The government's borrowing from the banking sector may rise significantly this fiscal year following revision in the revised annual development programme (RADP) amid shortfall in revenue mobilisations.
Sources at the Finance Division said the government might borrow between Tk 50 billion and Tk 60 billion to meet its budget deficit this fiscal year (FY).
The sources said the deficit might reach 5.0 per cent of the gross domestic product (GDP). Budget deficit was estimated to be 4.6 per cent of the GDP in FY 2013-14.
The government finalised its revised annual development programme (RADP) by raising Tk 50 billion, totalling Tk 600 billion.
However, economists said this borrowing would not prompt the crowding-out effect in the economy as the banking sector had now adequate idle money.
But the higher volume of bank borrowing would increase the government's spending on interest payment.
According to Bangladesh Bank (BB), government borrowing has been shooting up since October 2013 last, except in November 2013.
As per the budget document, the government target for borrowing from the banking sector is nearly Tk 260 billion in fiscal year 2013-`14.
However, the government is likely to receive at least Tk 3.0 billion higher from saving instruments, sources said.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRI) said: "Actually, the government will not be able to make such a big outlay in the current fiscal year, so there will be no big borrowing."
Mr. Mansur said if the government really borrowed a higher amount to meet its deficit, then it would not lead to any crowding-out effect in the economy.
"The banking sector has adequate money and it will not affect private investment," Mr. Mansur added.
Abul Basher, a researcher at the Bangladesh Institute of Development Studies, said: "There is little possibility for a crowding-out effect in the economy after taking Tk 50 or Tk 60 billion from the banking sector." In his study, he showed that public borrowing from the banking sector was recorded at its highest level at 2.5 per cent of GDP in 2011 fiscal year, and during that time the economy did not experience any crowding-out effect.
He ruled out any adverse effect in terms of higher inflation in the economy following increased borrowing from the banking sector.
He said this would raise the government expenditure in terms of interest payments.
