Managing budgetary deficit through long-term borrowing
Friday, 6 July 2007
THE government has decided to issue long-term bonds as part of its strategy to manage budgetary deficit in the current fiscal. Domestic borrowing through such bonds at reduced interest rates would help the government sail through the difficulties it might face in implementing the development work due to budgetary shortfall. The bonds will lower the cost of fund as well as activate the secondary bond market. As part of this strategy, the government has already set a target of long-term borrowing to the tune of Tk 72.53 billion from the country's banking system. To this end, bonds of different tenures worth Tk 50.56 billion will be issued. In addition to this, in the current fiscal the government has also a plan to mobilise Tk 29.61 billion through short term borrowing by way of treasury bills of different types.
The strategy of public debt managements through various measures including bank borrowing and issuing bonds of different tenures is a conventional practice by any government. The government goes for borrowing when it sees that its normal sources of earning, for example, the revenue is not enough to meet the projected expenses in the budget. The shortfall may be managed through various means. Traditionally, as a least developed economy, the government would look up to the development partners for aid in the form of loans or outright grants. If one looks at the national budgets in retrospect, it would be found that the successive governments had depended overwhelmingly on the aid commitments of the donors. Poverty and backwardness constituted the main argument for such dependency. However, it is not meant to say here that Bangladesh has in the mean time become self-sufficient so much so that foreign aid has become redundant. Moreover, in the present-day context of globalised economy, foreign aid and dependency are also not synonymous in every single case. But in the particular case of Bangladesh, the syndrome had taken a critical turn. The present move of the government, therefore, marks a departure from the earlier culture of excessive dependency on the donor community while preparing its annual budgets.
Ideally, mobilising the domestic resources is the best option before a government to meet its yearly expenses. The government's efforts towards expanding the tax base are one such move to attain budgetary self-sufficiency. The long term bank borrowing through issuing bonds is arguably another move in this direction. So far as short term borrowing is concerned, the government is also going to increase the rates of interests on Treasury bills (T-bills) in order to curb inflation. This is a measure in line with the government's contractionary monetary policy. The T-bills are as usual transacted through auctions to adjust the bank borrowings of the government.
However, in the last analysis, borrowing is borrowing. It matters little whether the borrower is a government, a company or an individual. The instrument of borrowing in question is a bond which bears interest. The interests must have to be paid to its buyer when the time is ripe. So, the interests are going to be another burden on the government and to pay that it may have to go through another cycle of borrowing. In short, borrowing may be a never ending cycle, which contributes towards increasing the government's dependency in a different format. The strategy of deficit financing through such borrowing from the banking system is a stopgap measure until the time when the government is able to meet the budgetary expenses from its earnings. For the obvious reason, the government has to succeed as the organiser of fast economic growth.
The strategy of public debt managements through various measures including bank borrowing and issuing bonds of different tenures is a conventional practice by any government. The government goes for borrowing when it sees that its normal sources of earning, for example, the revenue is not enough to meet the projected expenses in the budget. The shortfall may be managed through various means. Traditionally, as a least developed economy, the government would look up to the development partners for aid in the form of loans or outright grants. If one looks at the national budgets in retrospect, it would be found that the successive governments had depended overwhelmingly on the aid commitments of the donors. Poverty and backwardness constituted the main argument for such dependency. However, it is not meant to say here that Bangladesh has in the mean time become self-sufficient so much so that foreign aid has become redundant. Moreover, in the present-day context of globalised economy, foreign aid and dependency are also not synonymous in every single case. But in the particular case of Bangladesh, the syndrome had taken a critical turn. The present move of the government, therefore, marks a departure from the earlier culture of excessive dependency on the donor community while preparing its annual budgets.
Ideally, mobilising the domestic resources is the best option before a government to meet its yearly expenses. The government's efforts towards expanding the tax base are one such move to attain budgetary self-sufficiency. The long term bank borrowing through issuing bonds is arguably another move in this direction. So far as short term borrowing is concerned, the government is also going to increase the rates of interests on Treasury bills (T-bills) in order to curb inflation. This is a measure in line with the government's contractionary monetary policy. The T-bills are as usual transacted through auctions to adjust the bank borrowings of the government.
However, in the last analysis, borrowing is borrowing. It matters little whether the borrower is a government, a company or an individual. The instrument of borrowing in question is a bond which bears interest. The interests must have to be paid to its buyer when the time is ripe. So, the interests are going to be another burden on the government and to pay that it may have to go through another cycle of borrowing. In short, borrowing may be a never ending cycle, which contributes towards increasing the government's dependency in a different format. The strategy of deficit financing through such borrowing from the banking system is a stopgap measure until the time when the government is able to meet the budgetary expenses from its earnings. For the obvious reason, the government has to succeed as the organiser of fast economic growth.