Government's borrowings and deficit financing

THE government can reasonably spend out of borrowings from the financial system if such borrowings are spent on productive activities and the level of the borrowings also remains within safe limits. In that case, such borrowings and their spending can be a stimulus for the economy. The government, of course , creates or increases the national debt from its borrowings. But if the borrowed resources lead to expansion of entrepreneurial activities and adds to the taxation sources or base, then settlement of such debts do not pose any significant problems. Higher governmental borrowings and their expenditure on the production of merit goods, for supporting industry and employment-generating activities do not create stresses on the macro-economy. Rather, they are found to be helpful for it.
But the worry is the present nature of the governmental spending and its runaway nature in Bangladesh. It is likely that the borrowings would be mainly spent on unproductive activities. Reports have indicated that the rate of borrowing has only gone up higher in the recent months. The government has provided for a large deficit in the current year's budget. Thus, greater continuous borrowings by the government for the rest of the year appears to be an assured possibility. The deficit financing will not only inflate the borrowings, the same will also increase the money supply worsening further the inflationary pressure.
A Z M Haider
Purana Paltan, Dhaka