The government is weighing ways to minimise interest payment following the growing spending on account of the same in the July-October period of the current fiscal year (FY).
According to the Finance Division's latest update, the interest payment on borrowings-both domestic and foreign-grew by nearly 30 per cent during the period.
According to many analysts, the domestic sources of borrowings usually involve high rates of interest that leads to a rise in the payment of interest.
Official sources at the Finance Division said the interest payment was rising mainly due to the high costs associated with the General Provident Fund (GPF). The government takes funds from the GPF to fund its budget deficit.
Over the past years the growth in interest payment was around 18 per cent per annum.
If the upward trend continued, the spending would exceed the government's target for the current FY 2013-14. It might lead the government to go for further borrowings from banks, sources said.
The government's target of domestic interest payment is Tk 260 billion for the current FY. During the July-October period of the fiscal the government paid Tk 90.06 billion in interest against domestic borrowings. The spending on the domestic front was up by 33 per cent from that of the corresponding period of the previous fiscal.
However, the Finance Division is considering a number of steps to rationalise its borrowings from domestic sources with a view to minimising the interest payment.
To ensure efficient debt management the Finance Division has already prepared a medium-term debt strategy (MTDS).
"We've already finalised the MTDS. It will come into effect shortly," a Finance Division official told the FE.
It has already taken a move to make a trade-off between bills and bonds, according to the debt management committee.
Mr Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRI), said the interest payment was rising mainly due to the government's increased borrowings from domestic sources.
Domestic borrowings involve at least double-digit interest rates while foreign borrowings involve single-digit interest rates.
However, the government interest payment on foreign financing grew negatively by over 4.0 per cent.
The government paid only Tk 5.9 billion during the last July-October period against Tk 6.15 billion paid in the corresponding period of the previous fiscal in interest on foreign financing.
Mr. Mansur, however, said the government needed to focus on the external financing as any increased borrowing from the banking sector might cause a crowding-out impact on the economy.
Mr Mustafa K Mujeri, director general of the Bangladesh Institute of Development Studies (BIDS), said: "At the end of the fiscal year we'll be able to say whether the government's target was exceeded or not as maturity of different borrowings takes place on different occasions."
He, however, said interest payment was a big expenditure for the government and it had been on the rise in the recent years. The government's expenditure on account of interest payment in the FY 2012-13 stood at Tk 240 billion, nearly 18 per cent up from that of the previous fiscal.
Of the amount, Tk 225 billion was paid in interest on domestic borrowings and Tk 14.92 billion on external financing.
