists say that meeting the budget deficit will be a major challenge since its size is set to grow along with a bigger budget. However, if the way aid and loans from both local and foreign sources have increased in the current fiscal continues, the government will be able to breathe a sigh of relief.

They have also suggested that the government should look for alternative sources of funding as well.

Based on the upcoming budget, the government’s coffer will be a bit wider in the next fiscal to cope with the many challenges and the global economic instability, but uncertainty over securing the sources of those funding remains.

Economists believe that the government in the end will have to implement its income-expenditure plan for the next fiscal after heavily revising it.

Expenditures in various sectors will go up as the next budget will have to deal with employment generation, rising commodity prices in the international market and ensuring money to feed billions of low-income people.

The spending of Tk 6,77,864 crore budget for FY2022-23 will be grossly divided into two sections — administrative costs and development expenses.

The Tk 4,31,657 crore administrative expenses will include Tk 76,412 crore for salaries of government officials; Tk 38,332 crore for goods and services; Tk 80,275 crore for loan interest payment; and Tk 1,77,145 crore for subsidies, incentives and cash loans.

On the other hand, most of the Tk 2,46,207 crore development expenses will go to the Annual Development Programme (ADP).

Apart from its income, the government will cover the remaining deficit with domestic and foreign loans to make this expenditure plan come true.

More challenging?

According to economist Dr Debapriya Bhattacharya, a distinguished fellow at the Centre for Policy Dialogue, the government will have very little revenue surplus after spending money in these sectors. “Due to these reasons, it is becoming very difficult to raise funds from domestic sources for the ADP.”

“This fiscal’s rate of ADP implementation is lower than any other year. The projects that are in ADP do not get the required funding, nor do they get verified for quality technology and feasibility from the beginning,” he said.

“Moreover, how the target population is benefitted by the project is not even verified after the completion of the project. The expenditure ends up becoming the centre of attention, not the project’s result,” added Debapriya, also a member of the United Nations’ Committee for Development Policy.

Economists say that if the government, which depends on bank loans to tackle low revenue and meet the expenditure plan, starts taking more loans from the banking sector, the private sector credit flow will reduce and damage the investment growth plan.

Meanwhile, the government will have to think about the increasing loan interest rate as well.

This fiscal, it will spend Tk 68,589 crore to pay loan interest. The amount will be Tk 80,275 crore in the next fiscal, which is Tk 11,686 crore more