Govt borrowing from BB is like printing money

The government will depend more on borrowing from the Bangladesh Bank to meet the upcoming fiscal year’s budget deficit, which is like printing money, and this will increase inflationary pressure further, speakers at a programme said on Thursday.

The budget deficit is continually increasing due to the huge rise in operating expenses, they told the webinar titled “Budget 2023-24 and Economic Stability Assessment” and organised by Forum for Bangladesh Studies.

The programme was moderated by Faiz Ahmad Taiyeb, a writer and a member of Forum for Bangladesh Studies.

Zia Hasan, a researcher in the German government’s education department, said in his keynote the FY24 budget size is Tk 7.61 lakh crore, including operating expenditures of Tk 4.75 lakh crore.

He said such expenses increased by 115 per cent since 2018, adding the budget deficit is Tk 2.61 lakh crore and the government will borrow Tk 1.32 lakh crore from the banking sector to meet that.

Zia said Tk 70,000 crore had been borrowed from the Bangladesh Bank between July and March of FY23 while this number will exceed Tk 1 lakh crore by the end of the current financial year.

The amount of borrowing to meet the budget deficit in the new financial year could be Tk 2.32 lakh crore and it has to be achieved by printing money, he noted.

Speakers said printing money is called devolvement by the Bangladesh Bank and commercial banks buy treasury bills or bonds when the central bank issues those.

But now due to the liquidity crisis, banks are not interested in buying such bills or bonds. As a result, the central bank is buying such instruments on behalf of the government. It is increasing reserve money or base money, which is generating high-powered money, speakers explained.

This high-powered money goes to the market, creating a fivefold increase in money flow. As a result, inflation is increasing. So, government borrowing from the central bank is like printing money and it is one of the causes of inflationary pressure, they said.

Former governor of the Bangladesh Bank Salehuddin Ahmed said a big budget does not mean large administrative expenditures and the increase in spending on education, health, and social security remains to be seen.

He said all targets in the proposed budget for FY24 are unrealistic. “Why was the exchange rate retained? If taka was devalued slowly, we would not have faced the current situation.”

Executive Director of the Centre for Policy Dialogue (CPD) Fahmida Khatun said it is expected that the USD exchange rate will come down to Tk 104 in the new financial year from the existing Tk 108.

She said there was no discussion in the proposed budget on how to prevent the devaluation of taka. The economist feels budget formulation and implementation is becoming opaque due to a lack of accountability and the culture of flattery.

Less participation of people in forming the government is the main reason behind the lack of transparency in budget formulation and implementation, said Badiul Alam Majumdar, secretary of SHUJAN.

He recommended holding free, fair, and participatory elections to form a government, which he said would increase responsibility in budget formulation and implementation.

Some Bangladeshi researchers living here and also abroad joined the discussion, including Ali Riaz, a distinguished professor at Illinois State University in the US.