Photo : Messenger
Business leaders and economists express concerns that the rise in government loans from commercial banks poses a potential risk to private sector investments. Consequently, they anticipate potential hindrances in the generation of new employment opportunities.
As per Bangladesh Bank's records, in the initial six months (July-December) of the current fiscal year 2023-24, the government opted for increased loans from commercial banks over the central bank. During this period, the government borrowed Tk 27,952 crore from commercial banks, concurrently repaying its loan to Bangladesh Bank.
Throughout the aforementioned period, the government successfully settled Tk 35,789 crore of its previously acquired loans from Bangladesh Bank. Consequently, the government's net bank debt by the conclusion of the first six months of the financial year exhibited a negative balance of Tk 7,846 crore. In essence, the repayment of existing loans surpassed the acquisition of new loans during this timeframe.
Asif Ibrahim, the former president of Dhaka Chamber and Chairman of Chittagong Stock Exchange, told The Daily Messenger, “Due to the dollar crisis and the lack of skilled manpower, businessmen and entrepreneurs are already under pressure. Meanwhile, the interest rate of bank loans has also increased.”
“In this situation, if the government borrows too much from commercial banks, then private entrepreneurs may fall into deeper crisis. Therefore, the government should opt for alternative initiatives,” he added.
Economists have highlighted a common concern that when the government increases its borrowing from the banking system, there is a potential risk of depriving the private sector of essential loans. Moreover, this practice can elevate the interest rates on bank loans, acting as a deterrent to private investment. Consequently, it is advisable for the government to minimise its reliance on the banking system to mitigate these adverse effects.
When asked about this, Dr Zahid Hussain, the former chief economist of the World Bank’s Dhaka office, told The Daily Messenger, “In this time of high inflation, it is better to borrow from commercial banks instead of the central bank. Because borrowing from the central bank means printing money. And when new money enters the market, inflation increases.”
“However, there is an opposite picture. If the government increases borrowing from commercial banks, private entrepreneurs may be deprived of getting the necessary loans. On the one hand, private investment will stop, and the path to employment may also be blocked. That is why the government should balance it,” he added.
During the corresponding period in the previous fiscal year, the government opted for a different approach by repaying Tk 19,064 crore rather than borrowing from commercial banks. In the July-December period of the 2022-23 financial year, the government had obtained a loan of Tk 45,161 crore from Bangladesh Bank. Consequently, the government's net bank debt during that time amounted to Tk 26,097 crore.
Earlier, there was a storm of criticism from various quarters including economists for taking more loans from Bangladesh Bank. Even Bangladesh Bank advised the government to go outside the banking system and borrow more from savings bonds.
It's worth noting that the government has established a borrowing target from the banking system for the financial year 2023-24, set at Tk 1,32,395 crore. This comprises Tk 86,580 crore designated for long-term loans and Tk 45,815 crore allocated for short-term loans.
In the main budget of the previous financial year, the government’s bank loan target from the banking system was fixed at Tk 1,06,334 crore. However, this target was increased to Tk 1,15,425 crore in the revised budget.
Meanwhile, the government’s budget deficit is increasing every year. This deficit is met from two sources- domestic and foreign sectors. If the necessary financial support is not available from the foreign sector, the government has to rely more on internal sources. Domestic sources include the banking system and the savings sector.
Messenger/Fameema
