Govt urged to be efficient on non-dev spending from bank loans

Highlights 

• Banks eager to lend to govt, shy away from small lenders 
• Next budget plans Tk141,818cr in loans from domestic sources 
• Of it, Tk101,818cr will come from banking sector 
• Experts say excessive bank borrowing weakens monetary policy 

Economists have urged the government to check wastage in non-development budget spending for the maximum use of bank borrowing.

"Banks feel comfortable to lend to the government, not the small ventures. It is actually a loss for our country," Salehuddin Ahmed, former governor of the Bangladesh Bank, told a webinar on Saturday.

He said lending to the government offers easy profit, while lending to small ventures requires extensive efforts by the banks. But lending to the small ventures generates jobs, and is beneficial for the country in the long run.

The BIBM Certified Bankers Alumni Association (BCBAA) organised the programme.  

The former central bank governor claimed the country's loan burden is increasing. "It is important to ensure that we use the loan as needed, and we check the wastage, especially in non-development budget spending."

The government plans to secure Tk141,818 crore in loans from different domestic sources to tackle the deficit in the upcoming national budget for the 2022-23 financial year. Out of the total Tk141,818 crore domestic source target, Tk101,818 crore will come from banking sector and the rest Tk40,000 crore from the other sources of loan, including savings certificates, as per finance ministry sources.

The former governor said the government's bank borrowing is increasing as the revenue collection was not enough to cover the budget deficit.

Stressing on extensive scrutiny of foreign loans, he said undertaking more mega-projects will certainly invite more foreign loans. "We need to consider whether our ongoing foreign funded mega-projects would weigh on us in future since the spiralling exchange rates of US Dollar will keep mounting pressure on the economy."     

The economist said if the government borrows too much from the bank, monetary policy of the central bank weakens and becomes ineffective.  

Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), said the next budget will prioritise subsidies. "It is a matter of consideration whether the government is taking this subsidy on its own shoulders or passing it on to the people. If the government takes it on its own shoulders, then the budget deficit will widen."

He said the country's private sector credit growth is rising, but it still falls below the target by the central bank. "Private sector credit growth was about 12.5% in April, up from 9.5% before Covid. This means that the demand for bank loans is increasing. Now the pricier dollar will push up the loan demand further."

He further said that if foreign loans on easy terms can be put to good use, it should be given preference.

Economist and advisor to the Bangladesh Competition Commission MS Siddique said government borrowing is related to its political decisions.

"I would say the government is subsidising the savings certificates a lot by referring to this as corporate social responsibility. But the middle and upper-class people are getting the benefit," he commented.

MS Siddique said foreign purchases dominate the public procurement, while Bangladesh does the project purchases against foreign loans. Referring to a World Bank study, he said fund wastages in the projects hover at 40%.     

"If we could check corruption and be efficient, we would be able to minimise the deficit by 40%," he added.