Economists warn of alarming govt borrowing from BB

Noted economists have said that government borrowing from the Bangladesh Bank (BB) has been increasing alarmingly, reaching a mark this year that it has not reached in the last 50 years.

At a post-budget discussion on Tuesday in Dhaka, they suggested rethinking the cheap borrowing from the central bank for budget financing and trimming budget expenditures, including the Annual Development Programme (ADP), in order to narrow the fiscal deficit.

The pace of government borrowing from the central bank is likely to accelerate further in the upcoming fiscal year, reaching up to Tk 1.4 trillion. This will create additional inflationary pressure in the economy, the economists said.

In FY23, the government has already borrowed more than Tk 700 billion from the central bank by the end of April. Borrowing from the central bank has increased by Tk 575.61 billion in the ten months of the current fiscal year.

At the programme, Dr Ahsan H Mansur, executive director of the Policy Research Institute (PRI), said that strong action needs to be taken to bring macroeconomic stability, rather than sitting idle.

The PRI Study Centre on Domestic Resource Mobilisation (PRI-CDRM) organised the event, where Dr Mohammad Abdur Razzaque, research director of PRI, gave a keynote presentation.

Dr Razzaque said the borrowing amount will accelerate further in the final two months of FY23, bringing the total government borrowing from the central bank to more than Tk 1 trillion by the end of June 2023.

“While the Net Domestic Assets (NDA) of the central bank are increasing rapidly, the net foreign assets (NFA) of the central bank are declining rapidly, potentially exerting pressure on the exchange rates of the US dollar and taka. The mix of NFA and NDA of the central bank is becoming unhealthy, resembling a country under stress,” mentioned the PRI paper.

Dr Razzaque said that Bangladesh will need to mobilise about US$ 10 billion in net financing from external sources for budget financing, which is equivalent to about Tk 1.0 trillion.

The country’s gross financing requirement, according to him, would be about US$ 12 billion to repay approximately US$ 2.0 billion in principal obligations.

Dr Ahsan H. Mansur said the fiscal deficit exceeds the size of the Annual Development Programme (ADP) and the ADP is being implemented using borrowed resources. He called for a “trade-off” to achieve macroeconomic stability.

The economists at the programme suggested that the government take strong measures, including trimming the ADP, in order to narrow the fiscal gap.

Dr Mansur warned that existing problems would worsen if the government remains inactive to avoid unpleasant situations, which could lead to policy paralysis.

According to Dr Razzaque, the government should allow the market to determine interest rates and exchange rates, rather than controlling them.

He said the government has long ignored warnings to reform the National Board of Revenue (NBR). It will now take six to seven years to address the problems as those have accumulated over the years.

Dr Razzaque pointed out that the budget has set unrealistic targets for growth and investment and lacks guidelines for blunting inflation. He underscored that printing money is not a solution to control the situation; instead, the government should allow the market to determine interest and exchange rates.

According to him, the country needs to achieve an additional US$ 4.6 billion in foreign exchange reserves in the last month to meet the FY23 target. He said financing from foreign sources has increased by 208 per cent from FY18 to FY23.

He also expressed concern over the rapid increase in interest payments, projecting that it might exceed Tk 1,000 billion in FY24.

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