The government, an entity constituted through the expressed will of the people or otherwise, is required to keep the state afloat, in financial terms.
It has to manage funds to meet its recurring expenses and finance development activities. Barring the tax and non-tax revenues that it collects from the people directly and indirectly, the government has to make use of other sources for generating additional receipts to meet what the economists prefer to call, the budget deficit.
The government has no other option but to meet the budget deficit. And in doing so, it takes recourse to external assistance from bilateral and multilateral donors. The avenue that is now being extensively exploited by the government in meeting its budget deficit is domestic borrowing from the general public and the banking system. Though expensive, it remains to be the easiest way for the government to meet the budget deficit. With the external assistance shrinking in recent years, the dependence on borrowing from either the public or the banks has been rising unabatedly.
The outgoing fiscal is likely to be an exception. However, a clear picture would be available only after the 30th of this month.
The government's borrowing from the banking system stood at only 21 per cent of the target in the first 11 months of the current fiscal. The net amount of borrowing by the government stood at Tk. 63.59 billion between July 01 and June 09 of the outgoing fiscal. It borrowed Tk. 212.0 billion and repaid Tk. 148.41 billion during the period.
However, it is difficult to predict the final size of the government borrowing from the banking system for its agencies concerned have the habit of paying off bills submitted by the contractors and suppliers at the last moment of every financial year. The practice, as the allegations have it, has been kept in place deliberately by the officials to reap unearned financial benefits.
Interestingly, despite the trend of a lower level of borrowing during the first 11 months of the outgoing fiscal, the ministry of finance raised its borrowing target by 15 per cent to Tk. 299.82 billion in the revised budget. Â
One has reasons to be happy over the lesser amount of bank borrowing by the government for it can create greater space for the private sector to borrow from the banks and help to keep the rate of inflation under check. But the government's reduced borrowing from the banking system, in fact, had no effect on the borrowing by the private sector. The banks are awash with excess liquidity because of the low level of credit flows to the private sector during the outgoing fiscal. The lower demand for fund from the private sector is very much linked to the overall socio-political climate, prevailing in the country.
The lower level of bank borrowing by the government has been attributed to an unusually slow pace of implementation of projects under the annual development programme (ADP) for the outgoing fiscal. During the first 11 months of the fiscal, different ministries, reportedly, could spend 67 per cent of the allocation made under the revised ADP. The rate of spending would have been far less, had the size of the ADP remained unchanged.
It is almost certain that the rate of spending would finally shoot up to more than 90 per cent at the end of the current fiscal, necessitating increased borrowing from the banking system. All these developments might involve some paper works. The realities on the ground particularly about physical progress of works under different projects under the ADP, however, could be different.
Another reason for the government to borrow less from the banks has been the greater mobilisation of funds through the sales of national savings instruments. The general savers have been showing greater interest in investing in such instruments that are offering an annual rate of return which is higher than that of fixed deposits with banks. However, the mobilisation of greater volume of funds through savings instruments is imposing a higher financial toll on the government. A sharp rise in the bill on account of interest payments for domestic debt of the government in the recent years bears out this.
Banks, on the other hand, are not anyway in a rat race to get deposits these days. They want borrowers. Yet they are not in any mad rush to rope in the borrowers. The overall non-performing loan situation in the entire banking system and a few serious scams have made them extremely choosy about borrowers. The central bank had saved a few banks' blushes by issuing a circular on loan classification at the fag end of the last calendar year. Next time there may not be any saviour around.
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