The government’s bank borrowing has started to rise once again after a pause of two-month, signalling to fuel up inflation and non-availability of credits to the ailing private sector. The government borrowed Tk 17,738 crore from banks during the first eight and half months ((July 1 through March 15)) of this fiscal year, the central bank data shows.

This reflects significant shortfalls in foreign borrowing, higher-than-expected subsidy payments and lower than expected revenue earnings, officials explains.

After strong criticism from experts and businessmen, the government’s bank borrowing however came down to Tk 15,558 crore in February from all time high of Tk 21,000 crore in November.

The government had projected a target of their borrowing from banks in this year's budget at Tk 18,957 crore, which was exhausted in just four months and 17 days. However, the target has already been revised to more than Tk 25,000 crore.

This unproductive government borrowing was simply generating higher level of inflation in the economy. The economy is already under pressure of a persistent double-digit inflation, said analysts.

They also warned that huge government borrowing from commercial banks would not leave cheap money for the private sector to grow. The hope for low level interest rate in the next fiscal year will be evaporated.

The Bangladesh Bank in its half yearly monetary policy statement forecast 6.5 per cent to 7 per cent GDP (gross domestic product) growth for this fiscal year but the private sector participation may dip because of what the entrepreneurs said, “Extreme scarcity of funds”.

“If the country wants to keep the wheel of the country’s economy running, credit growth in the private sector should be kept above 20 per cent,” said AK Azad, president of Federation of Bangladesh Chambers of Commerce and Industries (FBCCI).

But, the way the government is borrowing from the banks, there will be an acute shortage in loanable fund for the private sector, which will lead to spiralling interest rate, he observed.

The monetary policy set by the central Bangladesh Bank also intended to a 16 per cent credit growth for private sector.

The central bank in its monetary policy said limiting government borrowing from the banking sector is essential for bringing inflation down to single digit.

To reduce reliance on bank borrowing, the government has already taken measures to cut subsidy on power and energy by raising fuel price. It has also raised interest rate on savings certificate.

Earlier this year, the International Monetary Fund had warned the government about excessive bank borrowing. It put a string attached with IMF’s extended credit facility to the government. IMF’s upcoming board meeting sometime in April may discuss the issue.

To ease pressure on the bank borrowings, IMF suggested that the government increases the fuel and electricity prices. The government has already complied.

In October, the World Bank also warned that the government's excessive borrowing from the banking sector will make the country's financial sector weak and ultimately dampen growth.

Explaining the macroeconomic pressures in the banking system, the WB said the government's increasing reliance on domestic financing is raising concerns on crowding out private investment. The report said, if the government continues to borrow heavily from the banking system, the debt in the private sector may fall much short of the expected level, which will not be consistent with achieving the GDP growth target.

A former Bangladesh Bank governor Dr Salehuddin Ahmed said bank borrowing by the government brings good in no way for the economy.

“It will fuel inflationary pressure further and hurt private sector credit growth,” he said.

Economists, politicians and businessmen recently at a programme organised by the Centre for Policy Dialogue (CPD) expressed deep concern over the government’s dependence on banks to meet budget deficit in the wake of dipping foreign aid.

They also said unlike the previous years, bank borrowing might affect the private sector this year as because the banks are severely suffering from fund crunch.

The Independent/Bangladesh/ 22th March 2012