FY2020-21: Interest payment to eat up 11pc of total budget

The allocation for the payment of interests in the next fiscal budget is projected to be set at Tk63,525 crore, which is around 11 percent of the total budget size. 

The government has increased the amount for interest payment in 2020-21 fiscal by Tk6,457 crore or 11.31 percent, compared to the amount allocated for the same purpose in the ongoing fiscal, according to the document of a recent meeting between prime minister and finance minister over the upcoming budget.  

The total outlay of the next fiscal budget is Tk 5,68,000 crore, of which Tk3,62,855 crore is allocated as operating expenditure. And the allocated amount for interest payment is 17.5 percent of the total operating expenditure. The government will use the allocation mostly to pay interests on huge bank loans.

Experts, however, said the interest payment liability will severely impinge on the government’s ability to provide more funds for poverty.

An official of the finance division said the government has reformed the country’s savings scheme and reduced the savings interest rate, discouraging people and the institutions to invest in savings certificates and bonds.

As the sales of savings tools have dropped, the government has no option left except to borrow from the banking system, he said.

Moreover, the ongoing lockdown has already brought the economy to its knees, prompting the government to borrow from the banking system that has already gone above Tk 80,000 crore in the current fiscal, he added.

According to the findings of a recent survey jointly conducted by Power and Participation Research Centre (PPRC) and BRAC Institute of Governance and Development (BIGD), the COVID-19 pandemic has pushed 22.9 percent people of the country below poverty line apart from the officially-recognised 20.5 percent existing poor.

The report styled "Livelihoods, Coping and Support during Covid-19 Crisis" recommended that over 43 percent of the country's population, comprising both the recognised poor and "new poor", require Tk100 billion fiscal stimulus to sustain the pandemic.

The government’s “Vision 2021 and the associated Perspective Plan 2010-2021” has set a series of development targets for 2021. Among the core targets identified to monitor the progress toward the Vision 2021 objectives is that of attaining a poverty headcount of 14 percent by 2021. Last April, Prime Minister Sheikh Hasina announced stimulus packages worth Tk100,000 crore that included the poor, small businesses and agriculture.

Proper use of the fund can help lift more people who may otherwise go below the poverty line due to coronavirus pandemic, added the finance division official.

Planning Minister M A Mannan also said most of the initiative packages and the recently approved Annual Development Programme aim to address the issue of poverty during pandemic.

For the ongoing fiscal, Finance Minister AHM Mostafa Kamal had pegged the government’s total borrowing at over Tk 87,900 crore. However, the government has already borrowed 81,000 crore from the banking sector alone till May 13 of the current fiscal -- Tk 33,736 crore or 71 percent more than the bank borrowing target of Tk 46,384 crore.

Economist and former finance adviser to a caretaker government Dr AB Mirza Azizul Islam told The Business Post that it is a major financial management challenge for the government on how to tackle funding issues during the COVID pandemic.

If the allocation for interest payment had been comparatively small, the government could have used the fund for poverty alleviation, he opined.

“Therefore, the government has to plan for obtaining low-interest loans from development partners,” he added.