The government's hefty borrowing from banks and a poor flow of foreign aid have emerged as a double setback to the economy.

“If the government continues to spend without getting foreign aid, the situation may worsen further,” a senior Bangladesh Bank (BB) official told The Daily Star yesterday.

The issue is likely to get major attention in today's monetary policy.

Though the government set its bank borrowing at Tk 19,000 crore in the budget, it crossed the limit in the first week of December. However, borrowing came down to Tk 16,000 crore in January from around Tk 22,000 crore in December.

It has impacted the dollar-taka exchange rate. “There is a dollar component in the government borrowing, which has contributed to a surge in demand and price of the greenback,” said the BB official. He cited examples of petroleum and fertiliser imports.

The taka has depreciated against the dollar by over 15 percent in 2011 and the downtrend continues. A US dollar sold at Tk 85 for import payments yesterday. The devaluation affects consumers of Bangladesh, an import-dependent nation.

The inflow of foreign aid that narrows the gap between demand and supply of foreign currency has slowed significantly this year.

Officials of the Economic Relations Division (ERD) said Bangladesh received $807 million in foreign aid during the first half of the current fiscal year, down from $984 million for the same period last year. Of this year's foreign aid, 507 million or 63 percent was paid as principal and interest.

According to ERD, the aid commitment of the major donors was $2.8 billion for the first half of this fiscal year.

The gap between a demand and supply of the greenback remains high this year, said another BB official of the foreign exchange and treasury management department.

If the government received the promised aid, such a mismatch between demand and supply would not be there.

“What we can do is tighten imports. The LC opening in December shows a negative 8 percent growth compared to the previous month,” said the official, supporting BB's policy stance.

The Daily Star/Bangladesh/ 26th Jan 2012