The government’s hefty bank borrowing target to meet budget deficit for the fiscal year 2020-2021 may create a liquidity crisis in the banking sector, warned experts.
In the Tk 5,68,000 crore proposed budget announced on June 11, the revenue target has been set at Tk 3,78,000 crore. As a result, the budget deficit stands at Tk 190,000 crore.
The government wants to borrow Tk 84,983 crore from the banking sector to meet the deficit. On the other hand, banks -- on government’s guaranty -- have started distributing loans worth Tk 72,750 crore to Covid-19 hit businesses under the prime minister-announced stimulus packages.
Experts and economists said the businessmen from different sectors will face difficulties in accessing loans from the banks due to the liquidity crisis caused by the excessive borrowing by the government.
The finance minister plans to increase investment in the private sector by keeping credit growth normal; on the other hand, the government has set a target for hefty borrowing from the banking sector – these two intentions of the government are contradictory, they said.
If the government borrows more from banks, the private sector will get a small amount of loans due to a liquidity shortage, they clarified.
However, during a post-budget virtual press conference on Friday, Bangladesh Bank Governor Fazle Kabir dismissed the fact that there is any liquidity crisis in the banking sector.
He said the banks have Tk 1,13,000 crore cash liquidity till April 30; besides, there is another reserve of Tk 62,000 crore.
Even if the government takes loans to meet the budget deficit, there will be no problem, he added.
On condition of anonymity, managing director of a leading state-run bank, said, “It is quite normal for the government to take loans from the banks, if required. To implement the incentive packages, the banks have already started providing Tk 72,750 crore to Covid-19 hit businesses.”
“If the government borrows another Tk 84,983 crore from the banking system, there will certainly be a pressure on the sector,” he added.
Abul Kashem Ahmed, former president of the Dhaka Chamber of Commerce and Industry, said it can be said that next year will not be a good year for trade and commerce.
If the government borrows more loans from the banking sector to meet the budget deficit, the private sector entrepreneurs won’t get sufficient loans as per their demands, he said.
Former advisor to a caretaker government Dr Hossain Zillur Rahman said all sectors are already in crisis due to Covid-19 pandemic.
He said, "People's income has decreased. Some are withdrawing deposits from banks. This can lead to the shortage of liquidity in the banking sector.”
To meet the budget deficit of the outgoing fiscal, the government has already taken a record amount of loans from the banks, he said, adding that the excessive borrowing would have negative effects on the private sector growth.
The government’s bank borrowing target for the outgoing 2019-20 fiscal was Tk 74,000 crore. But at the end of the year, it is fixed at Tk 82,000 crore.
Dr Rahman, however, hoped that the situation might change once the affected businesses start getting money in full swing under the government-announced incentive packages.
