Finance minister aims to please both businesses and common people in upcoming budget

Finance Minister Abul Hassan Mahmood Ali is set to place TK 8.0 lakh crore national budget for the fiscal year 2024-25 in the parliament on Thursday (6 June).

But the finance minister has been facing a challenge of making up the budget deficit as the revenue collection is not growing at desire level.

He told UNB that in his first budget as the finance minister of the current government he will try to make both businesses and the common people happy.

Notwithstanding the assurance, economists, businesses and the common people have concerns over price hike and inflation amid growing government borrowing and the dollar crisis in Bangladesh.

According to sources in the Ministry of Finance, the government will borrow Tk2.57 lakh crore from domestic and foreign sources.  An amount of Tk1.57 lakh crore will be borrowed from the domestic sector, including banks. The remaining Tk1.0 lakh crore will be borrowed from foreign sources.

On the other hand, the amount allocated for the payment of interest on foreign loans in the budget of the current fiscal year has been exhausted within 10 months. Over the past decade, foreign debt repayments have increased by 108%.

In the FY 2023-24, for the first time, foreign debt repayment will exceed $3.0 billion, which will be increased further in the upcoming FY2024-25 as well, said analysts.

The government now has to borrow more than ever to fund the budget. As a result, the debt repayment pressure is increasing. In addition, the dollar crisis and the high value of the dollar have put more pressure on the government to repay the debt.

The government statistics show that domestic debt has doubled in five years. Bangladesh's external debt has crossed the $100 billion mark for the first time, indicating a challenging future amid foreign exchange shortage. Of the external debt, $79.69 billion was taken by the public sector and the rest by the private sector. About 85 percent of the loans are long-term and the rest are short-term.

Former IMF Economist Ahsan H Mansur told UNB in this regard that from now on one should be more careful in taking up projects with foreign loans. The terms, tenure, and interest rate of these loans must be analysed in line with the domestic economy.

He said the budget allocation for the luxury project needs to be cut along with minimising the cost of the necessary projects till overcome the financial crisis.

Apart from this, due to the ongoing dollar crisis, several foreign companies are having trouble repatriating profits from investments and sales of goods and services. The amount of money stuck is about $5 billion, which is a kind of liability for the country.

Mansur, also executive director of PRI, a research organisation, said that there has been a lot of discussion and criticism about the domestic and foreign debt situation for a year or two.

So there should be a statement by the finance minister in the budget speech about how much debt is in which sector, and what is the source of the debt, and what is the repayment plan, he said.

Foreign investors invest by looking at a country's debt situation, repayment capacity, whether they can take profits from the investment in the country. At present, several foreign companies are faced with various obstacles including the dollar-crisis to bring profits to the country, Mansur pointed out.

Dr Selim Raihan, Professor at the Department of Economics, University of Dhaka and Executive Director at the South Asian Network on Economic Modeling (SANEM) told UNB that in terms of government liability, foreign debt repayment is usually discussed more.

But to finance the budget, the government borrows a huge amount from internal sources such as banks, savings bonds and other sources. The amount of this debt is also raising concerns. The amount of borrowing from domestic sources has doubled in the last five years. Domestic debt has never grown so fast before, he said.

According to sources in the Ministry of Finance, in the last fiscal year 2019-20, the government took a loan of Tk78,745 crore to meet the budget deficit. After that, the amount of debt only increased every year. In the current fiscal year, a target of taking a loan was set of Tk1.55 lakh crore.

As per the latest from the finance ministry, so far (as of mid-May) Tk70,558 crore of loans have been taken from the banking sector. Another Tk62,000 crore has been planned to be taken through various types of treasury bills and bonds this June to finance the budget.

Apart from this, Tk23,000 crore are expected to be taken this year from the non-banking sector, that is, mainly by selling savings bonds. The government has taken loan from bonds Tk11,206 crores so far.

Mainly due to non-collection of internal revenue, the government has to take loan from banks, financial institutions, and savings bonds to meet the budget deficit. In the first 10 months of the current financial year, the shortfall in revenue collection of the National Board of Revenue (NBR) is over Tk26,000 crore.