Where is the money going?

Mamun Rashid The borrowing by the government from the banking sector has significantly gone up. Some of our economists seem to be passing sleepless nights, failing to get an answer to the question, where is the money going? Interestingly, they have been successful in passing their insomnia on to many of our journalist friends and subsequently to many of their readers. Knowing that I belong to a broader economist community, a young businessman friend asked me the other day and that too in the gymnasium of a social club -- 'where is the money going?' Newspaper reports showed the government's borrowing from the central bank as well as commercial banks has crossed Taka 200 billion. We have heard from nobody less than our honourable Prime Minister, her government has received Taka 31.84 billion as license renewal and spectrum fees from mobile phone operators this month and some more amount is in the pipeline. Ironically, this alone could not help the situation improve much, since the amount raised through savings certificate sales and foreign sources is still very small. This earning shortfall and expenditure increase (mostly driven by unplanned subsidy) mismatch has forced the government to borrow more from the banking sector. Added to this also is the cost of subsidy. Newspaper reports have revealed that in four months and 22 days (July 1 to Nov 22), the government borrowed Taka 202.04 billion from the banking system, which is reportedly 638 per cent higher than that of the same period last year. Though Annual Development Programme (ADP) size have increased significantly during last two years, the government's development expenditure did not get momentum and only 15 per cent of the annual target has been utilised in the first four months of the current fiscal. But, as mentioned earlier the amount of bank borrowing has already crossed the target set for the entire fiscal year. Borrowing from the central bank has been on the rise, and in four months 22 days Taka 122.22 billion or 61 per cent of the total amount borrowed was taken from the `lender of the last resort' even at the cost of higher inflation. The rest 40 to 50 per cent is being raised through Treasury bills or bonds from the commercial banks, mostly the primary dealers. I heard many commercial bank's CEOs lamenting and cursing themselves for becoming primary dealers (PDs) as they being PDs are forced to buy government bonds under 'devolvement method' at a much lower rate than the rate at which they mobilize the deposits, creating serious pressure on their profitability as well as their ability to lend money to manufacturing or business clients. Though some of our economists could not figure out, finance ministry sources confirmed non-development expenditure, especially the government's spending on subsidy had gone up, despite the fact the release of funds from foreign sources and non-bank borrowing, mostly through national savings certificates, marked a drastic fall. While the estimated subsidy in the budget was BDT 204.77 billion, due to the presence of subsidy-guzzling state-owned enterprises such as Bangladesh Petroleum Corporation (BPC), Bangladesh Agriculture Development Corporation (BADC) and Bangladesh Power Development Board (PDB), the actual amount of subsidy would be much higher. International Monetary Funds (IMF) estimates show, despite possible price adjustments of power and fuel oils, the subsidy amount might rise to Taka 315 billion. On the other hand there are many other agencies (beyond BJMC, export and food sectors) in the queue seeking government doles, which may take the subsidy amount to at least Taka 350 billion. The 'sadhasoy sarkar' (kind-hearted government) has also been giving loans to autonomous and semi-autonomous bodies, overshooting its borrowing limit. During the four months 22-day period, the government gave Taka 5.88 billion as loans to the autonomous and semi-autonomous bodies. The government had a borrowing target of Taka 60 billion through savings instruments in the current fiscal. But available statistics for the first three months of the current fiscal year show that the government's borrowing through savings instruments fell by almost 72 per cent. During the July-September period the government borrowed Taka 4.98 billion through savings instruments. The amount was Taka 17.67 billion during the same period last year. Though no question is asked when one buys savings certificates, people are now less interested in those as they get much higher interest on their deposits with the private commercial banks. The government had a much lesser amount of foreign assistance, at $330 million, so far in the current fiscal year. In the July-October period foreign assistance fell by almost 26 per cent compared to the same period last year. On the other hand, the government had to service its debts amounting to about $321 million. Thus, Bangladesh had only $9 million net foreign assistance during the period which is equivalent to Taka 710 million. Present budget projected that the government would receive Taka 130 billion equivalent as foreign assistance. This disconnect is also creating a serious pressure on our balance of payments leading to depreciation of the national currency, taka. Now that we have got some respectable visibility about where is the money going, obvious questions are being asked- 'how do we fix it?' -Expenditure cut? or Energy price adjustment? or Slashing the ADP?, or Delaying the large government recruitments?, or Increasing the interest rates for savings tools? or Augmenting the foreign aid disbursement?, or Accelerating the project implementation, specially the donor funded ones?, or Cajoling the IMF for early disbursement of its 'balance of payments' support? All these seem to be better said than done. We literally need to fasten our seat belt, get every stakeholder to the drawing board and get ready for a turbulent journey, if we really want to get to the destination. After a devastating storm, there in every likelihood would be sunshine. By that time, we are more trained and capacitated for our next journey too. (Mamun Rashid is a banker and economic analyst. E-mail: mamun1960@gmail.com)